Ten years ago, Asia suffered one its worst financial disasters when Thailand devalued the baht in an effort to shore up its faltering economy and abandoned the policy of pegging the currency to the U.S. dollar.

Now, in their efforts of preventing a repeat of that scenario, one expert opined that Asian governments may have only traded one set of risks for another, with artificially low currencies, a record $3.4 trillion in reserves and export-dependent economies.

What’s more, one news source stated, "the remedies embraced by Thailand and other countries to prevent a recurrence of the 1997 collapse may have only traded one set of risks for another. Their 'never again' determination has led them to new extremes.”

The newspaper quoted one expert on Asian markets as having stated that, "It’s a dangerous system both for these countries and for the global economy.”

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Thailand’s policy prior to the 1997 collapse, it continued, "set off a chain reaction that turned Asia’s investment and real estate boom into a bust, leading to a stampede by foreign investors rushing to pull money out. The crisis worsened as foreign exchange reserves proved insufficient to prevent the region’s currencies from plummeting.”

Granted, emerging markets have made some progress toward avoiding a similar catastrophe, the expert noted — central banks are more independent, government debt has declined, financial systems are stronger and current account balances are for the most part in surplus.

In addition, many emerging markets are not only growing, they’re booming. South Korea, for example, was on the brink of default 10 years ago. Now it’s recorded its 16th consecutive quarter of growth in the first three month of this year.

Many economies "are incomparably better than they were 10 years ago,” remarked financier George Soros earlier this month at a conference in Sao Paulo, Brazil.

Unfortunately, Soros added, some governments have learned "the wrong lesson,” citing price controls in Argentina and "very substantial reserves” in Brazil.

Ironically, stated a news source, Malaysia’s then-Prime Minister Mahathir Mohamad blamed Soros in 1997 for worsening the country’s financial crisis through currency speculation.

But, says one news source, even Malaysia’s finance minister during the crisis, Anwar Ibrahim, said "fundamental flaws have not been corrected.”

Currencies, he stated, are still inflexible.

During Thailand’s 1997 financial crisis, the baht dropped 45 percent, and its stock market fell 75 percent. South Korea’s won lost half its value, and its economy collapsed. Malaysia’s ringbit fell 35 percent.

As investors fled Asia during Thailand’s devaluation, stated the news source, they set off a plunge in other currencies that had previously been shored up through fixed exchange rate regions.

Indonesia’s rupiah, for example, fell 57 percent against the U.S. dollar.

Hong Kong, China, Singapore, Taiwan and the Philippines also suffered. The crisis even spread to South America and Russia, which wound up defaulting on $40 billion of debt.

According to a Thai news source, Malaysia’s Anwar said many governments still haven’t followed the advice of the International Monetary Fund to adopt flexible exchange rates that can help dissipate financial pressures.

While South Korea and Indonesia allow more flexibility, said another expert, China, Hong Kong, Taiwan, Malaysia, Singapore, Thailand, India, Russia and Argentina still manage their currencies, generally maintaining artificially low levels.

They’re all managed floats, he stated.

What’s more, undervalued currencies have helped make Asia’s emerging economies more dependent on exports as the rest of the world.

Meanwhile, the expert observed, the buildup of foreign exchange reserves, part of the IMF’s prescription for avoiding a repeat of the 1997 crisis, has exceeded all expectations.

Still, stated New York Federal Reserve Bank President Timothy Geithner recently in Singapore, "It may no longer be appropriate to view rising reserves as a source of increasing strength against future volatility>’

Global economist Stephen Roach added his perspective and was quoted as having said that, "By focusing on exchange rates, governments in emerging economies may overlook other risks. The next crisis is never the same as the last. By fixating on the problems that foreshadowed the last crisis, the risk is Asia gets blindsided by another problem.”

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