Meltdown 101

Ten years ago, much of Asia suffered an economic wipeout that makes today's crisis seem like a rounding error. In Indonesia, the currency lost over 80% of its value, long-serving dictator Suharto was driven from office and hundreds of ethnic Chinese were killed in a racist pogrom. Prices in Hong Kong slumped through five years of grinding deflation. The city's stock market dropped more than 50% while property prices fell out the window — down a staggering 70%. South Korea and Thailand suffered similar fates, with plunging currencies, collapsing companies and rising unemployment.

Asia's crisis holds lessons for today. Most important: leadership matters. Notably, South Korea came out of the crisis far stronger than when it went in. Like in the U.S. today, the crisis swept through the country during a presidential election campaign. Kim Dae Jung, a longtime dissident who ran on a left-leaning economic platform, rocked markets with the suggestion that he might repudiate an International Monetary Fund (IMF) rescue plan. But after he was elected, he not only signed up for a $57 billion IMF package, he embraced even more sweeping reforms than the IMF called for. By the time the storm had passed, some of South Korea's biggest companies had disappeared. Mighty Daewoo, one of the Big Four chaebol, was dismembered and its founder prosecuted. But others used the crisis as a spur to tough action. Samsung Electronics boss Lee Kun Hee, his back to the wall, browbeat top executives into rethinking the company. A decade later, Samsung is a global powerhouse with design and technology sophistication that was impossible to imagine at the time. Hyundai Motors, too, endured the crucible and emerged stronger.

In Indonesia, by contrast, Suharto signed an IMF agreement that he had no intention of carrying out. Four months later he was driven from office, replaced by B.J. Habibie, his hyperactive Vice President, a man better known for his expensive and far-fetched plans to build an aircraft industry than for any clear sense of how to develop Indonesia's economy. Indonesia has struggled to keep its head above water ever since.

Leadership can foster a belief that we're all in it together. One of the most enduring images of the Asian meltdown was the sight of South Koreans lining up to donate gold wedding rings, jewelry and heirlooms to the country, helping rebuild foreign reserves. When Indonesia tried to emulate the gold-giving trick, Suharto's daughter was mocked as she went to donate her bit of gold. Rather than applauding her, Indonesians scoffed about how much her family had stolen from the country.

Surviving a crash isn't just a matter of everyone holding hands. Strong institutions matter. While banks toppled throughout the region, Hong Kong banks, with their conservative internal controls, came through the crisis virtually unscathed. They've been through crises, panics and bank runs before, and they didn't play the financial games that hurt their counterparts in places like Thailand and South Korea.

Another lesson: don't be afraid to experiment. Unorthodox measures can pay off. Malaysian Prime Minister Mahathir Mohamad was slammed by most orthodox economists for pegging his currency and slapping on capital controls when the crisis hit to defend the ringgit. While Mahathir's anti-Semitic diatribes against hedge funds and currency traders were off the mark, his radical action bought Malaysia time and almost certainly saved it from the worst ravages of the crisis.

Experiment, yes, but don't lose sight of core values — and maintain a commitment to openness and market-friendly policies. To shore up a plunging stock market, Hong Kong's government intervened by buying up blue-chip stocks. A decade later, a government that once prided itself as a bastion of the free market still runs a big portfolio of leftover shares and has occasionally meddled in the economy in ways that have confused businesses and the community at large. And while Malaysia's market interventions helped the country through the crisis, the country never recovered the openness and tolerance it had enjoyed during the boom years. Foreign investors have never returned to Malaysia in their pre-crisis numbers.

Institutions matter. Leadership counts. These are not ordinary times. But they won't last forever. How we — as individuals, as family members, as employees and as citizens — respond will determine not only how quickly but in what form we emerge from these tumultuous times.

Mark L. Clifford is executive director of the Asia Business Council and co-author of Meltdown: Asia's Boom, Bust, and Beyond