Twenty years ago this month, a financial crisis spread across Asia and threatened the economic trajectory of the entire region. The Asian financial crisis began in July 1997 when rapid capital outflows from Thailand forced the country to depreciate its currency. The crisis subsequently spread across the region to Malaysia, Hong Kong, Indonesia, South Korea, and even Japan.
The Asian financial crisis led to a huge drop in economic activity, a sharp depreciation of local currencies, and massive losses to the stock markets. A combination of drastic action by domestic policymakers and significant international aid halted the crisis, but not before it caused tremendous economic pain across the region.
At the time, many wondered whether Asia would ever be able to recover and return to the high growth it experienced in the 1990s. In the wake of the crisis, countries across Asia restructured their economies and worked together to create new regional institutions.
Many of the reform efforts were successful, with most of Asia returning to rapid growth during the 2000s. However, the influence of the crisis shaped the development of the region during the 2000s through to today.
- Several Asian countries began to build up large foreign currency reserves, leading to a major shift in global capital flows.
- Many policymakers began to doubt the wisdom of allowing unfettered capital flows, leading to a rethink of the sequencing of financial reform.
- Painful memories of the 1997 crisis led Asian governments to respond decisively during the 2008 global financial crisis.
- Asian countries have done much to reduce the risk of a repeat of the crisis, but new vulnerabilities have emerged as debt levels have grown across the region.
- Efforts to create Asian regional alternatives to global financial institutions have fallen short of expectations.
To look back at the crisis and explore its continuing impact, check out our Pacific Exchanges podcast. Upcoming episodes will feature interviews with experts from a range of backgrounds and perspectives, including:
- David Dollar, Brookings Institution
- Gillian Tett, Financial Times
- Andrew Sheng, Asia Global Institute
- Simon Johnson, Peterson Institute for International Economics
- Changyong Rhee, International Monetary Fund
- Supavud Saicheua, Bank of America Merrill Lynch
- Barry Eichengreen, University of California, Berkeley
The views expressed here do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco or of the Board of Governors of the Federal Reserve System.