Twenty Years After the Asian Financial Crisis

October 12, 2017

Hoe Ee Khor, Chief Economist, ASEAN+3 Macroeconomic Research Office
Markus Rodlauer, Deputy Director of the Asia Department, International Monetary Fund
Yasuyuki Sawada, Chief Economist, Asian Development Bank
Sudhir Shetty, Chief Economist, East Asia and the Pacific Region, The World Bank
Moderated by Vikram Nehru, Distinguished Practitioner-in-Residence

Johns Hopkins SAIS Asia Programs, the Carnegie Endowment for International Peace, and the ASEAN+3 Macroeconomic Research Office (AMRO) co-sponsored a panel discussion that looked back at the Asian Financial Crisis of 1997. The crisis was a landmark event that triggered massive economic disruption in Asia, while its shockwaves were felt around the globe.

Moderator Vikram Nehru explained that the past two decades have given economists and policymakers time to internalize the lessons of the crisis.  However, the question remains, how well-prepared are Asian economies for the next financial shock that appears?

Panelists observed that the Asian Financial Crisis was notable for how it shook up the conventional wisdom about how crises start and spread. Speakers presented slides of data showing that the causes of the crisis included strong capital inflows from western economies, excessive short-term foreign currency borrowing, and speculation in currency markets by global hedge funds.

In response to the crisis, affected nations increased their regional cooperation. A regional financing arrangement was established to help nations pool their cash reserves, and AMRO was created to be the regional surveillance organization to monitor performance of the financing arrangement.

Panelists shared insights on how Asian economies were able to quickly rebuild growth after the shock had subsided, with exports leading the way to recovery. Painful policy adjustments in exchange rate regimes were made, along with reforms in corporate and financial regulations, but these steps have helped Asian economies regain strength. Going forward, the speakers agreed that the next challenge will be finding ways to enhance cooperation between global institutions like the International Monetary Fund and regional institutions to safeguard and maintain financial stability in the region.