20 Years After the Asian Financial Crisis: Lessons Learned and Future Challenges
This brief revisits lessons from the Asian financial crisis, examines the emerging challenges that could undermine future financial stability, and concludes with some policy considerations.
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.
- 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.