Despite the rapid economic growth of the region, Indonesia, South Korea, Thailand and the Philippines have recently showed some cracks in their economies that should be closely monitored, according to the UN’s Economic and Social Commission for Asia and the Pacific, or UNESCAP.
In particular, the report said managing exchange rates would pose a challenge to Asian countries this year, given that many currencies appreciated significantly against the US dollar last year and are expected to gain strength this year despite intervention from central banks.
The 1997 collapse hit Thailand, Indonesia and South Korea hardest, setting off an avalanche of bankruptcies, wiping out thousands of jobs and shaking the foundations of the region’s economies.
While the region has since bounced back strongly, the report warned that "crisis-affected countries, except for Malaysia, are displaying renewed vulnerability in 2006."
It highlighted the appreciation of their exchange rates driven by short-term capital inflows  and the risk of a sudden reversal of capital flows  and greater inflationary pressures caused by higher oil prices.
"Although growth is expected to remain quite robust, there are some downside risks for the region," UNESCAP’s principle officer Raj Kumar told a press conference in Bangkok. Those risks include "a potential oil price shock, a disorderly unwinding of global imbalances and economic overheating in China."
The UN predicted that economies across Asia would continue to grow rapidly, though slow slightly this year to 7.4 percent from 7.9 percent last year, partly due to a slowdown in the US economy, a major market for Asian exports.
To assess a country’s vulnerability to a currency crisis, UNESCAP devised an index that looks at the level of foreign exchange reserves to cover short-term debts, private domestic credit levels and exchange rate appreciation.
In the years leading up to the July 1997 crisis, which was triggered by a plunge in the Thai baht, the index steadily declined.
After a period of relative stability from 2000 to 2004, the index has started to deteriorate again in 2006 in crisis-affected countries except for Malaysia, the report showed.
Thailand now faces greater risks due to a decline in the ratio of foreign reserves to short-term debt and an increase in short-term capital inflows.
It advised countries against imposing capital controls as Thailand did in December, saying such interventions to keep currency weak is not a long-term solution and has hurt overall investment climate.
"It is a situation that South East Asian economics in particular can not afford," after a steady decline in investment share in GDP since the 1997 crisis, said the report, titled "Economic and Social Survey of Asia and the Pacific 2007."
It suggested, instead, that countries allowed greater exchange rate flexibility.
"It is also important to develop hedging instruments to manage risks and further strengthen and deepen financial markets to manage currency volatility," Kumar said.