Over-borrowing in foreign currencies, mainly from the corporate sector, helped give way to crisis in 1997. Lower ratios of external debt to GDP and less corporate short-term external debt exposure are likely to help Asian economies this time around. Still, some credit and capital have been misallocated, particularly in property markets. This lead to credit crunch and interest rates were increased dramatically.

2: Allow exchange rates to be more flexible

In 1996, most Asian currencies were pegged to the U.S. dollar, forcing central banks to draw on their limited foreign-currency reserves to defend them. Today, Asian currencies have far more flexibility. In 1997, the hardest-hit economies of Thailand, Indonesia, Malaysia and South Korea saw their currencies lose more than 50% of their value against the dollar.

3: Build up foreign-exchange reserves

Asian policy makers swallowed a bitter pill back in 1997, when several countries were forced to turn for a bailout to the International Monetary Fund. The IMF imposed austerity measures that critics said helped accelerate the crisis and toppled governments. In the years since, Asian economies worked to build up their foreign-exchange reserves. However, Malaysia was the only country among those who were hit by the crisis that did not surrender to the IMF and tried to recover on their own. This measure prevented international pressure and country over internal matters of the country and stay politically stable. 

4: Don’t run large current-account deficits

Unlike 1997, when seven out of 10 Asian countries were running deficits, most countries in Asia today have current-account surpluses. That has helped offset capital outflows. And since most countries in Asia are net importers of commodities, falling commodity prices could be a benefit for the region overall, helping boost trade surpluses and strengthen finances. 

5: Improve banking oversight and coordinate policy with other countries

Since 1997, Asian countries have agreed to a multilateral currency swap arrangement that allows them to manage short-term liquidity problems. In addition, many countries have increased transparency, posting reports about monetary moves online and putting checks on fiscal policy. 

Over-borrowing in foreign currencies, mainly from the corporate sector, helped give way to crisis in 1997. Lower ratios of external debt to GDP and less corporate short-term external debt exposure are likely to help Asian economies this time around. Still, some credit and capital have been misallocated, particularly in property markets. Asia’s Achilles heel is its domestic debt-to-GDP ratios which are higher in many countries than in 1996, said Rob Subbaraman, an analyst at Nomura. “This could lead to a credit crunch when interest rates rise in Asia,” he added, though that’s unlikely to happen this year.

In 1996, most Asian currencies were pegged to the U.S. dollar, forcing central banks to draw on their limited foreign-currency reserves to defend them. Today, Asian currencies have far more flexibility. In 1997, the hardest-hit economies of Thailand, Indonesia, Malaysia and South Korea saw their currencies lose more than 50% of their value against the dollar, DBS said in a research note. Over the past year, however, “their purported ‘thrashing’ has put them down by 15%.” Of course, the U.S. Federal Reserve may still decide to raise interest rates at its next meeting in September, putting further pressure on currencies like the Indonesian rupiah. That could hurt companies that borrowed in dollars and add stress to weaker, commodities-exporting countries that are suffering from lower prices for coal, ores and oils and rising non-performing loans.

Asian policy makers swallowed a bitter pill back in 1997, when several countries were forced to turn for a bailout to the International Monetary Fund. The IMF imposed austerity measures that critics said helped accelerate the crisis and toppled governments. In the years since, Asian economies worked to build up their foreign-exchange reserves as a buffer and can cover around 15 months of imports, according to Morgan Stanley. More liquid domestic bond markets also provide space for Asian markets to borrow and finance spending, Bank of America-Merrill Lynch said in a report.

Unlike 1997, when seven out of 10 Asian countries were running deficits, most countries in Asia today have current-account surpluses. That has helped offset capital outflows. And since most countries in Asia are net importers of commodities, falling commodity prices could be a benefit for the region overall, helping boost trade surpluses and strengthen finances, says Nomura. Indonesian Trade Minister Tom Lembong said in the short term that may mean letting the markets do their work. The rupiah’s depreciation, for example, has helped Indonesia rectify its trade deficit, bringing the country closer to closing a persistent current-account deficit. One problem it will continue to face, however, is the fallout from the sharp slowdown in demand for exports, which have led to stockpiles of some commodities. In other countries, a decline in the working age population will weigh on future GDP  growth, while poorly targeted investment in manufacturing that has failed to increase productivity will continue to limit the potential for trade expansion.