Glenn Stevens: The Asian crisis - a retrospective
Address by Mr Glenn Stevens, Governor of the Reserve Bank of Australia, to The Anika
Foundation Luncheon, supported by Australian Business Economists and Macquarie Bank,
Sydney, 18 July 2007.
I thank Vanessa Rayner for assistance in preparing this address.
The original speech, which contains various links to the documents mentioned, can be found on the Reserve
Bank of Australia's website.
* * *
Thank you all for coming out today to support the Anika Foundation.1 Since a similar function
last year the Foundation has continued to build up its capital, and this year will be making its
first grants by way of scholarships, called the Anika Foundation Depression Awareness
Scholarships, as a part of the NSW Premier's Teachers Scholarship Program. These will
enable teachers and counsellors in our schools to travel, study responses to adolescent
depression in other countries and return to NSW to raise awareness and improve
responsiveness to depression among school students. Your interest in being here today will
help us to build further over the coming year, when we hope to expand this same sort of
scholarship to other Australian states.2 In time, funding permitting, we would also like to
establish a PhD-level research scholarship in the field of adolescent depression.
Thank you also to Macquarie Bank for providing the venue and food for today's event, and to
the Australian Business Economists for their logistical and advertising support.
Ten years ago this month, the Thai baht was allowed to float. It promptly fell very sharply.
There were danger signs before then, but if we were looking for one event that marked the
start of the Asian financial crisis, this would be it. By the end of the year, the crisis had
engulfed Thailand, Indonesia, Korea, Malaysia and the Philippines, countries with a
combined population of around 400 million. It had very pronounced effects on neighbouring
countries like Singapore, serious financial contagion effects on Hong Kong, and had a
discernible impact on the global economy.
More fundamentally, perhaps, the crisis brought to an end a period of extraordinary
economic growth in Asia, and seriously deflated optimism about future growth. It has proven
very difficult to recapture that sense of optimism. While that earlier ebullience may, of course,
have been overdone, the scars of the crisis remain fresh in some respects even a decade
later.
Graph 1
Selected Asian Exchange Rates Against US$
June 1997 = 100
Index
Index
140
140
Indonesia
120
120
100
100
Thailand
Malaysia Korea
80
80
60
60
Philippines
40
40
20
20
l l l l l l l l l l l l l l l l l l l l
0
0
1989 1992 1995 1998 2001 2004 2007
Source: Bloomberg; IMF
With the passage of time it is of some value to re-visit the crisis, to ask what has been
learned, what steps have been taken to strengthen national, regional and international
arrangements against a recurrence, and what remains to be done. That is the task that I shall
begin today, though it is probably too big a task to finish in one session.
What happened?
I start with the question: what happened?
There are many detailed treatments available elsewhere of what occurred, and I cannot do
full justice to the literature or to the events themselves, which were fairly complex.3 We must
be mindful, too, that "Asia" is not some homogenous mass, but a group of countries and
economies that have considerable variety in their historical development and their approach
to some economic policies. Nonetheless, I have to generalise for the sake of brevity.
Asian economies grew rapidly through the mid 1990s. Average rates of GDP growth were
between 7 and 10 per cent in most cases over the decade up to 1996. Rates of investment
were high, and current account positions in several cases showed substantial deficits. Put
another, and more illuminating, way, there was substantial capital inflow. In the case of
Thailand, capital inflow amounted to about 10 per cent of GDP per year between 1990 and
1996, though that was at the high end of the range in the region. In Indonesia's case the
corresponding figure was 31⁄2 per cent. From an Australian viewpoint, that does not seem all
that big, actually, but it had the Indonesian authorities concerned at the time.
Table 1: East Asian GDP
Average annual percentage growth
1987-1996 1997-1999 2000-2006
Hong Kong 5.2 -0.8 4.7
Indonesia 7.1 -6.4 4.9
Korea 8.1 1.0 4.6
Malaysia 9.5 -0.8 4.7
Philippines 3.6 1.4 4.6
Singapore 9.2 2.8 4.6
Taiwan 7.2 5.1 3.3
Thailand 9.5 -3.3 5.1
East Asia* 7.6 0.0 4.5
* Excluding China and Japan
Source: IMF, CEIC, RBA
Capital markets in the region were underdeveloped, so the capital inflow tended to be
intermediated through the banking sector. Exchange rates were heavily managed, and the
counterpart of the inflow was a large build-up in money and credit in the domestic financial
sectors, an associated inflation of asset values and some rise in prices for goods and
services.
