Asia-Pacific economies have been hit once again by a financial crisis. On 15 September 2008, the American investment bank Lehman Brothers collapsed, triggering an extraordinary downward spiral in confidence and financial turmoil. It was also the day when the crisis truly hit Asia-Pacific shores, spreading beyond its equity markets and posing the greatest threat to the region’s development since the Asian financial crisis of 1997.
Many of the policy failures blamed on the region in 1997 were seen once again in the United States and Europe, albeit to varying degrees – lax supervision of financial systems, excessive credit creation and the build-up of asset bubbles. This time, the Asia-Pacific region is better prepared for currency and balance-of-payment crises than it was a decade ago, having improved current account balances and built up a protective shield of foreign-exchange reserves. Notwithstanding this resilience, the improvements have not been enough to prevent severe domestic impacts.
The crisis has worked its way through the Asia-Pacific region and has had deep repercussions on financial systems and real economies. Policymakers are now faced with the task of identifying vulnerabilities and finding ways in which the region’s sources of resilience, built up from its experience with the 1997 crisis, can resist shocks in the future.