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Kganyago on policies that strengthened emerging economies

The argument

South African Reserve Bank Governor Lesetja Kganyago detailed how central bank independence, inflation targeting, and exchange rate flexibility transformed key emerging markets, including several in Asia, since the 1990s.

By Lena Ho17 September 20263 min read
Photo: Walter Medina Foto / Pexels

1990s Crises Exposed Emerging Market Vulnerability

The speech by South African Reserve Bank (SARB) Governor Lesetja Kganyago on 15 September 2026, delivered at the University of South Africa, outlined the severe economic instability experienced by emerging markets during the 1990s.

Crises such as Mexico's "Tequila crisis" in 1994, the Asian financial crisis of 1997 which affected economies like Indonesia, South Korea, and Thailand, and Russia's 1998 default, highlighted deep structural fragilities. Governor Kganyago noted that the worst-hit Asian economies saw output decline by 10% to 13%, with currencies losing 50% to 80% of their value.

Inflation spiked dramatically, reaching 58% in Indonesia in 1998 and 85% in Russia that same year. South Africa also faced significant challenges, with its prime interest rate peaking at 25.5% in 1998, and real gross domestic product (GDP) growing by only 0.5% for the year, as recorded by the SARB's Annual Economic Report. These events underscored a widespread perception of emerging markets as inherently vulnerable.

Home-Grown Reforms Drove Post-Crisis Resilience

Despite the widespread view in the 1990s that external intervention was necessary to stabilise emerging economies, Governor Kganyago argued that true resilience emerged from internal policy reforms. He pointed out that during the 2007–2009 global financial crisis, which originated in developed markets, many emerging economies demonstrated unexpected strength.

This shift indicated a fundamental change in their economic frameworks, moving away from past vulnerabilities. A core group of significant emerging markets, including Brazil, India, Indonesia, Mexico, Thailand, and South Africa, have since gone decades without experiencing sovereign defaults, requiring International Monetary Fund (IMF) bailouts, or enduring currency collapses.

This sustained stability, Governor Kganyago stated, was a direct result of new and improved policy structures developed in response to the earlier shocks.

Monetary Policy Shifts Enabled Stability

The critical factor in moving from fragility to resilience, according to Governor Kganyago, was the implementation of stronger monetary institutions. In the 1990s, many emerging markets operated with weak monetary credibility, often maintaining exchange rate pegs, typically to the US dollar, and borrowing heavily in foreign currencies.

This combination, alongside insufficient financial system supervision, created a cycle of capital inflows, debt accumulation, and subsequent crises when external shocks hit. The solution involved a new policy recipe: central bank independence, inflation-targeting frameworks, and flexible exchange rates.

These reforms allowed central banks to focus on a clear primary objective of price stability, rather than attempting to manage multiple, often conflicting, goals like growth, exchange rates, and government financing. This clarity and operational freedom enabled central banks to make difficult decisions necessary for long-term economic health.

Asian Economies Benefit from Policy Evolution

Several Asian economies, notably Indonesia and Thailand, are cited by Governor Kganyago as examples of emerging markets that successfully adopted these policy frameworks and achieved greater resilience. These nations, which were severely impacted by the 1997 Asian crisis, have since strengthened their monetary institutions.

The shift from rigid exchange rate pegs to more flexible arrangements, coupled with independent central banks focused on inflation targeting, has helped these economies better absorb external shocks. For decision-makers in Asia, this historical analysis shows the lasting value of robust monetary policy.

The continued avoidance of defaults and currency crises in these economies since the 1990s underscores the importance of maintaining central bank autonomy and a clear mandate for price stability, particularly as global capital flows remain dynamic.

This analysis is journalism, not investment advice; consult a licensed professional before making financial decisions.

Pieces are credited to the desk that commissioned and edited them. Our editorial standards, and the desks behind them, are set out on the Editorial Standards and Team pages.

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