Foreign currency risks associated with these flows were large, and were being incurred by
domestic entities rather than being shared around the global markets. In many instances,
neither borrowers nor their bankers were managing these risks at all well, in part due to weak
risk-management capacities and ineffective supervision and, in part, no doubt, because the
exchange rate regimes were assumed - wrongly as it turned out - to be robust. Foreign
counterparties also seemed insufficiently attuned to the likely difficulties that could be
experienced by the Asian borrowers and financial institutions, and their own limited ability to
exit collectively what were quite small markets in the event that things went wrong.
Pressures on the Thai currency began late in 1996, with early signs of some problems in
local lenders coinciding with a rise in the effective exchange rates (and hence a decline in
competitiveness) of some Asian countries owing to the rise in the US dollar and a downturn
in the semiconductor market, which had been an important source of growth. For a time the
Thai authorities were able to resist these pressures but they had to give up by mid 1997, as
foreign exchange reserves were exhausted.
The baht was floated on 2 July. It fell by 131⁄2 per cent that day and ended the month 23 per
cent lower. Intense pressure quickly flowed to currencies of neighbouring countries. A period
of stability following the announcement of the support program for Thailand in early August
was short lived and by early October the currencies of Thailand, Malaysia, the Philippines
and Indonesia were again under intense pressure. Attention then shifted to the economies of
north Asia, which up until then had been only lightly affected. There was tremendous
pressure on the Hong Kong dollar peg, where overnight interest rates soared and the share
market slumped. As corporate and banking problems intensified in Korea, foreign lenders cut
back credit lines, and in November Korea approached the IMF for assistance in meeting
foreign currency obligations. Political and economic uncertainty in Indonesia became
extreme in the first half of 1998, and the rupiah lost 85 per cent of its value. Even today, the
rupiah trades at a 75 per cent discount to its pre-crisis level.
In recent years, we have lived in an environment of unusually subdued volatility in
international financial markets, so we tend to forget just how discontinuous price movements
can sometimes be. But the uncertainty and financial skittishness that encompassed the
global economy in 1998 were pervasive.
It was not confined to emerging markets either. By August 1998, we had the Russian default,
followed by the LTCM crisis in September. Around that time, the US dollar/yen exchange rate
moved 30 big figures in three months, and at one point nearly 15 per cent in one day. Now
that's volatility! One observer later described the international financial system in the late
1990s as having endured perhaps its "greatest stress in the post-war period".4
In Asia, as the financial market prices adjusted, some of the underlying vulnerabilities came
more clearly into focus. The unhedged foreign currency positions meant that the authorities
in the crisis countries faced a huge dilemma: as the exchange rate fell, the borrowers or their
bankers, or both, went under water owing to the valuation changes on the debts. But raising
interest rates to support the currency damaged capacity to repay as well.
It was this financial dimension that made the Asian crisis so costly. And costly it certainly
was. Per capita real GDP fell by about 9 per cent in east Asia excluding China and Japan.
The fall in Indonesia was 15 per cent. On the best available figures, non-performing loans
(NPLs) reached nearly half of all loans in Indonesian and Thai banks, and NPL ratios
reached double-digits in several other countries in the region.5 The process of sorting out
banking problems of this magnitude required, as it usually does, extensive public funding.
The net fiscal costs of the banking crises are estimated to have been over 20 per cent of a
year's GDP in Korea, 35 per cent in Thailand and about 40 per cent in Indonesia.6
We sometimes read that Asia quickly recovered. I am not so sure. In due course, recovery in
Asia did take hold, but it was very slow in some cases. The pre-crisis peak in real per capita
GDP was regained within two or three years in Korea, the Philippines, Singapore and Hong
Kong. But that achievement took five years in Thailand, six years in Malaysia and
seven years in Indonesia. To put that in perspective, after the 1982 recession in the United
States, real per capita GDP took about two years to regain its previous peak. In Australia
after the 1990-91 recession, it took about three years. As I recall, those episodes were widely
seen as serious.
Table 2: East Asian GDP per capita
Change post-crisis* Years to recover
Per cent
Hong Kong -6.4 3
Indonesia -15.0 7
Korea -7.5 2
Malaysia -9.5 6
Philippines -2.7 3
Singapore -4.6 2
Thailand -11.6 5
East Asia** -8.8 3
Memo items:
United States (1981/82)^ -3.8 2
Australia (1990/91) -3.8 3
* Taiwan did not experience a contraction in GDP
** Excluding China and Japan
^ Assumed to start in September quarter 1981, as per NBER dating committee
Source: IMF, CEIC, Thomson Financial, ABS, RBA
Even accepting that the pre-crisis situation was unsustainable, it is clear that the cost of the
Asian crisis was enormous, and the recovery slow. In fact, the average rate of per capita
GDP growth in east Asia post-crisis was a little more than half what had been seen in the
decade up to 1996.
