By the end of 1996, optimism was running high, and BIMP EAGA was seen to be on the verge of an economic take-off. EAGA cooperation activities and cross-border investments had quickly developed, aided by the perception of economic stability and optimistic forecasts for sustained growth for the participating countries and the ASEAN region in general.

The 1997 Asian financial crisis, however, seriously disrupted the growth momentum. As the economic environment in Southeast Asia weakened, governments refocused their attention on national issues.

The twin weather phenomenon of El Niño and La Niña of 1998 inflicted even worse damage than the financial crisis. The severe droughts, forest fires, and the resulting haze contributed to sharp declines in the growth of the largely agriculture-based economies of most EAGA focus areas.

Small and medium enterprises or SMEs comprise the large majority of the private sector in BIMP-EAGA and these enterprises bore much of the burden of the financial crisis and the El Niño/La Niña. To minimize the impact, many firms downsized or postponed their expansion programs.

These factors combined with reduced government spending on subregional development activities resulted to the slowing down of EAGA activities.