Summary Park and Song argue that the capital inflow into Southeast Asia was driven by foreign investors. The maturity structure of foreign denominated liabilities shortened in the wake of mounting problems in export markets. This increased the potential for volatility, which was a serious problem as investors showed a pronounced pattern of herd behaviour. In Korea, IMF programmes appeared to be successful initially, but the situation worsened as the crisis continued. Foreign investors did not return in spite of high interest rates and held out for other investors to make the first move. There is empirical evidence for the contagious spread of the crisis. Competitive devaluations motivated by close trade links were an important factor in this contagion process.