Contagion and the IMF Response in Asia

After Thailand, the crisis spread to Indonesia, Malaysia, the Philippines and South Korea, as investors reassessed similar risks and pulled money out across the region. Indonesia was hit hardest: the rupiah collapsed, GDP fell by about 13 percent in 1998, and economic turmoil helped bring the resignation of President Suharto in May 1998 after more than thirty years in power. South Korea, by then an advanced industrial economy, received an IMF-led package of about $57 billion in December 1997, then the largest ever.

IMF programs required higher interest rates, budget tightening and closure of weak banks and finance companies, alongside structural reforms. Critics, notably Joseph Stiglitz, argued that tight policies and abrupt bank closures deepened recessions and that the real problem was panic by foreign lenders. Defenders argued that restoring confidence required strong measures. Malaysia rejected an IMF program and imposed capital controls in 1998, and economists still debate how its outcome compares.