Indonesia is now in a much stronger position to weather external shocks than in the past thanks to the series of bold reform measures taken immediately after the 1997-1998 Asian financial crisis, Finance Minister Sri Mulyani Indrawati told finance ministers, central bankers and senior financial officials from Asia, in Yokohama on Thursday.

“We have taken great lessons from the crisis, which cost us as much as 70 percent of our gross domestic product as the economy contracted by 13 percent in 1998 and the rupiah melted from Rp 2,400 to the US dollar in 1997 to over Rp 16,000 ,” Sri Mulyani told the meeting held on the sideline of the 50th Asian Development Bank (ADB) annual conference.

She referred to the massive reforms in the fiscal, monetary and financial sectors that transformed the central bank into an independent institution and introduced high budget discipline, fiscal decentralization and integrated financial oversight.

The six panelists and speakers at the meeting titled, “Twenty years after the Asian Financial crisis,” agreed the crisis-hit countries in the region had come a long way since the crisis by rebuilding foundations for growth through major policy reforms, stronger regulatory frameworks, fiscal consolidation and by building up reserve buffers.

They shared the view that stronger foundations and better macroeconomic management enabled the region to weather the global financial crisis in 2008 and the European financial crisis in 2010.

But Sri Mulyani cautioned that it is not time to be complacent, recommending capacity and resource building for the Asian regional financial safety net under the Chiang Mai Initiative Multilateralization (CMIM) of swap arrangements totaling US$240 billion between the ten ASEAN countries and Japan, China and South Korea (ASEAN+3).

She suggested that the ASEAN+3 Macroeconomic Research Office (AMRO), which is based in Singapore, should be further strengthened to fulfill its mandate to conduct macroeconomic surveillance in light of risks of imbalances being detected in the region.

Japan’s Vice Minister of Finance Masatsugu Asakawa concurred that AMRO should improve its surveillance capacity as part of a broader mechanism to spot early warning signs of crisis.

“But we don’t have any intention to make AMRO a replacement for the International Monetary Fund. AMRO, as a regional financial safety net, and the IMF, as a global financial safety net, should complement each other,” Asakawa asserted.

AMRO issued its inaugural surveillance report on ASEAN+3 countries in Yokohama on Thursday in coincidence with the 50th anniversary of the 67-member ADB. The report analyzes the region’s economic outlook and charts out its challenges and downside risks ahead.

“The region is once again tested with a new global environment of rising trade protectionism and tightening global financial conditions. Reponsive policy frameworks should be developed to deal with potential shocks and spillovers,” AMRO chief economist Hoe Ee Khor noted at another seminar on the sideline of the ADB conference.

ADB forecast in an earlier report that Asia will grow by 5.7 percent this year and next, about the same as in 2016, as the region faces risks from uncertain policy directions in developed economies, including the pace of interest rate normalization in the United States.

The multilateral regional bank, which last year lent a total of almost $32 billion in loans, grants, technical assistace and cofinancing, warned that regional policy makers should remain vigilant in order to respond to possible spillovers from capital flows and exchange rate movements. (vin)

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