When the returns proved below expectations, the capital poured out again, weakening the local currencies and triggering local recessions. The orthodox view results in bad policy, because it is an intellectual muddle. The Asians had higher savings rates, they worked longer hours, their schools produced better students. In the standard view, the problem is just a legacy of all that government interference. But somehow that interference didn't harm Asian productivity during Asia's twenty year boom.
More plausible villains are foreign speculative capital and weak domestic demand.
What they didn't have was enough local purchasing power. Now, they have even less. Ironically, the orthodox medicine imported from the U.S. deprives these countries of the very remedies that the U.S. devised to cure the Great Depression. This past week, on a tour of East Asia's basket cases, Treasury Secretary Robert Rubin urged these countries to follow the IMF's advice, and also to build stronger social safety nets. The IMF explicitly counsels steep reductions public outlays and wages.