ADB Support for Crisis Management in Asia-Pacific: Lessons from the Past Decade

The paper analyzes three recent events that ADB has been closely involved in responding to: the financial contagion in SE Asia in 1997, the SARS crisis of 2003, and the Tsunami of 2004. These three rather different types of events show that a combination of factors have been at work in shaping the response to and outcome of each crises. The 1997 contagion was a wake-up call exposing existing vulnerabilities across SE Asian economies: weak supervision and standards of companies and heavy reliance on the banking system, unsustainable exchange rate policies and inadequate supplies of foreign exchange reserves, to name a few. It forced governments and international organizations to recognize the high level of interdependence among countries in the region, and the need for putting in place inter-governmental risk mitigating mechanisms like Chiang Mai Initiative, ASEAN+3 surveillance, and Asia Bond Fund 1 and 2, launched by the Executives' Meeting of East Asia Pacific Central Banks Initiative. However, even more important in explaining the rapid recovery from the crisis has been the growing importance of production sharing networks that source from wherever is most advantageous and contribute to strengthening of international value added chains. These private sector networks helped to increasingly link crisis countries' economies with the booming People's Republic of China (PRC), and facilitate their recovery much more rapidly than initially expected. Although risk mitigating measures have been put in place and are being strengthened, financial risks have not gone away. Questionable practices in PRC's state-owned enterprises listed in Hong Kong or other external markets could lead to trouble, a la Guangdong Enterprises or China Aviation Oil. PRC's WTO commitment to open up in 2006 its financial sector to international competition could put pressure on major domestic banks. New, retaliatory tariffs could reduce US imports of PRC products. A combination of these and other possible factors could lead to contagion effects that could cripple global production sharing arrangements, and prompt another 1997 style financial crisis in the region that would severely test the new risk mitigating measures. As a second example of crisis management, SARS was initially allowed to spread in 2002-3 because of a cover-up within the PRC health service. However, through the actions of a courageous Chinese doctor, the government (fortuitously a new, more open regime) opened up in April and started responding vigorously. Although the disease spread fast and globally for a while, the forceful response of national governments, combined with international agency supported travel warnings and other coordinated actions, stopped the spread of the disease by June. Hundreds of people died, but not the millions lost in other global pandemics. The response to the 2004 tsunami is still underway, and results are uncertain. Yet three important dimensions are emerging. First, the importance of the rapid response by affected governments, donor governments, and international organizations in providing rapid relief (from US aircraft carriors of Aceh et al) and fundraising for reconstruction. Second, the importance of formal and informal networks linking these governments and organizations with NGOs and private sector to provide a coordinated response. And third, the promise that a Tsunami early warning system (high-tech hardware combined with low-tech community awareness raising) can sharply reduce the death toll from such catastrophic events in the future.