Pacific Money

What ASEAN Can Teach the World About Surviving a Financial Crisis

Having learned from the crisis of 1997 and 2000, ASEAN weathered the financial meltdown of 2008.

What ASEAN Can Teach the World About Surviving a Financial Crisis
Credit: ASEAN flag image via

Founded almost 50 years ago, the Association of Southeast Asian Nations (ASEAN) was established in order to promote regional political and economic stability. While the initial challenges faced by the region at its inception were largely political, the expansion of ASEAN membership in the 1990s coincided with proactive efforts to promote free trade in the region. These efforts were rewarded by phenomenal economic growth among Southeast Asian countries in the 1990s, thus earning them the moniker of “Asian tigers.” Foreign capital poured into the region in the early part of that decade, with investors scrambling to exploit profit-making opportunities. The regional euphoria was short-lived, however, when everything came crashing down during the 1997 Asian financial crisis.

The 1997 Asian crisis was unique in that its devastating impact was mainly contained within the region. East Asia and the Pacific contracted by 11 percent, while Southeast Asia alone contracted by 30 percent in 1998. In the meantime, the rest of the world continued to grow with hardly a hiccup. In a matter of two years, the region’s fragile recovery was interrupted by the Internet bubble of 2000 which, while more widespread in nature, hit Southeast Asia harder than the rest of the world. But nothing could prepare the world for the massive hit of the global financial crisis of 2008. This crash was deeper than the 1929 crash, and while the speed of recovery has been faster compared to what it was then, the jury is still out regarding the true trajectory of the current recovery: at best, global recovery has been incomplete and uneven across countries and regions.

Oddly enough, the behavior of the Southeast Asian region following the 2008 crisis was the opposite to what it was in 1997 and 2000. After 2008, the rest of the world experienced severe economic recession, whereas Southeast Asia’s regional growth simply slowed but notably did not contract. Studies have shown that the region has clearly become more resilient to shocks over time, and there are important lessons to be gleaned from these research findings.

The most important lesson is that fostering closer and sustainable international trade matters a lot in developing greater robustness against shocks. This is counter-intuitive to the historical response to crises, which typically involves instituting protectionist measures (no matter how subtle they are). Research has shown that protectionist measures tend to linger long after crisis recovery, thus effectively slowing down overall long-term growth. Instead of erecting barriers to trade, Southeast Asian countries pushed ahead and established an even greater number of direct international trade relationships with other countries in the region during the turbulent 1990s. This trend has continued well into the 2000s, resulting in a highly connected and robust regional trade network that has made the region more resilient to shocks and less vulnerable to economic risk over time. There has also been increased participation in international trade among more countries in the region. While some countries, like Myanmar and Laos, still continue to operate at the fringes of the regional trade network, the majority of Southeast Asian countries today actively participate in regional trade to a much greater extent than they ever did in the early 1990s.

Of course, fostering closer international trade implies the development of flexible, internationally-oriented industries. Southeast Asia has always had a strong export orientation, successfully leveraging its reasonably priced, high-quality manpower and other resources to develop export-focused industries. This has allowed the region to take full advantage of the parallel trend among multinational enterprises to offshore, outsource, and establish more globally dispersed value chains.

The ASEAN Economic Community — with its mandate to create a single market by breaking down the barriers to the free movement of goods, services, capital and people — is poised to further foster international business growth, both within the region and the rest of the world.

ASEAN’s leaders must push ahead to fully support the implementation of the mission of the AEC. This will help the region preserve its economic gains and chart its path to further growth. Australia and the rest of the world will do well to proactively reach out to Southeast Asia now, and contribute to building a more connected and thus more resilient global economy.

Dr. Sandra Seno-Alday is a researcher at the Sydney Southeast Asia Centre (SSEAC) and a Lecturer of International Business at the University of Sydney Business School.