20 Years After the Asian Financial Crisis: Lessons Learned and Future Challenges

The Asian financial crisis that took the world by surprise 20 years ago was a major turning point for many of the region’s economies. The crisis exposed structural weaknesses and policy distortions in crisis-affected countries, along with poorly planned financial liberalization and premature capital account opening. Going forward, Asia needs to pursue broad-based reforms to address new and remaining vulnerabilities and safeguard financial stability.

Key Points

• Twenty years after the Asian financial crisis, Asia stands strong. Yet, Asia should not be complacent, and remain vigilant against a buildup of financial imbalances, ready to act if risks materialize, and proactively address structural weaknesses through broad-based reforms.
• Significant challenges remain while new vulnerabilities emerge from the steady rise in dollar-denominated debt, increasing private sector debt, and a pickup in nonperforming loans in some emerging Asian economies. With more pronounced global financial cycles, increasingly interconnected financial institutions and markets are also building the channels to fan global shocks.
• Three key lessons are drawn from Asia’s crisis experience: (i) maintaining sound macroeconomic fundamentals is a prerequisite for economic and financial resilience; (ii) deepening and broadening financial systems is essential to boost both financial efficiency and resiliency; and (iii) greater regional cooperation efforts are needed to reinforce regional financial safety nets for financial resilience.