What did we learn?
We learned a good deal about the nature of crises from these events. This was a different
sort of crisis from the ones that had often been seen in earlier periods. It was not a standard
example of a currency crisis resulting from lax macroeconomic policies, in which large
budget deficits (often funded from abroad), easy money, high inflation and so on lead to a
loss of confidence in the policy regime and capital flight. In those cases, the standard remedy
is mainly macroeconomic tightening to restore discipline and investor confidence.7
In Asia, by contrast, fiscal and monetary policies had always been reasonably conservative.
Inflation rates were low by developing country standards, budgets were reasonably
controlled in most cases, and government debt levels were generally not excessive.8
7
Prior to the Asian crisis, the academic literature attempted to explain currency crises as a result of
unsustainable fiscal policies or self-fulfilling speculative attacks. As the Asian crisis was not able to be
adequately explained under these models, a raft of new research emerged, and so called "third-generation"
models were developed. For example, see Krugman, P. (1999), "Balance Sheets, the Transfer Problem, and
Financial Crises", International Tax and Public Finance, 6, pp. 459-72; Chang, R. and A. Velasco (2001), "A
Model of Financial Crises in Emerging Markets", Quarterly Journal of Economics, 116, pp. 489-517;
Caballero, R. and A. Krishnamurthy (2001), "International and Domestic Collateral Constraints in a Model of
Emerging Market Crises", Journal of Monetary Economics, 48, pp. 513-548.
8
Some have argued that in some respects the Mexican crisis was a precursor to the "new" type of crisis seen in
Asia (see Ito, T. (2007), "The Asian Currency Crisis and the IMF", Asian Economic Policy Review, 2,
pp. 16-49.). There were some similarities but also important differences, not least that the Mexican crisis
required restructuring of sovereign debt, whereas in Asia the problem was private debt. Nonetheless, Ito
argues that important lessons that could have been drawn from the Mexican experience were not applied in
the Asian crisis.
Graph 2
Crisis Countries* - Policy Indicators
% Fiscal balance %
Ratio to nominal GDP
3 3
Korea
0 0
-3 -3
Other crisis countries
% %
Gross general government debt**
Ratio to nominal GDP
90 90
60 60
30 30
% %
Consumer prices
Year-ended percentage change
40 40
20 20
0 0
-20 -20
1991 1995 1999 2003 2007
* Includes Indonesia, Korea, Malaysia, Philippines and
Thailand
** Central government debt for Indonesia and Korea.
Data prior to 1996 unavailable
Sources: CEIC; IMF; Thomson Financial
At its heart, the Asian crisis was a banking crisis brought on by banks and their customers
taking on too much foreign currency risk. No doubt macroeconomic policies were not always
perfect, but the real problems were in the financial structure more than the macroeconomic
settings. This is now well understood, but it was not fully appreciated at first by many outside
observers, even though some Australian commentators, to their very great credit, understood
it very quickly.9 A period of learning about how this type of crisis was likely to unfold and
what needed to be done was inevitable, but it delayed recovery. Macroeconomic tightening
was always going to be some part of the response, but far from sufficient on its own, and if
carried too far would be counterproductive. General structural reform of the economy's
supply side, moreover, however desirable from the point of view of raising long-run growth
rates, was always likely to play little role in the immediate recovery from a crisis of this
nature, in which demand collapsed. In fact, recovery depended on addressing the financial
burden of the debts as directly and quickly as possible.
The biggest problem that the countries of Asia had was that they had not developed the
financial infrastructure needed to provide resilience to swings in mood before becoming more
open to flows of international capital. In drawing lessons, much discussion focused on the
difficulty of maintaining relatively inflexible exchange rates in an environment of relatively
open capital accounts. While the early tendency to conclude that only corner solutions - hard
pegs or unfettered floating - were viable has softened over time, I think most observers
would say that a degree of flexibility is needed, in most cases, to build resilience to swings in
capital flows.
But it was not just exchange rates that were the problem. The capacity of financial institutions
and corporations to manage risk, and of the supervisors to enforce better management, were
far too weak. The markets required to manage such risks - to hedge foreign currency
exposures, for example - were small or non-existent. More generally, capital markets were
underdeveloped, especially local-currency denominated ones. Hence, not only were the risks
concentrated in the banking system, but when the banks could no longer extend credit there
was no other channel to make up the difference.
