NEWS BRIEF
Commentary: Asia Remembers 1997 and Braces for the Future
March 5, 2009
Christopher Bjorke

With memories of the last crisis still fresh, Asia's top finance officials met in late February to discuss how to navigate the present crisis.

Finance leaders from the ASEAN group of Southeast Asian nations joined their counterparts from China, Japan and South Korea in summit meeting in the Thai resort town of Phuket and worked on strategies to protect their economies from the worst threat since the financial contagion that swept through Asia in 1997.

The main achievement of the meeting was an agreement to strengthen a shared pool of foreign exchange reserves that can be used to protect the value of a country's currency if it is threatened with rapid devaluation. Attendees also used the occasion to warn against protectionist impulses at a time when their export industries are flagging.

During the 1997 crisis, Asian countries were victims of rapid capital flight as large funds and currency speculators pulled out of investments, causing the collapse of several of the region's currencies. Since the beginning of the current crisis, a number of currencies have fallen sharply, such as the Korean won, which lost 37% of its value in the past year.

The new agreement commits $120 billion to the reserve fund and expands an earlier arrangement of bilateral currency swaps between nations.

Different crisis

The new crisis is not the same as the 1997 crisis, however. At that time, the collapse of was preceded by a sudden reversal of short-term capital flows that had inflated the Asian economies. When the money was suddenly pulled out, countries were helpless to avert the fallout.

Now, despite being relatively free of the toxic assets that are bringing Western banks to edge of collapse, Asian economies are suffering from the plummeting demand for their exports.

Japan's industrial output fell 10% in January, Bloomberg reported. Exports from Singapore, Hong Kong and elsewhere saw the biggest drops in decades. South Korea, Taiwan and Hong Kong all headed toward recession.

Instead of being the victims of the speculative bubbles that deflated the Asian economies a dozen years ago, they are collateral damage in the West's subprime mortgage disaster. The global downturn has forced Asia to adopt stimulus plans and spur domestic consumption while export markets remain torpid.

The finance ministers in Phuket called for those export markets to stay open, responding to the recent fears of protectionism in a statement affirming their dedication to "increasing the free flow of trade and investment, to standing firm against protectionist measures which would worsen the economic downturn."

Facing the worst crisis since 1997, Asia has to hunker down and wait for trade to recover.

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