The Asian Economic Crisis and Bureaucratic Development: A Veto Player Analysis

The Asian economic crisis ravaged numerous economies in the late 1990s. Significant social and political disruption followed the fall in Asian currency prices. The newly industrialized states of Asia were particularly hard hit, yet some also experienced swift turnarounds, reaching pre-crisis currency rates and economic output. The enduring puzzle of the crisis is the role of bureaucratic-business ties as a background cause of the crisis and determinant of governmental policy responses. In this paper, we adapt Tsebelis\u27 veto player model to include bureaucracy as a formal actor in the adjustment process. We argue that states that minimized the control of developmental bureaucracies over finance and direct managerial decision-making weakened the institutional capacity of bureaucrats to veto adjustment policies, both before and after the 1997 crisis. Moreover, we find that a tradition of strategic regulatory guidance is associated with favorable economic performance, provided that bureaucrats had subjected private firms or state-owned enterprises to competition (or even business failure) historically, and where the risks associated with financial decisions were not socialized by the state