Asia's Decade of Transformation

Zeti Akhtar Aziz, Governor, Bank Negara MalaysiaIN retrospect, the Asian crisis 10 years ago marked not a halt but the start of a greater role for Asia in the global economy. Since the 1997 crisis, Asian countries have seized the opportunity to undertake significant restructuring and reforms and to strengthen the dynamism and resilience of their economies.

The payoffs from these efforts are visible across the region. Asia is now home to the world's fastest-growing economies, which contribute about 40 percent of global output and one-fourth of world trade and hold nearly two-thirds of the world's international reserves. Most economies in the region have shared in this growth, which has helped to reduce poverty, improve living standards, and expand opportunities for more than half the world's population.

Asia has also deepened its integration with the global economy. Total trade increased from 38 percent of GDP in 1996 to 61 percent of GDP in 2006. Although such a high degree of openness means that Asia is exposed to unfavorable external developments, the region has demonstrated time and again its capacity to rebound from adverse shocks within a short period. Indeed, after the 1997 crisis, most affected economies were able to restore stability and resume growth after just one year.

Renewed dynamism

How did Asia achieve this dramatic transformation from crisis to recovery so fast? Three key elements stand out: enhanced economic flexibility, strengthened fundamentals, and improvements in the financial and corporate sectors.

First, the greater flexibility of Asian economies has facilitated adjustment to the changing global and regional environment, resulting in significant changes in Asia's economic structures and a shift to new growth sectors in response to changing dynamics in global competitiveness.

Greater flexibility, including more labor and capital mobility, has enabled Asian countries to increasingly participate in the globalization of production, particularly in manufacturing, and to expand their technology-related services. At the same time that the North Asian economies have developed increasingly sophisticated products with global brands, the Southeast Asian countries have seen shifts to resource-based products and expansion of the services sector.

There has also been a greater rebalancing of the sources of growth between domestic and external...