Lee Kuan Yew on short-term capital and the financial crisis of 1997 (History)

Even though the situation was fundamentally different back in 1997, it's still interesting to step back and read Lee Kuan Yew's thoughts on short-term capital's role in the 1997 financial crisis:

"...East Asia’s positive experience with foreign capital inflows whetted its appetite for more. By the early 1990s, however, information technology and financial innovation and liberalisation were bringing a different type of capital into East Asia. G7 international banks and institutional investors poured into Asia in search of higher returns on their investment, because their own economies were in recession. G7 capital flows to emerging markets increased five-fold from US$40 bn in 1990 to over US$200 bn in 1996. Asia absorbed almost half of these net private flows between 1994 to 1996.

With hindsight, East Asia should have taken measures to fend off and control these massive capital inflows. After all, their own domestic savings were high enough to finance most of their investment needs. Thailand, Indonesia, Malaysia and Korea had savings rates averaging more than 30% of GDP in the 1990s, much higher than the 18% in Latin America. All they needed was to supplement their considerable savings with FDI, which could bring technology, management expertise, and access to export markets.

Moreover, East Asia was already running at or near full capacity. Growing current account deficits in the mid-1990s and declining unemployment rates were clear signs of overheating. They did not need the extra boost from large short-term capital inflows. What they needed was the opposite: to slow down and cool their economies while they built up their productive capacity and strengthened their institutional framework to manage the problems of integrating with the global financial market...