The Asian Financial Crisis of 1997-1998 was a major regional financial crisis whose causes, consequences and solutions remain debated. The crisis affected the whole of Asia, with many countries losing the hard-earned economic gains of years of bailout and development, particularly in Southeast Asia. It began in July 1997, with the floating of the Thai baht, when the currency was hit with downwards market pressure. Other regional currencies quickly followed suit and fell, some catastrophically.

The crisis was rooted in a variety of economic growth policies that had been employed in the region in the years leading up to the crisis. These policies were intended to accelerate development, particularly in the form of foreign direct investment, by creating a finance-led growth model. This resulted in high leveraging and high debt percentages amongst Asian firms and economies. This high level of borrowing, combined with uneven regulations and a global slump in trade, exposed many countries to heightened risk and a decrease in capital inflows.

The International Monetary Fund (IMF) was a key player in tackling the financial crisis, providing aid to affected countries in exchange for strict spending restrictions being enforced. In the years following Thailand’s collapse, the IMF provided loans to the affected countries on condition of reforms, such as the removal of trade restrictions and an increase in transparency and accountability. In addition, country-specific measures included the alteration of budget policies, the alleviation of short-term debt, and an increase in investment.

Looking back, there is still much to be learned from the Asian Financial Crisis. With the risk posed by a high levels of debt still present in many countries, there have been efforts to introduce mechanisms to avoid a relapse of the situation. These include strengthening domestic financial systems, developing strong supervisory standards and regulations in financial sectors, and more oversight from international institutions such as the IMF and World Bank. Additionally, there has been a move towards encouraging and investing in research and development, and improving the quality of education in the region.

It can be said that, twenty years on, the Asian Financial Crisis was an important lesson and turning point in the history of the region. Although painful at the time, the reforms, investments and infrastructure development of the era have enabled the region to build upon and create sustainable financial systems, providing a more stable future.