Malaysia, which refused bailout from the International Monetary Fund (IMF) during the Asian financial crisis, says Greece should be given more time to implement reforms and clean up its finances, otherwise an overly-stringent austerity drive could push the country into a prolonged recession and make recovery even more unlikely.
"The adjustment, the austerity and consolidation of the fiscal position has to be done gradually because any drastic prescription or conditionalities would drive the country into a new phase of economic recession and this would increase the cost of to the economy and make recovery potential more remote, " Zeti said.
Her comments back the rhetoric from IMF Chief Christian Lagarde, who last week said Greece should be should be given another two years to reach its budget goals, arguing that euro zone should not blindly stick to tough budget deficit targets if growth weakens more than expected.
Lagarde's comments drew sharp criticism from Germany's finance minister Wolfgang Schaeuble, who said Lagarde appeared to contradict IMF's own stance on austerity, noting that the fund had "time and again" warned that high debt levels threatened economic growth.
Zeti is the latest prominent figure in Asia to weigh in on the debt situation in Europe. Bank of Thailand governor Prasarn Trairatvorakul and South Korean President Lee Myung-bak in interviews with CNBC this year both drew on their countries' respective experiences in taking on the tough reforms dictated by the IMF back in 1997.
Malaysia, like many of its Asian peers, saw capital flight in 1997 that caused regional currencies to plunge, triggering the onset of the Asian financial crisis. While worst-hit nations like Indonesia and Thailand accepted economic aid from the IMF and the World Bank and had to go through strict and wide-ranging reforms, Malaysia chose to controversial route of imposing capital controls.
Malaysia said the move appeared to help the economy avert the worst of the crisis. After contracting 7.4 percent in 1998, the economy rebounded and expanded by 6.1 percent the following year. In comparison, Thailand's economy shrunk 10.5 percent in 1998, and rebounded to a 4.4 percent growth the following year, while Indonesia's economy contracted 13.1 percent in 1998 and recovered to a 0.8 percent expansion in 1999. (Read more: Asia's Message to Europe: Bite the Bullet and Implement Reforms )
'Balanced Approach' Needed for Reforms
While Zeti does not think that conditions attached to loans should be too onerous, she said indebted nations also need to bite the bullet and implement changes. Although these changes take a lot of time, consolidating finances and restructuring the economy will restore competitiveness.
What's important is a "balanced" approach, she added.
"There are so many things that can be done to reduce this severity on the economy concerned and I believe in this. And this is what Malaysia did, " Zeti said. "And it's very important to have a balanced approach and I think this can be done for in the European experience as well."
Greece has been negotiating with the European Commission, the International Monetary Fund and the European Central Bank— known as the troika – since early September over a two-year, 13.5 billion euro ($17.6 billion) austerity plan in exchange for 130 billion euros ($169 billion) in aid. The troika disputes some elements of the austerity plan and wants Greece to make more budgets cuts next year so that the aid payments can be disbursed.
Greece's Prime Minister Antonis Samaras has said that without that aid, the country will run out of money by November.
Jim Walker, Founder and CEO of Asianomics in Hong Kong, said it may take between 5 and 10 years for Europe to work out its debt problems. A faster way would be for certain peripheral nations to leave the euro zone.
"The policies that are in place right now guarantees that this is a slow moving train wreck, " Walker told CNBC Asia's "The Call." "We don't get out of the deflationary process in Europe without devaluation of the currency in the countries that are under pressure, places like Spain, Portugal and Greece."
—By CNBC's Jean Chua.