Suggestions have been made that the turmoil that swept through East Asia in 1997-98 is evidence of the instability of global capital markets. Supporters of this idea validated their claims by asserting that a contagion effect spread the turbulence to other emerging market economies.
However, the most dangerous contagion is the revival of discredited policies to try to "tame" financial markets. Intervention in the dollar-yen exchange rate, desperate steps taken by the Hong Kong Monetary Authority and Malaysia's imposition of capital controls confirm that there are continuing illusions about the ability of governments to circumvent market forces.
These illusions support the confusing and confused interpretations of the mostly unanticipated decline of East Asia's "miracle" economies. Many believe that excessive or too-rapid liberalization and deregulation of domestic capital markets increased the vulnerability of the region's economies. Thus, East Asia's crises are often portrayed as arising from unrestricted, herdlike movements of speculative capital across global financial markets.