What broke during the 1997-98 Asian Financial Crisis — from the Thai baht's collapse in July 1997 to the contagion across Southeast Asia and South Korea — and what warning signs were visible before it hit? Separate the immediate trigger from the structural cause, and explain the mechanism rather than only the sequence of events.

Thailand set the trigger years in advance. Through the mid-1990s the Bank of Thailand held the baht pegged near 25 to the dollar while running current account deficits around 8% of GDP, funded not by stable foreign direct investment but by short-term dollar borrowing — much of it channeled through the Bangkok International Banking Facility into property speculation. Thai banks and finance companies borrowed dollars cheap, lent baht at a spread, and carried no currency hedge because the peg made hedging feel unnecessary. When speculative attacks intensified in early 1997, the BOT burned through reserves and committed roughly $23 billion in forward contracts defending the rate — reserves that turned out to be effectively spent before anyone outside the central bank knew it. On July 2, 1997, the BOT abandoned the defense and floated the baht; it lost close to 20% immediately and continued sliding toward 55 to the dollar by January 1998. Contagion followed the same mismatch elsewhere. Indonesia's rupiah, also lightly defended, collapsed from about 2,400 to the dollar in mid-1997 toward 16,000-17,000 by mid-1998 as corporate dollar debt (much of it undisclosed, held by conglomerates close to Suharto) became unpayable; the IMF assembled a $43 billion package in November 1997, but riots, fuel-price hikes, and cratering living standards culminated in Suharto's resignation on May 21, 1998, after 32 years in power. Malaysia's ringgit fell alongside the rest, but Mahathir Mohamad broke from IMF orthodoxy in September 1998, fixing the ringgit at 3.80 and imposing capital controls rather than accepting Fund conditionality — a choice widely criticized at the time and largely vindicated in hindsight. Hong Kong's dollar peg came under direct speculative and derivatives-market attack in August 1998, prompting the HKMA's unprecedented direct purchase of local equities to break the attack, successfully defending the peg at the cost of orthodoxy. South Korea, the largest economy hit, showed the same disease at industrial scale: chaebol like Hanbo Steel and Kia had piled up debt-to-equity ratios often exceeding 400%, financed short-term and offshore. The won cratered through November-December 1997, and on December 3, 1997, the IMF led a $58 billion rescue — then the largest in Fund history — with conditions (high interest rates, chaebol restructuring, capital account opening) that deepened the immediate recession even as they forced balance-sheet repair. The warning signs were all legible beforehand to anyone tracking the ratio of short-term foreign-currency debt to reserves rather than headline growth: current account deficits financed by hot money, unhedged dollar liabilities against pegged local-currency assets, and a regional consensus that the pegs themselves were the risk-free anchor rather than the mechanism concentrating the risk. The structural lesson is that a currency peg doesn't eliminate exchange-rate risk — it just relocates it onto whoever borrowed against the assumption the peg would hold, and it fails all of them simultaneously.

I think your contagion sequencing is solid, but you're underweighting foreign-currency debt: Korean firms and banks held massive dollar liabilities against won-denominated earnings, so the crisis broke both confidence and the real exchange rate for borrowers overnight. Indonesia's structural debt-financed overinvestment mattered more than Thailand's reserve drain — the rupiah collapse was insolvency underneath the run. I'd flag the IMF's Feb 1998 Korea program: contractionary fiscal cuts deepened the 1998 GDP plunge, suggesting rescue terms might've been self-defeating.

What jumps out to me is that the crisis wasn't really unforeseeable — it was a classic currency mismatch sitting in plain sight: Thailand, Korea, and Indonesia were running current account deficits under pegged exchange rates while their banks and corporates piled up short-term dollar debt that dwarfed usable FX reserves, so the moment capital flows reversed, the pegs were mathematically indefensible. On winners, George Soros's Quantum Fund and other macro hedge funds made real money shorting the Thai baht in the months before the July 1997 float, which is part of why Mahathir publicly blamed Soros by name. Malaysia's own move — capital controls and a fixed ringgit peg imposed in September 1998 against IMF advice — is the more interesting vindication story: Malaysia avoided the deep IMF-program austerity that Korea and Indonesia endured and recovered on a broadly comparable timeline, which is why economists like Joseph Stiglitz later cited it as evidence the IMF's orthodox high-rates-and-austerity prescription wasn't the only path out. Hong Kong is the counterexample worth noting too: the HKMA's August 1998 intervention, buying equities directly to squeeze the double-play speculators, actually held the peg — one of the few cases where the authorities beat the shorts rather than the other way around.