20170914-亚行-20_YEARS_AFTER_THE_ASIAN_FINANCIAL_CRISIS__LESSONS,_CHALLENGES,_AND_THE_WAY_FORW_50页_5mb_5mb

20 Years After the Asian Financial Crisis: Lessons, Challenges, and the Way Forward

Core Content

This document summarizes the key discussions and insights from a conference held on 13-14 April 2017, commemorating 20 years since the Asian Financial Crisis (AFC). The conference aimed to reflect on the lessons learned from past financial crises, examine the current challenges, and explore the path forward for financial stability and resilience in Asia.

Main Points and Key Information

1. Overview of the Asian Financial Crisis and Its Impact

• The AFC was a pivotal event that exposed vulnerabilities in Asian economies, including currency and maturity mismatches, excessive short-term foreign-currency borrowing, and housing and real estate bubbles.
• The crisis led to structural reforms in macroeconomic management and financial regulatory frameworks across the region.
• Despite these reforms, the region continues to rely heavily on US dollar funding, exposing it to risks of sudden capital flow reversals.

2. Role of the US Dollar in Financial Conditions

• US dollar exchange rates significantly influence financial conditions in emerging market economies, especially through the financial channel, which affects risk-taking and credit availability.
• The bilateral US dollar exchange rate is more influential than the trade-weighted exchange rate, which traditionally affects competitiveness and exports.
• Exchange rate fluctuations can have real economic impacts, such as affecting capital expenditures and bond market conditions.

3. Financial Integration and Contagion

• Increased financial interconnectedness has amplified the risk of financial contagion across borders.
• The global financial system is more integrated, and shocks in one economy can spill over to others.
• The rise in cross-border US-dollar denominated assets and liabilities has made the US dollar a central currency in global finance.

4. Local Currency Bond Markets

• The development of local currency bond markets was a response to the AFC, aiming to reduce currency and maturity mismatches.
• These markets are still smaller, less liquid, and less developed compared to foreign currency bond markets.
• The ADB played a significant role in promoting local currency bond markets, particularly through the Asian Bond Markets Initiative (ABMI) launched in 2003.

5. Policy Challenges and Responses

• Policymakers must consider both trade and financial channels when responding to exchange rate changes.
• The financial channel can lead to tighter financial conditions during local currency depreciation, which can hurt the domestic economy.
• There is a need for country-specific policies and regional cooperation to address financial vulnerabilities and ensure stability.

6. Case Studies from the Conference

• Republic of Korea: Highlighted the importance of addressing currency and maturity mismatches, and the role of foreign reserves in countering speculative attacks.
• Indonesia: Emphasized the need for a coordinated policy response and the value of countercyclical measures, even though they are politically challenging.
• Malaysia: Discussed the relationship between financial integration and vulnerability, and the need for timely and targeted regulatory measures.
• Thailand: Noted the lack of institutional capacity and the importance of flexible exchange rates and financial reforms in enhancing resilience.
• Philippines: Highlighted the impact of large capital inflows and the challenges of managing short-term borrowings and nonperforming loans.

7. Policy Recommendations

• Strengthen regional financial cooperation initiatives such as the ASEAN+3 Chiang Mai Initiative Multilateralization (CMIM).
• Deepen local currency bond markets to increase market liquidity and secondary trading.
• Improve monetary and fiscal policy coordination and information sharing.
• Enhance financial system resilience through macroprudential and regulatory reforms.
• Consider innovative and less conventional policy approaches as financial systems evolve.

Conclusion

The conference underscored the importance of learning from past crises and adapting to new challenges in an increasingly globalized financial environment. While the region has made progress in financial stability, there remains a need for continued reform, regional cooperation, and the development of more resilient financial systems to withstand future shocks.