Taking stock : Ten years after the Asian currency crisis Based on the article by Dominic Barton, McKinsey Quarterly, 2008 No1 Graphs taken from the Pacific Exchange Rate Service site. By A.V. Vedpuriswar

Introduction  Asian financial crisis started in  The Thai Baht collapsed.  Other currencies plunged subsequently.  Since then the economies have recovered.  Healthy forex reserves have been accumulated by many Asian countries.  And current account surpluses have been registered.

The crisis at a glance

The Won

The Indonesian Rupiah

The Thai Baht

The Malaysian Ringitt

The Philippine Peso

Challenges remain  Risk management systems in Asia are not yet fully mature.  Functioning of regulatory agencies still leaves a lot to be desired.  Signs of asset bubbles emerging in China, Hong Kong, Indonesia, Singapore and Vietnam.

The emerging agenda  Strengthen risk management in financial institutions.  More importance must be given to risk management.  Risk management processes must be audited regularly.  Annual scenario and contingency planning exercises are recommended.  Stress testing must be done against significant interest rate increases, liquidity and funding shortages, operational risk(like disrupted payment systems) and external factors (oil price fluctuations)  Shift banks’ emphasis in corporate governance from hardware to software  -Need for more explicit mandates & priorities. -More active discussion and questioning by independent board members. -Greater involvement of the board in reviews of senior management. -Benchmark governance practices.

Focus on developing talent  Need to invest in recruiting and developing skilled professionals across the system.  Need for people with specialist skills and global perspectives.  Increase cooperation among government bodies -Better coordination needed among financial market regulators and government ministries with economic responsibilities –Finance, economy, planning and commerce ministries must work together.

Increase interaction among regulators across Asia  Forge closer links with international regulators like Bank for International Settlements, International organization of Securities Commissions, International Association of Insurance Supervisors.  Asian forum for regional coordination may be useful.  The forum can help in: -improving exchange of information -making the financial system more transparent -conducting programs to share best practices -developing regular regional scenario planning and crisis management exercises.

Launch master plans for the financial system  Need for cooperation between public & private sector.  Banking consolidation and regional financial integration will have to be addressed.  Regulatory framework will have to evolve.  Globalisation issues must be considered.

Conclusion  Need to avoid overconfidence.  Lot of good work and progress accomplished since 1997  But more work needs to be done.