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Strategies & Market Trends : Asia Forum
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To: Rob S. who wrote (695)1/18/1998 3:34:00 PM
From: Rational  Read Replies (2) of 9980
 
A very unfortunate aspect the SE Asian saga is that the lenders (mostly from wealthy countries) did not care to monitor their borrowers in SE Asia -- this is more foolish (in my view) than anything else that ensued. Banks must/should monitor their borrowers' ability to repay loans -- this is a standard banking tenet/practice. These lenders failed in their basic function and fueled the corruption in SE Asia, given a lack of transparency in SE Asian government policies. The US Congress and Treasury Secretary are right in not spending a dime to rescue these reckless lenders (bankers and investors). I find Indonesia is justified and smart in not assuming the Indonesian corporate debt. It is unfortunate that S Korean government is assuming some responsibility for corporate debt. Banks are demanding higher rates for rolling over the corporate debt; this creates moral hazard -- reckless lending without monitoring and then demanding a higher rate when the borrower is about to default. The best strategy for these countries (as I had advocated a long ago on SI) is to let the lenders go through the standard recovery process for a failed borrower and bite their own bullet.

Sankar

<< The basic fact is that the Asian problem stems from foolish national and corporate strategies to use huge debt to build massive plants and infrastructure on the assumption that the debts would eventually be paid off from profits on an equaly massive scale. >>
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