Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

As Asian Crisis Eases, So Does Reform Impetus

Just two years after it began, the financial crisis that started in Asia and spread pain around the world appears to be over, leaving many to wonder if the symptoms have abated before the disease could be treated.

All the conventional measures of health look good. Stock markets that tumbled soon after the crisis started in Thailand in July 1997 have bounced back, ranking among the world's best performers in the first half of 1999. Currencies that plummeted, leaving ruin in their wake, have crawled back. Foreign investors who fled Asia like moviegoers from a burning theater are returning, poking around for hidden bargains amid the embers.

But the recovery may have come too fast. In interviews with business executives, policy-makers and investors in Asia and America, there is a common thread: The remarkable speed of the rebound has drained the political urgency out of many reforms that seemed so vital during the darkest days of the crisis - and may still be essential to Asia's future. Most Asian countries have not genuinely confronted the twin weaknesses of their economies: insolvent banks and deeply indebted corporations. Bad loans and bad habits still plague financial institutions from Korea to Indonesia.

"You hear a lot about reforms since the Asian crisis," James Harmon, chairman of the Export-Import Bank of the United States, said in an interview. "The truth is that many of the reforms are not proceeding. Old habits die hard."

Harmon speaks from bitter experience. Not long ago he quietly sought help from Indonesian President B.J. Habibie in convincing one of the country's biggest conglomerates, the Bakrie Group, to begin paying back $80 million owed to the Ex-Im Bank, a U.S. government agency that promotes exports by subsidizing loans and providing credit guarantees to developing countries that buy American-made goods. Harmon's message was unspoken, but clear: The United States stood behind the bailout that kept Indonesia from a wholesale financial meltdown, and its taxpayers should not be stiffed.

So far, Harmon has proven singularly unpersuasive, perhaps because the man who owes him, Aburizal Bakrie, has also emerged as one of Habibie's staunchest supporters. Bakrie did not respond to several requests for an interview.

The guiding ethic in Asia these days seems to be this: Wait it out, because in a rebounding market, we will not have to change much. Foreign money is returning, in some cases fueled by Western companies seeking bargains, in other cases by mutual fund managers riding the momentum of a perceived recovery.

"There is no question that with improving markets, political pressure to change things is reduced," said Stanley Fischer, the No. 2 official at the International Monetary Fund.

One reason the reforms have been so plodding is that no one really decided what caused the crisis. Americans were quick to point to traditions of cronyism and corruption. But those practices have characterized business in Asian countries for decades, and didn't slow what was known as the East Asian miracle.

Asians, bolstered by some big-name Western economists, blamed the IMF for worsening the crisis by forcing big spending cuts to trim deficits. The IMF reversed its strategy after some months. In the end, U.S. and IMF officials say, the countries that most closely followed its advice - Thailand, South Korea and Brazil - appear to have rebounded the fastest. The two nations that were so mired in political chaos that they never executed the IMF's plans - Russia and Indonesia - are still in deep trouble.

Pressure from Washington has been uneven. For much of last year, the Asian crisis dominated White House strategy sessions, with many senior officials fearing it could puncture Wall Street's party. But the sense of crisis abated last September after Russia's collapse was contained more quickly than expected. Then, gradually, the impetus for wide-ranging reforms slackened, and grand plans for remaking the world financial system became modest adjustments.

Some problems that triggered the crisis seem to have been at least temporarily addressed.

The Thai baht and the Korean won float freely, and the countries have rebuilt their war chests of foreign currency, mostly through trade surpluses.

In Indonesia, where the laws are even more toothless, the government has resorted to shaming its corporate sector. The Indonesian Bank Restructuring Authority recently named the 100 worst debtors in local newspapers. But even conglomerates on the list, like the Bakrie Group, are dragging their feet on resolving their debt problems.

Asian countries have also largely halted their practice of borrowing from abroad on short terms to finance big, long-term projects. That proved disastrous when projects ground to a halt and currencies fell, forcing companies and banks to repay huge debts immediately.

Other bad habits are proving harder to break. No Asian country has yet put an effective bankruptcy law on its books, meaning it is still impossible to wipe out insolvent businesses, settle with creditors and rebuild viable companies.