29 years after the Asian Financial Crisis: Is Asia safer today than in 1997? 

Nearly three decades after the Asian Financial Crisis sent shockwaves through financial markets, toppled currencies and pushed several economies into recession, Asia is in a much stronger position to withstand external shocks than it was in 1997, according to a new report by global brokerage CLSA. Revisiting one of the region's defining financial events, the report argues that stronger corporate balance sheets, healthier banking systems, larger foreign exchange reserves and more prudent borrowing have transformed Asia's economic resilience.

The crisis began on July 2, 1997, when Thailand abandoned its quasi-fixed exchange rate and allowed the baht to float after intense speculative attacks. What started as a currency crisis quickly spread across Southeast Asia, triggering sharp devaluations, banking failures, corporate bankruptcies and deep recessions. CLSA describes the difference between Asia then and now as being "like chalk and cheese," noting that many companies in the 1990s had accumulated excessive US dollar debt while operating under fixed exchange-rate regimes that eventually became unsustainable.

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According to the brokerage, one of the biggest structural changes over the past 29 years has been the improvement in corporate balance sheets. Unlike the highly leveraged companies of the late 1990s, today's Asian large-cap firms generally carry lower debt, stronger cash positions and significantly reduced exposure to unhedged foreign currency borrowings. Regulators across the region have also strengthened banking supervision, improved capital adequacy norms and adopted more flexible exchange-rate systems, making financial markets better equipped to absorb external volatility.

Countries hit hardest

The scale of the market collapse during the Asian Financial Crisis remains one of the worst in modern financial history. Indonesia suffered the steepest decline, with its stock market plunging 92% in US dollar terms from its 1997 peak to the 1998 trough. Malaysia followed with an 87% fall, while China's H and B shares declined 86%. Thailand, where the crisis began, lost 85%, followed by the Philippines at 81% and South Korea at 79%.

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Even relatively developed markets such as Singapore, Hong Kong and Taiwan recorded declines of 63%, 60% and 50%, respectively, underlining how rapidly financial contagion spread across the region. 

Countries hit hardest in the 1997-98 Asian Financial Crisis

Rank	Market	Fall from peak (%)
1	Indonesia	-92%
2	Malaysia	-87%
3	China (H/B shares)	-86%
4	Thailand	-85%
5	Philippines	-81%
6	South Korea	-79%
7	Asia ex-Japan	-66%
8	Singapore	-63%
9	Hong Kong	-60%
10	Taiwan	-50%

Just not market crash

Beyond the stock market crash, the crisis devastated economies. Property bubbles burst, banks struggled with mounting bad loans and governments were forced to seek emergency assistance from the International Monetary Fund (IMF). Indonesia witnessed widespread riots and political instability that culminated in the resignation of President Suharto, while South Korea underwent sweeping corporate and banking sector restructuring.

The report republishes several CLSA research notes from 1997 and 1998 that warned investors about rising leverage, deteriorating credit quality and the dangers of excessive foreign currency borrowing well before the crisis reached its peak.

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What India learned while Asia rebuilt

Although India felt some spillover effects, it escaped the worst of the Asian Financial Crisis. Economists attribute this to India's relatively closed capital account, tighter regulation of external borrowing and a managed exchange-rate framework, which insulated the economy from the sharp currency collapses experienced by several East Asian peers.

The crisis nevertheless shaped India's economic thinking. Over the following decades, policymakers focused on strengthening macroeconomic stability by steadily building one of the world's largest foreign exchange reserve buffers, tightening prudential banking regulations, improving oversight of external commercial borrowings and giving the Reserve Bank of India greater flexibility to manage liquidity and exchange-rate volatility. These reforms have helped India weather subsequent global shocks, including the 2008 global financial crisis and the COVID-19 pandemic.

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While risks from geopolitical tensions, global trade disruptions, capital outflows and a stronger US dollar continue to pose challenges, analysts generally believe India is significantly better prepared today than it was in the late 1990s. For CLSA, the enduring lesson from the Asian Financial Crisis is that prudent external borrowing, strong balance sheets, sound banking systems and adequate foreign exchange reserves remain the best defence against financial turmoil. Nearly three decades later, those lessons continue to underpin Asia's economic resilience.

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