The last twenty years have been eventful for the economies of ASEAN in terms of financial crisis and policy management. Since the 1990s, the region had gone through two major financial crises, one as a region where a crisis began while the other as a recipient of a major crisis. Both provide the ASEAN economies with a wide range of valuable policy experience for assessing the region’s capacity to prevent and manage future financial crises that may arise. This paper, which is intended as a complement to a larger chapter of an ADBI report on cooperating macroeconomic policy and finance, sets out to explore the issue of how prone the ASEAN economies are to another financial crisis in the next two decades. The question is legitimate given the region’s past record of financial vulnerabilities and crises, and the likelihood of future financial crises in parallel with the rising importance of Asia as source of global growth and the deepening of financial globalization worldwide. In doing so, the paper identifies financial crisis risks that ASEAN economies may be facing in moving to the year 2030, and suggests areas for policy reform, both at the national and the regional levels, to mitigate such risks, including ways to improve the resilience of the ASEAN countries against possible future financial crises. The paper will focus on four sets of issue. The first is the financial crises experience of the ASEAN countries of the last twenty years as a basis for assessing possible future crisis risks and the policy challenge. This is presented in Section 2, in the form of a summary of key policy lessons learned from ASEAN’s past experience with financial crises. The second issue is an assessment of possible future financial crisis risks that ASEAN economies may be facing to year 2030, discussing separately the domesticallyinduced, or the internal risks, and the externally-driven risks as well as the broad implications of those risks for policy. This is presented in Section 3.
A background paper for an ADBI study on ASEAN 2030: Growing Together for Shared Prosperity, February, 2012.
The third issue is the risk exposure of individual ASEAN economies to the financial crisis risks identified in Section 3 and the policy implications of such risks at the national level, especially market regulation and the capacity of the domestic financial institutions to manage such risks. This is presented in Section 4. And the fourth issue is the prospects for enhancing ASEAN policy collaboration and financial corporation as ways to strengthen the region’s capacity to manage shocks in the context of the evolving international and regional financial architecture. This is done in Section 5, while Section 6 concludes.
Lessons learned for ASEAN from Previous Crisis Encounters
Financial shocks happen, and they will likely occur with greater frequency going forward as the process of financial globalization deepens and the structure of financial markets in the ASEAN economies becomes more complex as a result of increased interconnectedness and increasingly complicated financial innovation. To assess risk of future financial crises for ASEAN economies, as well as their abilities to manage the risks, it is imperative that one starts by stepping back and drawing lessons from past crisis experience. As previously noted, the last twenty years have been most eventful for ASEAN, marked by a build-up of region-wide macroeconomic vulnerabilities in the early 1990s which culminated in the Asian financial crisis in the late 1990s; a frantic period of crisis resolution and economic and financial restructuring to mid-2000s; and last but not least a period of managing contagion and the spillovers from the global financial crisis of 20072009 while ensuring economic...