Asian Financial Crisis and Recovery: Status and Implications for U.S. Interests (CRS Report for Congress)
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| Release Date |
April 6, 2000 |
| Report Number |
RL30517 |
| Report Type |
Report |
| Authors |
Richard P. Cronin, Foreign Affairs, Defense, and Trade Division |
| Source Agency |
Congressional Research Service |
Summary:
In terms of broad economic measurements, the Asian financial crisis largely has ended, but the
surprisingly swift recovery has left lingering economic and political problems that still could have
negative effects on U.S. interests. The economies that suffered most from the crisis that began with
the collapse of the Thai baht in July 1997 have regained positive economic growth, bolstered their
trade positions, sharply reduced interest rates, and rebuilt their international financial reserves. At
the same time, the recovery has been uneven and most of the IMF-assisted economies--Thailand,
South Korea, and Indonesia--along with less affected Southeast Asian economies and the regional
giants, China and Japan, continue to suffer from serious problems of non-performing debt and
corporate governance. Many analysts worry that as growth increases and international reserves
strengthen, structural reforms will continue to be deflected by opposition from vested economic
elites, labor unions, and populist, mass-based political parties.
One of the most striking initial consequences of the financial crisis was the revalidation and
expansion of democratic governance. Whether these gains will be sustained and expanded depends
on how effectively governments deal with the lingering socioeconomic effects of the crisis. In
Indonesia, for instance, the democratic opening ushered in by the collapse of the authoritarian
Suharto regime remains a fragile one. In late February 2000, Singapore's Finance Minister described
the question about Indonesia's political stability a "key uncertainty" affecting the wider economic
recovery of Southeast Asia.
The United States has suffered little evident economic harm from the crisis thus far, but the
effects on U.S. regional political and security interests still could be substantial in the long run. U.S.
prestige continues to be affected by the perception that the United States was dictating the IMF's
painful conditionality while itself contributing little in the way of direct bilateral financial assistance.
Generally speaking, the United States has not received much public credit for its role as the crucial
market of first resort for the recovering economies. Japan, on the other hand, has earned plaudits
for providing more than $30 billion in aid and export credits, even though Japan's economic
problems arguably contributed to and intensified the crisis. Because the crisis has tended to
undermine the strength and solidarity of the Association of Southeast Asian Nations (ASEAN),
while leaving China relatively unscathed, it also has created the potential for regional power shifts
that could threaten U.S. interests.
Some indicators suggest that the so-called "East Asian" economic model, which relied on
unrestrained debt and close government-business collusion, is in retreat, and that a more transparent,
more equity-based, and more fully entrepreneurial economic model may be emerging. At present,
however, due to the use of public funds for bank recapitalization, governments are even more heavily
involved in many Asian economies than in the past, and powerful vested interests continue to fight
a rearguard action against needed structural reforms and efforts to reduce huge levels of non-
performing debt.