As the countries concerned and the international community came to grasp these lessons,
the nature of the debate changed. We began to hear much more discussion about "capital
account" crises, and the proposed responses became much more nuanced. Hitherto
seldomdisputed notions about the optimality of rapid opening up to international capital flows
became more widely questioned. Capital controls - anathema in the world of the early
1990s - became respectable under certain circumstances. Much more focus was placed on
developing bank supervision, and also such supporting frameworks as bankruptcy laws,
corporate governance standards and so on. In international circles, there was considerable
discussion about the need for some sort of international counterpart to domestic commercial
bankruptcy procedures - "standstills".
The countries most affected by the crisis drew their own particular conclusions too. One was
that while the international financial institutions might come to their assistance, there would
be a lot of strings attached, and the assistance might prove to be neither timely nor sufficient.
From this judgement, whether it was correct or not, about the international mutual insurance
arrangements embodied in the IMF, two things followed. First, the countries of Asia decided
to self-insure, by building larger foreign currency reserves. In the face of speculative attacks
in future they would be better armed. Ironically, the IMF itself encouraged this reserve
buildup initially.
Graph 3
East Asian Foreign Reserves
Value and ratio to GDP
%
US$b
 China (Ratio to GDP, LHS)

China (Value, RHS)
 Other East Asia* (Ratio to GDP, LHS)

40 1 200
Other East Asia* (Value, RHS)
30 900


20 600

10 300

0 0
1992 1995 1998 2001 2004 2007
* Excluding Japan
Sources: CEIC, IMF
Second, the countries of the region re-doubled their efforts towards building regional-support
arrangements. There had been much discussion of this prior to the crisis, and some largely
symbolic arrangements had even been put in place. But after the crisis, there was much
more activity in this space.
What then has been achieved in the area of strengthening the countries concerned and the
international system since the crisis?
What has been achieved in Asia since the crisis?
At the risk of over-generalising, several common themes emerge at the national level. First,
as one would expect, there has been an even greater emphasis first on pursuit of sound
macroeconomic policies. Of some note is that in several countries monetary policy
frameworks have moved towards inflation targeting. This is a natural progression when the
exchange rate is no longer available as an anchor for policy. Thus far this framework has
been operated with a fair degree of success. Fiscal positions in most countries have been
improved, after a period post-crisis when some countries showed large deficits.
Countries in the region have also done a lot of work aimed at making their financial
intermediaries stronger. The frameworks for dealing with impaired assets in the immediate
aftermath of the crisis have, together with the economic recovery, resulted in a gradual
improvement in the shape of balance sheets of the core institutions, though more progress is
needed yet in some countries. One World Bank report puts the average ratio of NPLs to total
loans in the five initial crisis economies at 6 per cent in 2006 - still a high figure by industrial
country standards, but down from close to 30 per cent in 1998.10 Foreign participation in local
financial systems has increased in several countries, which brings both capital and
expertise.11
Table 3: Non-performing Loans
Per cent of total loans
At peak* 2006
Indonesia 48.6 (1998) 6.1
Korea 13.6 (1999) 0.9
Malaysia 11.5 (2001) 4.8
Philippines 17.3 (2001) 6.0
Thailand 45.0 (1998) 8.1
* Year of peak in brackets
Source: World Bank
Emphasis has been placed on beefing up bank supervision and fostering a stronger culture
of risk management in the private sector. This is an area, however, where rapid progress is
very difficult, and several countries still have difficulty meeting the relevant international
standards. Developing and maintaining a strong supervisory apparatus is a challenge in any
country at any time, no less so in the Asian region. Countries have also pursued stronger
requirements for disclosure, better accounting and auditing standards and so on. That said,
progress towards improving the broader regulatory and governance arrangements that
condition the "investment environment" has, in the view of at least some commentators, been
mixed, at best.12
A good deal of work has also been done, particularly of a co-operative nature between
countries, aimed at fostering deeper, more resilient capital markets. The Asian Bond Funds,
initiated by the regional central banks, established cross-border mutual-fund type structures
allowing regional investors to hold obligations issued in local currency by regional
governments and quasi-government authorities. The ASEAN+3 group has encouraged the
issuance of local-currency debt by the multilateral institutions. The development of
securitisation and credit guarantee markets in the Asian region has been promoted through a
number of regional fora, and securitisation in east Asia has grown quite rapidly since 1999,
particularly in Korea, Hong Kong and Malaysia. These sorts of initiatives typically involve
trying to remove the various small impediments that individual countries have (sometimes
unintentionally) put in the way of investors, and progress towards the mutual recognition of
regulatory frameworks in differing countries. These have been very useful examples of
practical co-operation - and of how much work is involved in giving practical effect to general
ideas agreed to so easily in international meetings.
