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Asian Crisis

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Is ASEAN prone to Another Financial Crisis: Risk and Policy Challenge? ♣

Bandid Nijathaworn

1.

Introduction

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...