The crisis is now in its second year as East Asia finds itself in a recession that will strongly affect the economies over the next few years. Each country, in effect, is exporting its recession to its neighbors, with no obvious engine of growth to pull the region out. Exchange rates and stock markets are down across the region, and, although they had started to recover by January in most of the crisis countries, recent signs of uncertainty, such as concern over the situation in Japan, and further devaluations have negatively impacted the markets. During the summer months, the global context grew more precarious, most notably, the sudden drop in the US equity market and the economic collapse in Russia, further undermining investor confidence in emerging markets. There are some positive developments, however.
Economic policies continue to move in the right direction.
Reserves have been accumulating at a pace faster than predicted. But the situation remains fragile, and the continued deepening of the recession raises important questions about the social and political impact of the crisis. Political and Social Implications of the Crisis Political and social events have played a significant role in the crisis. Political changes in Thailand and Korea have helped stabilize the exchange rate, as a clearly understood and supported reform program was established, while political uncertainty in Indonesia played an important role in the opposite direction and remains an issue to be resolved. Sustainability of the reform effort depends heavily on real progress being achieved on the social front.