In his book ‘Making Globalization Work’, Nobel Prize-winning economist Joseph Stiglitz refers to this period as a ‘terrible time’, with riots and social unrest in Indonesia and unemployed Korean businessmen wandering around parks in Seoul, too ashamed to tell their wives they had no office to go to anymore.

He says the five countries most affected by the crisis (Thailand, Malaysia, Indonesia, Korea and the Philippines) had opened up their capital markets on the advice of the International Monetary Fund. “The five countries concerned, in terms of financial policy, certainly pursued a direction which neglected risks and, from today’s point of view, would be considered rather outrageous in the optimistic drive of ever-growing economies which could afford everything,” he says.

“So there was reckless financial management within the countries, combined with a reliance on policies which turned out to be not very good or appropriate coming from the IMF,” Schütte says.

Banking reforms

A recent editorial in the Financial Times on the crisis has, however, pointed out that some good also came out the crisis as it brought ‘better banking regulation and other structural reforms.’

Schütte agrees with this view, adding: “The central banks have gone through very difficult times but the banks themselves even more so, because fundamentally the banks in all the five countries were bankrupt and had to merge or to be restructured or be closed.”

He adds that another fundamental change is that Asian companies are now more focused. “In the kind of ‘Wild West’ time before the crisis they got into all sorts of different businesses and what you see now are that more companies are focusing more on a few lines of business and expanding them regionally across Asia. That’s not to say they’re as focused as most companies in the US or Europe, but then the markets are not as efficient in Asia and there’s more reason for diversification.”

'Asia has never done better'

Asian growth rates have picked up again, helped by rapid economic growth rates in China and India. Schütte says, excluding  Japan, growth in the region is averaging  8.9 per cent. “This is the highest growth Asia has ever seen. Asia has never done better.”

He goes on to say, however, that this does not necessarily mean that the future is bright. “The issue is not with growth rates. These are quantitative measurements of progress. Asia is facing two challenges, one on the external side. How long will raw materials be relatively easily available? And how long will US accept being overwhelmed by imports from Asia and when will a new wave of protectionism emerge?”

The second challenge, he says, is for Asia to recognise that quality of life is important and that degradation through rapid industrialisation could threaten economic growth.

“China has woken up to that and is doing quite a lot, but it has to do much more,” he says. “But even Singapore could do much more to contribute to sustained development than achieve ever better growth rates.” 

Ten years after the crisis, South-east Asia is still struggling to attract foreign investment, with China in particular proving too attractive. “As China and India became so dominant, the rest of Asia has had to ask how do I fit in this new jigsaw that is driven by Chinese and Indian value chains. Where do I fit in and how do I complement (these)?” Williamson says. “The other big shift I see is that where ASEAN (Association of South-east Asian Nations) countries were natural places for foreign investment, that foreign investment is now being sucked into India and China and they therefore have to compete much more strongly for that foreign direct investment than they did prior to the Asian crisis.”

So, for good and bad, the Asian financial crisis is still having an impact on the region. “Like most nasty medicine, the effects wear off over time,” Williamson says. “But I think there have been some long-lasting effects that will stay with us.”