This paper examines how political business relations have shaped country vulnerability to financial crises during periods of international financial contagion. While close relations between political and business elites in island Southeast Asia deepened vulnerability during the Asian Financial Crisis, the same does not hold during the global crisis of 2008-09—neither the countries where political business relations have changed (Indonesia) nor the countries where they are the same (Malaysia, the Philippines, and Singapore) have experienced a true economic or financial crisis. Instead, for island Southeast Asia this crisis is merely a trade and investment shock, and a relatively minor one at that. A comparison of the crises of 1997-98 and the non-crises of 2008-09 shows that political business relations only affect external vulnerability insofar as they interact with economic policy settings, regulatory regimes, and the beliefs of investors.
Keywords: financial crisis, vulnerability, political business relation, investor beliefs, Southeast Asia