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Ten Years After the Crisis

It was ten years ago that the financial crisis broke out across East and
Southeast Asia. Many people will remember the rioting and violence that
broke out, often targeting ethnic Chinese people, especially in Indonesia.
Memories of factory close downs and the fear of unemployment continues to
haunt many, at least some of whom were forced into unsafe occupations as a
result. However, research by the International Monetary Fund, focusing
entirely on the economic aspects, highlights some of the more positive
aspects of changes since that time.

First of all, authors David Burton and Alessandro Zanello observe that, by
2003, all countries affected by the crisis have GDP higher than in
pre-crisis levels, although per capita GDP levels lagged behind in some

The Asian countries concerned maintained their outward orientation
and this has enabled them to remain competitive in the export markets in
which they were most active. Many corporations have become more
competitive through reducing their debt levels to more sustainable rates,
while governments have generally acted to make restructuring of companies
more practical and banks, in particular, are stronger because of more
realistic reassignment of non-performing assets and loans. Burton and
Zanello argue that: “Mechanisms to facilitate financial restructuring are
now in place, regulatory and prudential frameworks have been upgraded, and
corporate governance has been strengthened. More work lies ahead, but
financial institutions and corporates in South East Asia have, on the
whole, regained a solid footing.”

However, negative economic impacts are also evident, not least of which is
the growing inequality in most affected countries. Income inequality has
increased sharply in Malaysia, the Philippines, Laos and Singapore. Only
in Thailand has inequality been reduced – quite sharply – largely thanks
to the redistributive government of Thaksin Shinawatra, who was ousted by
a military coup in September of last year. Those countries with higher
levels of inequality face increased social divisions and threats of crime,
stress and disorder.

Inflows and outflows of investment capital have both increased, which are
positive signs, although the higher levels of volatility have become of
concern. Regulating capital flows has become unfashionable, especially
among the IMF, but governments could be forgiven for at least thinking
about something similar. The authors recommend such measures as
strengthening domestic institutions, labour market reform and encouraging
domestic consumption and investment. At the same time, they argue that
protectionism must of course be avoided. On the whole, they believe, the
overall situation is a positive one: “Ten years after a major financial
crisis, Asia is looking at the future with renewed confidence and has good
reason to do so. Ground has been regained where it had been lost, and Asia
is well positioned to be an ever-greater force in the world economy.

Encouragingly, policies are increasingly attuned to the quickening pace of
globalization and the foundations for a sustained expansion are being

For more details, see Burton, David and Alessandro Zanello, “Asia Ten
Years After,” Finance and Development (June, 2007),

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