More ambitious ideas for mutual support have also been pursued, of which the Chiang Mai
Initiative (CMI) is probably the most concrete. CMI provides for the countries in the ASEAN+3
group a series of bilateral swap lines, with the amounts committed being increased
progressively.13 Recently, an in-principle agreement was reached to make the lines
multilateral rather than bilateral, which would presumably make for more efficient activation in
a crisis.
As a result of these developments, I imagine that today few countries in Asia would, if they
got into trouble, consider an early approach to the international financial institutions for
assistance. But while the regional initiatives are all useful, they remain to be tested under
less benign conditions in the global financial system. In fact, it is open to doubt whether they
would necessarily prove sufficient as a defence mechanism, were really big changes in
sentiment about the region to occur in international markets the way they did in 1997-98. If
most countries in the region were under pressure at the same time, there would surely be
questions as to whether regional counterparties could meet all the commitments for support.
In any case, few financial crises are confined to one region: even those that start with a
regional focus have a habit of spilling over quite quickly, as events after the Asian crisis
demonstrated. So while everyone has an interest in regional crises being effectively dealt
with at the regional level, we surely still need global mechanisms for dealing with crises, and
preventing them as far as possible. That prompts the obvious question: what has been done
since the Asian crisis to improve the global arrangements?
What has been done internationally since the crisis?
A good deal of effort has gone into crisis prevention. There has been a step-up in national
and regional-level surveillance by the international official bodies, and an emphasis on more
timely and accurate data being made available by governments. A stronger focus on financial
sector soundness is another key element, with a number of countries undergoing Financial
Sector Assessment Programs, in conjunction with the IMF.
These and other efforts represent serious attempts to use what was learned from the Asian
and other crises to reduce susceptibility, or at least to get an early warning of regional level
problems, in future. But as useful as these things are, no-one could say that they will
definitely prevent future crises. Hence, crisis management arrangements have still been
given attention.
One of the key elements is calming behaviour in capital markets once a crisis occurs. The
private sector has contributed with a code of conduct, known as the Principles for Stable
Capital Flows and Fair Debt Restructuring in Emerging Markets, which provides a flexible
framework for co-operative discussion and action between private-sector creditors and
emerging market sovereign debtors. A complementary initiative was the introduction of
Collective Action Clauses in emerging market bond contracts. This is intended to lessen the
problem of getting collective action when a debtor needs to reschedule, by preventing
minority hold-outs from derailing the rescheduling. The use of such clauses is now
widespread.14,15
A more far-reaching idea is that of stand-still provisions. This is, conceptually, the
international equivalent to bankruptcy proceedings, where, once a creditor cannot repay in
full, there is a temporary cessation of all payments while an orderly process works out how
much creditors can collectively expect to receive, rather than a disorderly and ultimately very
costly rush to the exits. This idea found concrete expression in the proposed Sovereign Debt
Restructuring Mechanism discussed at the IMF, but did not attract sufficient support from
major countries and has not gone forward.16
There has been some evolution in the architecture of international groupings over time. The
formation of the G-20 had its genesis around the time of the Asian crisis. Its membership is
more representative of the global economy and financial system of the 21st century, as
opposed to the mid-20th century, and it has become more prominent over recent years. In
parallel, the G10 seems to be diminishing in importance. With no crises of any magnitude in
the past few years, the G-20 has turned its attention to other matters, including issues on the
structural side. We should hope, though, that the G-20 will retain a capacity to talk frankly
about urgent issues in the highly informal but effective way it did at first, should some new
crisis erupt. The Financial Stability Forum (FSF) was another creation of the more
crisisprone era, and is a useful body for getting key officials together regularly to identify potential
threats to global stability.
But while these architectural changes are helpful, the G-20 remains a work in progress, and
the FSF is a consultative group, not a decision-making one. The reality is that if there is to be
collective international action in the face of a crisis, international financial institutions, with
formal mandates and balance sheets, will remain very important. Focus on adapting the IMF
to 21st century needs has intensified in recent years. Questions of governance have been to
the fore, in particular relating to representation and voting power for emerging market
countries. A small but significant step was made last September with increased quota
allocated to four important emerging market countries which had been under-represented.
