Asia: learning the lessons of 1997 | beyondbrics

Asia: learning the lessons of 1997 | beyondbrics:

"There is much worry among emerging market investors – and policy makers – that it is 1997 all over again. EM currencies have plunged since May. Investors have piled capital into these countries since 2008 and some now fear capital will rush the other way.

Is it 1997 redux? Not in East Asia, according to the World Bank’s East Asia And Pacific Economic Update: most economies here “are in a relatively strong position to face this shock, with significantly lower vulnerabilities than in the run-up to the 1997–98 Asian crises”.

Most notably, the exchange regimes are more flexible. A fixed exchange rate in 1997 meant East Asian central bankers raised interest rates to keep exchange rates pegged. This led to a vicious circle of asset sales, defaults and further pressure to raise rates. Nowadays, Bank Indonesia can let the exchange rate move."

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