Ten years of East - Asian Financial Crisis

East Asia is having two contrasting ten year anniversaries. They both occurred on successive days and their effect panned out across continents. One was handing crown colony of Hong Kong to China and other was the East Asian Financial crisis, which surfaced a day later. The infamous East Asian Financial crisis, which started from Thailand very quickly, spread to the so called tiger economies of Asia.

It is ten years since the crisis took the wind out of economic development in Thailand, Malaysia, Indonesia, Philippines, Hong Kong along with Singapore and South Korea. Much has changed since then, almost all the countries have recovered from the crisis.

This crisis had some very important lessons for the developing or emerging economies and also brought out the inadequacy of financial institutions like IMF in catering to the need of developing economies.

It is highly unlikely, though nothing can be said for sure, that such crisis would strike again. All those countries are more sound and safeguarded to manage such situation. The most striking part of the crisis was the unscathed economy of India and China. India in particular should not take refuge in this fact and let its control down. The most important reason why India was not affected then was it does not have Capital Account Convertibility and has short term investment control. There has been lot of pressure from several quarters to ease off control in both the cases. I had once argued about India not being ready for Capital Account Convertibility in this post here. This does not mean that there should be no capital account convertibility; it does have its own benefits. After all the developed economies have full convertibility. India has huge foreign exchange reserves, inflation figure is low and the banks have small percentage of non-performing assets but there is more to be done.

As the ten year anniversary of the crisis passes by all the affected countries are more confident but by no means should they be complacent.