The more laborious work of getting agreement on longer-run and more far-reaching changes
is now under way and has some distance to travel.
But it is critically important too that resolution of the questions about the IMF's mandate -
what we want it to do - accompanies the governance reform. It will not be sufficient for the
emerging world simply to expect more say in how the international financial institutions are
run, without being part of a clearer shared understanding of what the institutions are seeking
to achieve. That is a topic for another speech, but suffice it to say that constructive
engagement by the emerging world, and especially Asia, in finding an agreement on
mandate will be a key prerequisite for genuine progress.
Asia's future in the global financial system
After all this, then, how would we sum up the way things have changed since July 1997? Is
Asia, or the world, less vulnerable to a crisis than it was then, or not?
Were we to ask policy-makers in the countries concerned, I am pretty sure they would say
they remain acutely conscious of theirs being small countries in a world of large capital flows,
with the attendant possibility of being overwhelmed by those flows - in both directions.
Suspicion in the region of some of the larger players in international markets remains strong,
as does the desire for regional co-operation in handling the financial ebbs and flows.
That said, vulnerability to a 1997-style crisis must have been reduced. The build-up in
reserves means that speculative outflows could now be handled more effectively.
Furthermore, the fact that most exchange rates have some more flexibility now, even if they
do not float completely freely, also means that the authorities would be in a much stronger
position because they can allow that price to bear some of the adjustment before they
intervene. The various regional initiatives have contributed to development of capital markets
and stronger mutual-support arrangements. The former still has some way to go and the
latter have not been tested, but certainly progress has been made.
But maybe the question of whether Asia could withstand 1997 better if it occurred again is
not the right question. A future crisis could be of quite a different nature. It is at least as likely
to be truly global as to be regional, and just as likely to originate in the developed world as in
the emerging world. A generalised re-assessment of risk would no doubt test the resilience of
the countries of Asia, along with everywhere else. That being the case, it is in Asia's interest
that international efforts to manage risks more effectively on a global basis be continued. It
would also be important therefore for Asia to be sure that Asian regionalism does not
become inward-looking. Asia has mostly benefited from engagement with the global
economy, and that will continue to be so.
Another question is whether some aspects of the approaches being taken to avoid 1997
recurring are themselves starting to become a problem. In particular, the build-up in reserves
has gone a long way past what seems sufficient for self-insurance purposes, and has surely
complicated monetary policy in some cases, not least in China. The associated capital flows
are big enough, moreover, to have a significant effect on global markets and potentially to
rebound onto the Asian region. The rising size of sovereign wealth funds, and what risk
profile they will have, is also a question that is likely to be important to countries receiving the
capital flows.
For the Asian crisis countries, we should ask: is it optimal for so much saving to be funding
investment in the developed world when the social return to investment at home surely ought
to be higher? While investment prior to the crisis may have been unsustainably high, in some
of these countries it is now arguably too low.17 Given that many changes over the past
decade have been implemented to try and improve the stability of the region, do local
investors still perceive the risks to be so great that they are unwilling to invest in their home
countries? If so, why? Does that point to the need for further efforts at improving governance
frameworks and regulatory environments, deepening capital markets and so on?
Graph 4
East Asia* - Saving and Investment
Ratio to nominal GDP
% %
35 35
Saving
30 30
Investment
25 25
20 20
1993 1995 1996 1998 2000 2003 2005
* Excluding China, Hong Kong and Japan
Source: World Bank
The reason to address these issues has something to do with avoiding crises in future, but it
has more to do with improving Asian living standards. To see how relevant that is, moreover,
we need only look at the sorts of per capita growth rates post-crisis compared with the
decade leading up to the crisis. They are much lower. The growth is not as easy to get as it
once appeared, which puts the focus squarely back onto policy frameworks.
Conclusion
The Asian crisis was an extremely costly event for the countries concerned. The crisis is now
a decade in the past, but those costs continue to be felt today in a number of countries.
The crisis dramatically changed thinking in Asia, and around the world, about the nature of
economic and financial crises, the policies appropriate to dealing with them, and the role of
the various regional and global bodies charged with fostering economic and financial
stability. It is important that the passage of time, and the apparently benign environment we
have recently enjoyed, do not prevent us from pressing on with the as yet uncompleted
regional and global efforts to develop more resilience. Were we to slacken efforts there, we
would surely come to regret it.