LONDON – After the 1997-1998 financial crisis, policymakers in Asia’s major emerging markets – South Korea, Thailand, Malaysia, and even Indonesia – vowed “never again” to be humiliated by international capital markets. They set out to address the structural weaknesses that had brought their systems down.
Many countries in emerging Europe had similar near-death experiences in the recent global crisis. Thanks to international and national policy interventions, their currencies and banking systems were saved from collapse, but many of them saw massive output drops and soaring unemployment. Unfortunately, they have not to the same extent embraced their Asian counterparts’ determination to address the vulnerabilities.
Following the Asian crisis, the region’s economies underwent intense internal and external scrutiny. It was clear that they had become more vulnerable due to loss of competitiveness, weak governance, and lack of transparency. Badly regulated banking sectors, feeble market structures, and weak competition, as well as trade and current-account restrictions, were also among the shortcomings identified. Not all Asian countries walked the line to the same extent, and some opportunities for reform were undoubtedly lost, but important lessons were learned and institutions improved.
Similarly, emerging economies in Latin America changed their economic-policy course after devastating crises – in some cases a series of them – and moved toward strengthening monetary frameworks to reduce dollarization and build local capital markets, liberalize markets, and improve governance. These measures contributed to the improved economic fundamentals that helped limit the impact of the global financial crisis.