Domestic institutional and regulatory frameworks were weak. Banking systems were poorly operated or supervised. Transparency and the rule of law were lacking. What the Indonesians termed KKN – corruption, collusion and nepotism – was accepted as the way business was done, rather than seen as a serious flaw to be put right. But the crisis cannot be blamed solely on its victims. It was also aggravated by weaknesses in the international financial structure. Unsound loans required imprudent lenders, or at least over-confident ones. The sustained Asian boom caused investors and lenders to over-reach themselves. When problems surfaced in Thailand, they stampeded for the exits across the board, creating a self-fulfilling panic. Non-Asian emerging markets, and even some developed world markets, also came under pressure. The problem was not just Asia. Recovery of the region Now, two years later, the Asian economies are stabilising. Macro-indicators show that the worst has past, much sooner than many expected, and the near term prospects are quite good. Throughout the region, exchange rates have stabilised. Inflation has subsided. Governments have eased monetary policy and lowered interest rates. Financial systems are flush with liquidity. Consumer sentiment has improved, and private consumption has recovered to pre-crisis levels. Exports are recovering, underpinned by the belated revival in Japan’s economy, and continued strong demand from the US. Electronics and semiconductor exports are doing particularly well, helped by an upturn in the global electronics cycle. Strong domestic consumption and export performance have stimulated industrial production. Inventories and over-capacity have fallen throughout the region.

Mr Lee comments on what Singapore and other Asian countries are doing in post-crisis Asia  Speech by Mr Lee Hsien Loong, Chairman of the Board of Directors of The Monetary Authority of Singapore and Deputy Prime Minister, at the Credit Suisse First Boston Investment seminar, held in Singapore on 26 October 1999. *  *  *  Pre-crisis Asia: a mirage? The Asian crisis swept through the regional economies like a huge tidal wave. The euphoria from more than a decade of boom in East Asian economies was abruptly punctured. Overnight, headlines switched from the “Asian century” to the “Asian disease”. Some analysts questioned if the earlier prosperity had been real, or just a bubble. Others attributed the crisis to fatal flaws in the Asian model, which was masked by a classic asset bubble. Asia would not recover, and investors would not return, until these deep flaws were corrected. This pessimism was exaggerated. The transformation of Asia in the last few decades was no mirage. It had sound fundamental underpinnings. Countries maintained high savings and investment rates. Education levels were rising. Economic policies generally became more liberal, outward oriented, and welcoming to foreign investments. Asia had all the ingredients for the takeoff that we witnessed. True, the crisis was a major setback but, compared to a decade ago, the regional economies are still way ahead in terms of development and already, most of them are beginning to bounce back. Undoubtedly, the economies did have serious problems that contributed to the crisis.