Storm clouds may be approaching Asian economies as the US Fed and other central banks raise interest rates, but is there a silver lining?

Asia is directly in harm’s way as the US Federal Reserve and other major monetary powers hit the brakes, but if managed wisely, the tightening process could leave this region more vibrant.

This is a big “if,” of course. If we’ve learned anything from Asia in the 20 years since the 1997 financial crisis, it’s that complacency is just as contagious as market chaos.

While Thailand, Indonesia, South Korea and governments from Malaysia to the Philippines to India strengthened their defenses, the rapid return of healthy growth gave way to contentment.

Japan-like quantitative-easing experiments by the Fed, Bank of England and the European Central Bank enabled Asia to overcome some of its timidity to take on vested interests and recalibrate growth engines.

Losing this monetary stabilizer, on which Asia has become dangerously hooked, leaves policy makers no choice but to raise growth, productivity and competitiveness from within.

QE has been both a stimulant and an insurance policy, supporting an export-led growth model that Asia has been loath to scrap.

After Bangkok’s July 2, 1997, currency devaluation set the Asian financial crisis in motion, everyone from U.S. Treasury officials to International Monetary Fund economists to Asian leaders agreed: the region must move beyond mercantilism.

Steps were taken to move up the production/innovation ladder, but the urgency for reform was no match for U.S. consumers’ voracious appetite for Asian goods.

At the time, then-Fed Chairman Alan Greenspan called America an “oasis of prosperity” sustaining global demand. Twenty years on, that period seems more like a mirage.

At the time, then-Fed Chairman Alan Greenspan called America an “oasis of prosperity” sustaining global demand. Twenty years on, that period seems more like a mirage.

To be sure, Asia is a different place than it was in 1997. Governments are more open and nimble, banks and markets better regulated, currencies are more flexible and shock absorbers like foreign-exchange reserves are more plentiful.

But the extent to which efforts to move upmarket -– to services and entrepreneurship from cheap manufacturing -– were incomplete became apparent in 2013, the year of the “taper tantrum.”

Back then, the mere suggestion the U.S. might reduce bond purchases –- never mind hike benchmark rates -– sent emerging markets into a panic.

The resulting fire-sale on assets slammed Indonesia, India and other nations carrying current-account deficits. Fed officials were quick to clarify that QE wasn’t going anywhere.

That was until December 2015, when Janet Yellen pulled off the first of four small hikes since. Hints are, Yellen will get even more assertive, while officials in Canada and Europe are buzzing about tighter monetary conditions.

A crisis is a terrible thing to waste, as Nobel laureate Milton Friedman argued. Asia failed to jump on 1997 as an excuse to rethink growth models.

Nor was 2013 a sufficient enough existential scare to catalyze bolder action. The coming tightening process, though, promises to push Asian leaders outside their comfort zones, thrusting the reform imperative back onto the radar screen.

Governments from Jakarta to Seoul and from Taipei to New Delhi will be forced, finally, to put innovation and startups at the center of growth strategies. Riding America’s coattails is no longer an option for officials in Manila and Putrajaya.

Beijing will have little choice but to accelerate private-sector development and reduce the role of the state. Tokyo will have fewer excuses to delay the epochal structural reforms Prime Minister Shinzo Abe has been promising for nearly five years.

This shock is the ideal opportunity to address Asia’s “Cult of GDP” problem.

This shock is the ideal opportunity to address Asia’s “Cult of GDP” problem.

As we’ve seen all too often since 1997, governments make structural upgrades until gross domestic product returns to the 5% or more range. Then they celebrate and put change on the backburner.

But Asia needs to grow better, not just faster.

If the Fed’s moves refocus Asia’s leaders accordingly and they rediscover their reformist mojo, this rate-hike cycle could have a happy ending.

(William Pesek is a Tokyo-based journalist, former columnist for Barron’s and Bloomberg and author of “Japanization: What the World Can Learn from Japan’s Lost Decades.” Twitter: @williampesek)

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