Others say Japan's feeble recovery depends too heavily on government spending, posing another threat to Asian exports. Exports are only a stopgap, however. Ultimately, economists say, South-East Asia will need to rely on its own consumers to drive growth. While households have survived the crisis in much better shape than companies, and private spending appears to be reviving, consumers will be reluctant to spend more until they are more confident that their lot has improved. Standing in the way, investors and economists say, is the mire of bad debts preventing Asia's banks from lending to growing companies.
Borrowers have the money but withhold payment to squeeze a deal from their bankers.
Weak bankruptcy laws and old-boy networks shelter big, politically powerful debtors. Although the number is falling, the central bank is concerned that banks are reducing their bad-loan portfolios largely by agreeing to defer payments and lower interest rates. In Indonesia, government efforts to revive the banking sector have foundered over a political corruption scandal involving efforts to refinance one ailing commercial bank. Consultants and foreign investors complain they have seen little constructive change at all in Malaysia's financial system, which fended off the IMF and pressure for change by locking in its exchange rate and putting controls on the withdrawal of capital, then riding along with the region's recovery. The economy is growing, but investors are still leery of a country that seems determined not to join the increasingly free-flowing global market for capital.