Currencies in East Asia took a beating a few years ago, with some dropping about half or more than half of their value.
But observers of the Asia financial crisis are still learning how to avert a future one.
Penn alumna and Governor of the Central Bank of Malaysia Zeti Akhtar Aziz spoke on April 24 at the Steinberg Conference Center about her experience helping to manage the Malaysian economy during the financial crisis.
The Central Bank of Malaysia issues currency and serves as the financial advisor to the government of Malaysia.
The forum, entitled "The Asian Tigers: A One Time Phenomenon or Poised for Return?" was attended by about 30 students and faculty members.
When the financial crisis hit, some Asian countries called upon the International Monetary Fund to provide financial assistance, although the IMF imposed stringent economic conditions in return.
Malaysia, however, chose to respond differently.
Instead of relying on outside help, the country imposed capital controls through its central bank.
Wharton Professor Richard Herring introduced Zeti Aziz as the principal architect of the alternative way of dealing with the financial crisis -- one which received very heavy criticism in the West.
"Western critics have begun to take a second look at the experience," Herring said, "because the standard story was it's easy enough to put on capital controls, but it's tough to take them off."
Zeti Aziz, who got her Ph.D. in economics from Penn in 1978, said Malaysia's capital controls required all foreign borrowing to have approval from the Central Bank.
"We were very much criticized that we deprived the private sector very often of obtaining funds from abroad," Zeti Aziz said. "Nevertheless, we felt we had in place a very transparent approval process. You had to have foreign income if you were to borrow from abroad, either from foreign exchange earnings or income from investments abroad."
When the crisis hit, most of the top foreign borrowers were in a position to address the crisis, according to Zeti Aziz. Malaysia was thus able to meet its foreign obligations and averted an IMF bailout.
"Whereas in Indonesia, Thailand and even Korea where they had liberalized the system, and they were able to borrow freely, foreign indebtedness became massive following the degradation of their currency," Zeti Aziz said.
Zeti Aziz predicts that East Asia will continue to be vulnerable to the global environment because the region is trade dependent. She thinks the region can reduce its vulnerability to external developments by strengthening the domestic economies.
Diversification of the economic base has helped East Asian countries respond to changing international conditions, Zeti Aziz said.
Two other factors have the potential to enhance the growth of the region.
The first is intra-Asian trade.
The other factor is the region's demographics. Zeti Aziz said that the region as a whole has a very young population, and the region will possess the largest pool of labor in the world.
"Most East Asian economies have now emerged from a more challenging period very much strengthened by having in place the foundation for the region's potential for great promise," Zeti Aziz said. "I believe that the Asian miracle is by no means over."
Economics Professor Roberto Mariano generally agreed with Zeti Aziz's assessment of East Asia. However, he warned that the global financial system is vulnerable right now, citing high household and corporate debt in the major Western countries.
First-year MBA student Clayton Carol said that no one knows right now whether the approach taken by Malaysia during the crisis can serve as a model for any future crisis.
"Up to this point, it's been a success," Carol said. "The question is how this will play out over five, six or seven years."
The forum was hosted by the Wharton Undergraduate Finance Club, the Malaysian Students Association and Wharton International Relations.
