YOKOHAMA—Finance Secretary Carlos Dominguez III has cited here the successful efforts by Asia’s economies over the past two decades to improve corporate governance and develop regional mechanisms to ensure financial stability and avoid a repeat of the economic crisis that buffeted the region in 1997.

With all economies in the region working together in the aftermath of the 1997 crisis to install mechanisms for financial support, Dominguez said the likelihood of a similar financial meltdown in the future has now been reduced.

“That does not mean, however, that our regulatory authorities should let down their guard,” said Dominguez in his speech at the opening of the Host Country Seminar organized by the government of Japan here.

“The 1997 crisis tells us that lax regulation and poor policies could cause a quickly spreading crisis. I trust we will always be in constant conversation, such as this one, to spare our economies the trauma of financial uncertainty,” he said.

The seminar is part of the series of events organized by Japan as host country of the 50th Annual Meeting of the Asian Development Bank (ADB). This year’s meeting on May 4-7 focuses on the region’s increasing need for infrastructure as a critical element towards achieving sustainable and inclusive growth.

In his remarks at the seminar, Dominguez noted the old fiscal and corporate practices that plunged Asia into a crisis 20 years ago and the subsequent changes that were made to build up the region’s resilience against financial market volatilities.

Whereas before the region’s major economies maintained fixed foreign exchange (forex) rates, today nearly all countries in Asia have flexible rate regimes that allow market conditions to define currency values to prevent borrowers and lenders from underestimating forex risks, Dominguez said.

Dominguez noted that before the Asian financial flu struck, corporations were highly leveraged, with balance sheets that had high currency mismatches.

“Today, our economies are better governed, having introduced corporate and financial restructuring measures. Our corporations understand the importance of good governance procedures. They appreciate prudent regulations,” he noted.

He said the massive capital outflows triggered by the 1997 crisis made it necessary for Asia’s economies to gather fiscal resources to shore up productivity and spur growth, which, in the process, made them fully appreciate the importance of maintaining fiscal deficit ceilings, limits to their respective debt-to-GDP ratios and a diversified tax base.

The crisis also made Asia more prudent in regulating banks and supervising corporations, Dominguez said.

“We introduced risk-based approaches to regulation and supervision. Our banks have learned to be efficient under a more stringent regulatory regime that raises loan-to-value ratios, increased risk weights, reserve and capital requirements,” he said.

“Before the crisis broke out, we were all complacent in the way we did things. We were all surprised when the financial meltdown happened. It hit our economies like a wayward typhoon, punishing companies that underestimated exchange risks and penalizing governments that mistook stable currencies as a measure of the economy’s strength,” Dominguez pointed out.

“The crisis was a misfortune. But from it we drew strength. In the twenty years that followed, the economies of this part of the world instituted important reforms that built up resiliency against financial market volatilities,” he added.

On top of adopting more prudent practices, Dominguez said countries in Southeast Asia have also come up with mechanisms for improved cooperation to assure financial stability.

Among these mechanisms is the establishment of the ASEAN + 3 (Association of Southeast Asian Nations and China, Japan, South Korea) Macroeconomic Research Office to enable regional surveillance and the close monitoring of regional trends, he said.

Dominguez also cited the Chiang Mai Initiative Multilaterization (CMIM), which established a network of bilateral swap agreements to help limit currency volatility, and the introduction of the CMIM-Precautionary Line, which serves as a crisis prevention facility.

The CMIM evolved from the Chiang Mai Initiative, the first regional currency swap arrangement launched by the ASEAN + 3 countries in May 2000.