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What We Have Seen And Learned 20 Years After The Asian Financial Crisis

Jul. 14, 2017 12:08 AM ETVPL, AIA, IPAC, ADRA-OLD, RFAP
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By Mitsuhiro Furusawa, Deputy Managing Director of the International Monetary Fund

Asia today is the fastest-growing region in the world, and the largest contributor to global growth. It has six members of the Group of Twenty advanced and emerging economies, and its economic and social achievements are well recognized.

But 20 years ago, July 1997 marked the beginning of the Asian Financial Crisis, when a combination of economic, financial and corporate problems triggered a sharp loss of confidence and capital outflows from the region's emerging market economies. The crisis began in Thailand on July 2, when the baht's peg to the dollar was dropped, and eventually spread to Korea, Indonesia and other countries.

The 20th anniversary of the Asian Crisis is a good moment to ask whether the region is better prepared today to address another major economic shock. I would offer a "Yes, by all means." Of course, important vulnerabilities remain, especially the elevated levels of corporate and household debts in some countries. But the overall picture is one of greater resilience. Let me explain why.

The Asian Crisis was unprecedented in its nature and intensity. It was marked by abrupt swings in external current accounts, deep recessions, surging unemployment, and sharp drops in living standards, especially among the poor.

For example, Indonesia lost over 13 percent of its output within one year. As the graph below shows, while the initial downturn in most countries was very sharp, the bounceback was nothing short of impressive. Asia weathered the storm to emerge as a major engine of global growth over the past decade.

The region now is much better prepared to face financial turbulence. In fact, a major global financial crisis already occurred, and the region was well placed to ride out the downturn. The 2008 global financial crisis hit hard in the US

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iMFdirect is the policy blog of the International Monetary Fund. Leading economists and officials of the Fund discuss the IMF’s work and advice on economics and finance at a global and a national level.

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