Long–term Consequences of the Crisis

Thailand was the first country hit by the crisis, followed by Indonesia and South
Korea; all three countries were hit the hardest and received IMF financial
bailouts. Malaysia was also affected by the crisis, but it declined IMF
assistance. At one point, the turmoil's contagion effects spread to other ASEAN
countries, including Singapore, Philippines, Cambodia, Lao PDR, Myanmar,
and Vietnam. These countries had experienced varying degrees of
macroeconomic effects, such as sharp drops in GDP, exchange rates, stock
prices, other asset prices, and high unemployment.

As a result, many businesses failed, and other social and political issues erupted
due to the crisis. Suharto's resignation in Indonesia and Chavalit
Yongchaiyudh's resignation in Thailand were part of the political turmoil that
followed the crisis. There was also an uptick in anti-Western sentiment, with
George Soros and the International Monetary Fund (IMF) being singled out for
criticism, particularly by Malaysian Prime Minister Mahathir Mohamad.

Longer-term effects included the loss of opportunities created during the boom
years before the crisis. Following 1997 and 1998, the crisis-affected economies
experienced a deep recession, followed by sluggish growth. Between 1997 and
2001, some economists compared the impact on countries like Indonesia and
Thailand to the Great Depression of the 1930s. Even after the recovery, with
real per capita income growth of 3 to 3.5 per cent in Indonesia, Malaysia, and
the Philippines, and 4 to 4.5 per cent in South Korea and Thailand, the
economies of Indonesia, Malaysia, and the Philippines achieved sustained post-
crisis expansion.

As these trends suggest, Asian post-crisis economies took much longer to close
the gap with the developed world. In fact, compared to previous decades, the
rise in East Asia per capita income relative to developed economies have a
tendency to flatten out among post-crisis economies in recent years. However,
real per capita incomes had significantly surpassed pre-crisis levels in the crisis-
affected economies. How many ASEAN countries with middle-income
economies, such as Japan, Hong Kong, Korea, Singapore, and Taiwan, could
struggle to climb out of the "middle-income trap" and into higher income levels.
These examples demonstrate that it is possible; however, the task is complex.
The aftermath of the crisis was one of the challenges facing the Southeast Asian
region.

Clearly, the region's economies were confronted with several challenges.

However, pronounced differences in investment spending across economies
were related to a slower pace of growth in several crisis-hit economies. After
the 1997-1998 crises and the 2001 recession, investment recovery had been
shaky and erratic. No consensus has been reached on the causes of slower post-
crisis investment growth among East Asian economies.

To some extent, the cyclical "boom and bust" aspects of investment

performance in the region can explain the region's investment weakness. High
levels of spare capacity built up before the crisis, a massive negative demand
shock released by the crisis, and a further negative demand shock from the
Information Technology stock recession in 2001 are all part of the answer. In
addition, corporate sector debt, financial system bad debt, and the need for
painful corporate and financial restructuring, particularly in Indonesia, South
Korea, and Thailand, exacerbated the economic shock.
 NPLs of Commercial Banks

With time since the crisis, those cyclical explanations became less plausible. In
many cases, it is possible to learn that:

• In most countries, capacity utilization is increasing.

• Corporate indebtedness is now comparable to that of developed economies.

• With the entry of foreign banks, banks in crisis-affected countries have seen
significant improvements in capital adequacy, asset quality, profitability, and
competition.

• Bank lending has remained sluggish, owing to a lack of corporate demand for
loans rather than a lack of bank capacity to supply credit.
New investment uncertainty, according to other analysts, is crucial. Compared
to the rapid intensification of competition from China, such a structural
adjustment process may create tension, causing new investment to be postponed
during an interim adjustment period during which firms attempt to adjust to the
new environment. Because firms are concerned about macroeconomic
instability and economic policy uncertainty, the quality of the investment
climate, for example, is likely to play a significant role.

East Asia Balance of Payments: Overall Balance (% of GDP)

References:

Ten years after the Asian crisis - library.fes.de. (n.d.). Retrieved March 20, 2022, from
https://library.fes.de/pdf-files/bueros/singapur/04601/2007-2/chirathivat.pdf