From the Asian Financial Crisis to Today

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The Asian financial crisis of 1997 exposed the region’s vulnerability to cross-border capital flows.
Banks and corporations had borrowed "massively and cheaply in US dollars, often on very short terms."
A sudden outflow of foreign capital "pushed the region’s currencies into a downward spiral, leaving many borrowers insolvent."
Governments "spent billions in vain attempts to support their currencies."
Indonesia, South Korea, and Thailand turned to the IMF, which provided "almost $120 billion in rescue funds" conditional on overhauls of monetary, fiscal, and financial regulatory policies.

Rebuilding balance sheets and fiscal consolidation after bailouts of banks and the corporate sector.
Strengthening the regulatory framework for the financial sector.
Adoption by many countries of an inflation-targeting framework to anchor inflation and allow greater exchange rate flexibility.
Continued tension between central banks and ministries of finance over managing exchange rate strength for export-led economies; active intervention has been used to keep exchange rates "within a band of sorts."
Regional cooperation:
- 2000: ASEAN+3 created a network of bilateral currency swap arrangements.
- That network evolved into the Chiang Mai Initiative Multilateralisation (CMIM).
- 2011: The ASEAN+3 Macroeconomic Research Office (AMRO) was formed to conduct regional surveillance and support CMIM.

Mission: conduct regional surveillance and support CMIM.
Surveillance approach:
- Identify risks and vulnerabilities.
- Form an independent view of policy options to mitigate risks; views may sometimes diverge from the IMF and provide valuable input for members' policymaking.
CMIM has never been deployed; AMRO emphasizes its value in promoting soundness and reserve cushions: "to be eligible one has to be sound."

During the pandemic domestic financial savings increased as demand collapsed, enabling countries to finance fiscal deficits without drawing down reserves; reserves were even built up as current accounts improved for most countries in the region.
As a result, "emerging from the pandemic, some countries find themselves in a stronger external position than going into the crisis."
AMRO’s economic outlook, published in April, forecast a strong acceleration in growth for the region in 2022.
Risks:
- The war in Ukraine poses spillover risks mainly via commodity prices and supply-chain disruptions rather than direct trade or investment links, since "we are far away from Russia and Ukraine, and our trade links and foreign investment links to these two countries are small."
- Confidence expressed that 2022 can see a fuller recovery "unless the war escalates and the global economy goes into stagflation."

Some advanced-cycle economies in the region—explicitly named: "Korea, Singapore"—have already started tightening.
Expectation that "most countries may start to tighten in the second half."
Policy view: "it would be prudent to start, because even when you start tightening, you are still accommodative."

Deglobalization: assessment that full deglobalization is unlikely given high integration; possible reconfiguration of global value chains and targeted efforts to build resilience and self-sufficiency for certain critical products.
AMRO will broaden focus to:
- Economic implications of climate change, including effects on growth and financial stability.
- Harnessing the digital economy to address aging populations, shrinking workforces, and productivity shortfalls.

"You cannot be overprepared. You have to continue to build up resilience."
"They felt they were just innocent bystanders hit by this crisis which was triggered by speculative attacks. And yet they, the victims, had to take the so-called bitter medicine prescribed by the IMF and the international community while the perpetrators got away scot free."
"If the exchange rate becomes too strong, exporters (mostly manufacturers) start screaming and banging on the door."
"Our view is that it would be prudent to start, because even when you start tightening, you are still accommodative."

From the Asian Financial Crisis to Today — CHRIS WELLISZ, F&D Magazine, May 10, 2022