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This article examines the political economy of the global economic system through an analysis of the economic development in selected Southeast Asian countries since the 1960s. It argues that developments after the onset of the Asian economic crisis reveal the relative powerlessness of the state in managing the rapid flows of global capital. While the erosion of economic sovereignty is not a new phenomenon in the context of global capitalism, the paper posits that the state capacity lost by the crisis-hit countries is not returning to the colonial centres of power. The market forces that have eroded the economic capacity of states have led to the emergence of Pax Capitalia, a power conglomeration consisting of the US as the sole superpower, the US Treasury-Wall Street Complex and international financial institutions such as the International Monetary Fund. Yet, these very forces have also introduced systemic instability to the global economic structure. (ISEAS/DÜI)

In an era of integrating and expanding global markets, the East Asian financial crisis differs from classical models where crisis is caused by profligacy in the public sector and large flow imbalances.This particular crisis could not have occurred without the contribution of several features of the transforming international economy, nobably capital mobility. With large capital inflows in these economies - combined with weak financial systems and growing disequilibria in the real sectors, East Asian currencies became vulnerable to speculative attacks. Though domestic reform is essential to strengthen the performance, management and resilience of these economies, international financial reform is urgently required. (DÜI-Alb)