This paper provides a political‐economy analysis of the Asian financial crisis, with a focus on the economies of Indonesia, Korea, Malaysia and Thailand. It explains why the crisis affected each of these countries differently and why the responses to the crisis differ between governments. The paper argues that banking crises need not necessarily lead to currency crises. In particular, it provides an argument that, despite its banking crisis, Korea should have avoided a currency crisis because its economic fundamentals were fundamentally sound. That it failed to do so was due to the inertia of the previous government and IMF policies, which have the support of the current government because they are consistent with its political imperative. This paper also examines the roles played by the United States, Japan and China, which are the key regional players in the region, in the crisis. It argues that the behaviour of the key regional players was very much dictated by their domestic and international agendas.