The Asian economic crisis and bureaucratic development: a veto player analysis

The Asian economic crisis ravaged numerous economies in thelate 1990s. Significant social and political disruption followedthe fall in Asian currency prices. The newly industrializedstates of Asia were particularly hard hit, yet some also experiencedswift turnarounds, reaching pre-crisis currency rates and economicoutput. The enduring puzzle of the crisis is the role of bureaucratic-businessties as a background cause of the crisis and determinant ofgovernmental policy responses. In this paper, we adapt Tsebelis'veto player model to include bureaucracy as a formal actor inthe adjustment process. We argue that states that minimizedthe control of developmental bureaucracies over finance anddirect managerial decision-making weakened the institutionalcapacity of bureaucrats to veto adjustment policies, both beforeand after the 1997 crisis. Moreover, we find that a traditionof strategic regulatory guidance is associated with favorableeconomic performance, provided that bureaucrats had subjectedprivate firms or state-owned enterprises to competition (oreven business failure) historically, and where the risks associatedwith financial decisions were not socialized by the state.