Introduction

A vast amount has been published on the impact of the recent regional financial and economic turmoil — commonly termed the “Asian Crisis” — on the Asia-Pacific region, the emerging markets in general, and the global economy as a whole. However, despite their location close to the epicentre of this turmoil, there has been relatively little commentary or analysis on the impact of the Asian crisis on the four transitional countries of Southeast Asia: Cambodia, Laos, Myanmar, and Vietnam. This essay attempts to rectify, at least in part, this apparent gap in the coverage of the four countries, which will collectively be called the Greater Mekong Sub-region (GMS) for the purpose of this chapter. Having embarked on economic reform programmes in the latter part of the 1980s — broadly intended to unwind a significant part of the command economy structures, and replace them with more efficient market-oriented macroeconomic management methods — all four GMS countries were struck by the Asian crisis just as they were entering their second, and perhaps more challenging, decade of economic liberalization.

The adverse effects of the Asian crisis now appear to be greater and more far-reaching for the GMS countries than most observers and political leaders had first envisaged in late 1997. Initially sparked by a foreign exchange crisis in Thailand (a country which shares extended land borders with three of the GMS countries) in early July 1997, financial instability rapidly spread to the currencies and banking sectors of various other countries in the region, before burgeoning into a wider economic crisis for the Asia-Pacific, and leading to a contagion effect across a wide spectrum of the world's emerging markets. As a result, the Asian crisis now poses very immediate economic and financial challenges for many economies in the Asia-Pacific region, and has prompted a long-term change in global perceptions of financial and investment risk pertaining to emerging markets as a whole. Both those immediate challenges and the changes in risk perceptions undoubtedly apply to the four GMS countries.