What followed next was the fall of the Asian Tigers. After rapid growth and racing economies through the 90's, suddenly Indonesia, Thailand, the Philippines, Malaysia and South Korea all experienced massive market crashes. With no obvious disasters political or otherwise, the only clear cause was fear itself. Huge speculation on these economies had created a bubble, which was instantly popped as soon as economists suggested flaws and an impending crash.
The IMF both contributed to and took advantage of this crash. First, the IMF suggested that Asian stocks were over-inflated and that there were flaws in their markets, including protectionist and somewhat socialist mixed-market policies. Rumour fed on rumour and the bubble burst. At this point, Friedman (in his 80's) appeared on CNN to warn against over-eager aid, suggesting the Asian markets needed restructuring. This, he affirmed, was not a crisis but the perfect opportunity for reform. The IMF offered loans to these countries with conditions more stringent than ever, including the predictable budget cuts, removal of trade barriers and price controls, privatisation of banks and state firms, and massive lay offs. In South Korea, the IMF used the threat of withholding aid to influence an election toward a cooperative party.
When Indonesia refused the IMF's aid, the IMF forecast both a large reduction in investment and a rapid decline in Indonesia's economy. Indonesia's currency on the stock market dropped 25% in one day. Grudgingly, the Berkeley Mafia were allowed in to direct the restructuring of the economy, just as IMF's conditions were accepted in the other crashed countries. 186 major mergers and private acquisitions of firms occurred over 20 months; government assets and services went on the chopping block or the auction block at blow-out prices; foreign buyers took over local and national firms with no competition whatsoever.
However, the IMF had overplayed its hand. With all the conditions and criticisms of the Asian markets, it seemed nobody trusted those markets enough to put their investments back in, even after the IMF's reforms were put in place. What followed was a tremendous and terrible decline as the currencies continued to fall, unemployment skyrocketed, and axed social programs could not step in to help. Rioting occured in Indonesia, where scapegoated Chinese were the majority among 1200 killed. Poverty, hunger, prostitution and the drug trade skyrocketed across the region to its ongoing detriment.
Lesson learned: International players like the IMF used their influence to attempt bigger reforms than ever before, on faster growing economies than ever before. Threat of financial collapse and withheld investment had the intended results of forcing free market reforms, and the effects on the countries themselves were disastrous. Jeffrey Sachs claimed the IMF had the most responsibility for the crash. Their shameful tactics in Asia would bring for the first time widespread criticism of the motivations and mode of operation of the IMF, as well as the ideology of the WTO, and the pitfalls of free trade and globalisation. Michael Friedman congratulated the region on its development into true capitalism.