ASEAN's painful lessons of 1997/98 are propelling its spectacular gains

"ASEAN's strong fundamentals are continuing to propel the region to even greater heights. If we can continue to remember the lessons so painfully learned in the late 1990s Asian financial crisis (and being learned in Europe now), I believe ASEAN can achieve spectacular gains in prosperity in the decades to come. If we forget them, those gains can never be secure," Helman Sitohang, CEO for South East Asia for  Credit Suisse, wrote in Singapore's Business Times.

He noted that, after the Asian crisis of 1997-98, ASEAN governments started taking action to reduce debt-to-GDP ratios, bolster foreign currency reserves and develop domestic bond markets to ensure that they would never again be so vulnerable to external financial conditions.

  • Indonesia's central government debt-to-GDP ratio ballooned from 24% in 1996 to 72% in 1997. But by 2010, this had been reduced to 28%.
  • Credit spreads for the Philippines and Indonesia narrowed from 987 and 1,840 basis points at the height of the Asian crisis to around 150 basis points for both countries.
  • The market capitalisations of ASEAN stock markets in the region  gained almost 900% on average in US dollar terms since that time - significantly more than the 30% gains posted by the US and UK markets over the same period.

"It should surprise no-one that ASEAN has achieved impressive growth after many member nations solidified their fiscal positions. Indonesia's GDP has grown at a compound average growth rate of 20% in US dollar terms over the past 10 years. And, in spite of the macroeconomic storms that rage around the world, Credit Suisse forecasts average growth of nearly 5.5% for ASEAN's six biggest economies in 2011, with support from strong domestic demand and high commodities prices."

  • According to Dealogic, equity capital markets issuance from ASEAN was under $6 billion in 1998; this topped $35 billion in 2010.
  • Regional bond issuance has also surged from under $10 billion in 1998 to $75 billion in 2010 and $55 billion so far this year.
  • Mergers and acquisitions (M&A) involving ASEAN companies have increased in value from $23 billion in 1998 to $73 billion last year and $48 billion so far in 2011.

"These statistics tell a clear story of how demand for ASEAN assets has strengthened since the late 1990s. I believe that the region can maintain this trajectory and that capital markets issuance and M&A activity can continue to grow at these rates. Indeed, I believe it is crucial they do," Mr Sitohang wrote.