The ICISA INSIDER | October 2017 | ARTICLE
Article by Rajiv Biswas, Asia-Pacific Chief Economist, IHS Markit
“Many East Asian countries have also built up their foreign exchange reserves to improve their resilience to volatile international capital flows as well as strengthening their financial resilience by adopting macro-prudential measures when required” Other East Asian economies were also severely impacted
In Malaysia, Dr Zeti Aziz took the helm as Governor of
by the East Asian crisis and its contagion effects, including
Bank Negara Malaysia in 2000 and held that office until
South Korea, Malaysia, Philippines and Thailand. South
2016, driving far-reaching reforms to the Malaysian
Korea and Thailand also obtained IMF bailouts, while the
banking system that resulted in banking sector consoli-
Philippines extended an IMF program already in place.
dation and substantial strengthening of financial regula-
Looking back at the East Asian crisis, a key question is
tion that has made Malaysia a regional leader in com-
whether Asian nations have subsequently built up suf-
mercial banking, with Malaysian banks having become
ficient resilience to economic shocks and constructed
international players with a strong regional footprint in
strong enough firewalls to prevent financial markets con-
the rest of ASEAN.
tagion in the event of another major economic shock. Indonesia, Thailand and the Philippines have also imple-
“a key question is whether Asian nations have
mented substantial banking sector reforms, undertaking
subsequently built up sufficient resilience to economic
ratios and strengthening prudential regulation and super-
shocks and constructed strong enough firewalls to prevent financial markets contagion in the event of another major economic shock”
banking sector consolidation, improving capital adequacy vision of their banking systems. Many East Asian countries have also built up their foreign exchange reserves to improve their resilience to volatile international capital flows as well as strengthening their financial resilience by adopting macro-prudential measures when required. Indonesia and the Philippines have also substantially
Undoubtedly, since the East Asian crisis, Asian econo-
improved their fiscal positions with very substantial
mies that were at the centre of the economic turmoil
reductions in government debt as a share of GDP. Since
have made tremendous progress in addressing the mac-
2004, the Philippines general government debt-to-GDP
roeconomic and financial vulnerabilities that contributed
ratio has more than halved to a new record low of 34.6%
to the financial crisis.
in 2016. In Indonesia, one of the major macroeconomic successes during the two terms of office of President
Among the major achievements have been significant
Yudhoyono was that government debt as a share of GDP
progress in the sophistication of macroeconomic man-
was reduced from 56 per cent in 2004 to just 26 per cent
agement, as well as far-reaching banking sector reforms
of GDP when he stepped down from office in 2014.
that have resulted in stronger prudential regulation of
22
banks, much improved capital adequacy ratios in the
Malaysia, Indonesia, Thailand and the Philippines
banking system, better risk management systems and
have also taken steps to deepen their equity and bond
adoption of macro-prudential measures to manage risks
markets, improving the diversity and liquidity of their
related to real estate lending.
capital markets.
