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This chapter addresses the relative importance of financial fragility and external imbalances in the Asian financial crises. It compares the performance of all the Asian countries subject to pressures in 1997 with the performance of other emerging economies, for a total sample of twenty-four countries whose selection has been determined by data availability. The chapter is organized as follows. Section 1.2 summarizes the analytical model that is the basis of the empirical tests in the chapter. Section 1.3 presents the results of the empirical analysis. Section 1.4 elaborates on the role played by the banking-sector weaknesses and the financial distress of over-leveraged firms in explaining the financial crisis in Asia in the late 1990s, while Section 1.5 concludes. The empirical analysis provides evidence in support of the thesis that crises are systematically related to the fundamental weaknesses in the real and financial sectors of the economy. The recent turmoil in Asia does not seem to represent an exception in this respect. Two commentaries are included at the end of the chapter.
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