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Twenty years ago, a financial crisis emerged across Asia and threatened the entire regional economy. The crisis led to a huge drop in economic activity, a sharp depreciation of local currencies, and massive losses to the stock markets. Drastic action by domestic policymakers and significant international aid halted the crisis, but not before it caused tremendous economic pain across the region.

In the wake of the crisis, countries across the region implemented a broad range of reforms, many of which were successful as Asia returned to rapid growth in the 2000s. However, the influence of the crisis shaped the development of the region throughout the 2000s through to today.

To mark the anniversary, today we launch a new series looking back at the crisis 20 years later. In the first episode, we sat down with David Dollar, a senior fellow at the Brookings Institution. David worked as an economist at the World Bank for 20 years, focusing on a variety of Asian economies. He also served as the U.S. Treasury’s economic and financial emissary to China, based in Beijing. David has written numerous scholarly articles on Asian economics and is a frequent public commentator on the region.

David gives a great overview of the Asian financial crisis, including its origins and long-term impacts. Some of the key takeaways include:

• Reliance on cheap borrowing in foreign currencies created financial vulnerabilities across the region that led to the crisis.

• A debt crisis that started in the private sector grew until it became a general macroeconomic crisis, impacting the finances of national governments.

• China played a broadly stabilizing role during the crisis, resisting temptations to depreciate its currency.

• Few emerging markets have opened up their financial systems without undergoing a period of financial instability.   

The views expressed are not necessarily those of the Federal Reserve Bank of San Francisco or of the Federal Reserve System.