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June 27 1997, Bangkok. Finance One, one of Thailand’s biggest financial institutions collapsed overnight under the weight of bad loans. It was never a good sign when big banks started to fail but then the real estate market collapsed. Was it an asset bubble? Then the Baht started to depreciate significantly. Did foreign investors lose confidence? Five days later, the Bank of Thailand abandoned its defense of the Baht against the USD after days of Forex intervention. The market now dictates its value. Consequently, the Baht depreciated over 15% of its value against the USD sending shockwaves across Asia. Nine days later it was the Philippines, three days after that Malaysia, 10 days after it would be Indonesia and apparently this was experienced by all of the emerging Asian tigers. Billions of dollars worth of domestic currencies across Asia disappeared in a matter of weeks. By mid-1997, the crisis was infecting more than just currencies, one of the largest stock markets in Asia, the Hong Kong Stock Exchange (HKEX) crashed losing 10.4% of its value within a day. On September 20 1997 21% of the value of  Bursa Malaysia lost within a day and the Bursa Index (FBMKLCI) went from around 1200 to 500 within one whole year. Then the nail in the coffin – in 1998, the Gross Domestic Product (economic output of a country) of all the emerging Asian sovereigns contracted thus signalling a recession. Every economist’s nightmare.

Then our supposedly “saviour” came to the rescue. Starting August 1997, the International Monetary Fund (IMF) offered financial bailouts to the countries involved during this fiasco. Thailand was the first to receive these “aid” followed by Indonesia, South Korea and Philippines. However, all of these countries have to implement similar policies. 

Fiscal Austerity. 

Means the obligation of the government to reduce public expenditure in order to maintain the value of their respective currency from further speculations. 

Raising Interest rates.

To make things worse, these countries had to raise their interest rates accordingly to ‘stabilise the currency’. 

Yet, the IMF failed to recognise that this crisis was neither about global trade nor currencies nor even stock markets. It was literally an economic recession fuelled by speculators that burnt hundreds of millions of ordinary working class citizens across East Asia. With reduced government expenditures, public services and transfer payments (government aids) were frozen at the moment where they are really needed by the people. Higher interest rates means expensive loans repayments including mortgages, car loans, businesses loans which essentially burdened the domestic economic stakeholders. Watch the K-drama series Twenty-Five Twenty-One then you’ll see how this affected even the middle class citizens. A foreign entity forcing locals to meet their demands for assistance which turns out to be short-sighted, inefficient and aggravating? It is somewhat reminiscent of colonialism. A financial colonialism.

Where was Malaysia? Were we not on the list?

No, we were not.

September 1997, Hong Kong. Tun Mahathir attended the annual IMF-World Bank Meeting and he openly criticised the global financial institutions especially the IMF for promoting unregulated free-market policies which made Asian economies vulnerable to speculative attacks. In the following year, Tun Mahathir did the unthinkable or one might even say controversial approach. He introduced the policy of capital control which enforced strict regulations on capitals flowing in and out of our country. He openly argued that accepting the IMF bailout was threatening the economic sovereignty of Malaysia and the terms were not even effective. It remains a significant example of alternative crisis management in modern economic history, with many acknowledging its success in enabling Malaysia to recover faster than some of its neighbors that followed IMF prescriptions. However, critics argue that it came at the cost of temporarily alienating foreign investors and raising concerns about Malaysia’s commitment to free market principles. But this discussion deserved its own spotlight later on.

Meanwhile at the Hong Kong meeting, Japan’s Finance Minister – Hiroshi Mitsuzuka proposed a new intergovernmental financial institution that is specially tailored for Asian countries. It was named Asian Monetary Fund (AMF) and was proposed to raise up an initial pooled capital of $100 billion contributed by the participating members. He specifically mentioned for ASEAN nations to be included as we were one of the hardest hit regions during the crisis. The system of governance of the IMF was a quota-based power, with each member’s financial contribution determining its voting power and even share of decision-making authority. In a nutshell more money, more power. AMF sought to end this oligarchic governance by providing all member countries with a more balanced and equitable voice in decision-making.  Each time the IMF issues a bailout, the terms remain constant. Fiscal austerity, structural reforms and raising interest rates. This ‘one-size-fits-all’ approach had proved to be a failure as all of the countries that accepted the bailout in 1997 ended up falling into recession by the next year. The AMF was proposed to eliminate such treatment to ensure each one of the bailout recipients should have their respective conditions. Despite AMF being proposed as a complementary institution rather than a rivalling entity to the IMF, the United States, France, and Germany, basically the big players of IMF, opposed its formation. 50 years after decolonisation, the western powers still dictate the fates of other sovereigns – a perfect example of neo-colonialism. 

With strong oppositions from major powers, lack of consensus among Asian sovereigns and the entanglement of the Asian tigers with the IMF, the AMF was never realised. As the world was approaching the 21st century, the East Asian engine of economic boom slowed down significantly. Japan, struggling with economic stagnation, deflation and population decline from the 90s up until today was popularly coined as ‘the Lost Decade’. Malaysia was compelled to cancel its upcoming megaprojects due to fiscal deficits effectively killing the Vision 2020 policy. Indonesia saw its decades long prime minister, Suharto forced to resign by a displeased population followed by Thai prime minister, Chavalit Yongchaiyudh for the same reason. The year 1997 started with a promise of prosperity and ended with crumbling governments while the IMF never acknowledged the futile prescriptions they had imposed on the bailout recipients.

1997 was such an ugly year since it showed how vulnerable an emerging economy to quickly succumb into chaos ultimately reversing decades of developments. An important lesson to be reminded of is how classical economic approaches are no longer applicable to deal with modern complexities. The currencies being supported with foreign capitals which were tied with the banks that credits loans into businesses who offer jobs to the people. Such an entanglement was not shown in a simple supply and demand curve which explains why the ordinary terms of IMF were never meant to be successful in the first place. A step towards establishing a regional intergovernmental institution that understands the magnitude of Asian’s economic distress is paramount.

26 years later, Beijing. Two men shook hands, the Malaysian prime minister, Anwar Ibrahim and the President of People’s Republic of China, Xi Jinping. A plan was considered, to revive the Asian Monetary Fund. Things have changed since. China is an economic juggernaut, the second largest economy in the world. India, the sixth largest economy today, is expected to rise to the third notch in seven years, only below the United States. At long last, the shifting centre of economic gravity to the east by 2030 makes an Asian Monetary Fund plausible. The rest is the future.

“We cannot have the international infrastructure being decided by outsiders. We can work with them but we should have our own domestic, regional and Asian strength, not necessarily to compete but to have a buffer zone against economic crises,” – Anwar Ibrahim, 2023