This is so not only because so much of their economic performance depends on exports to the rich countries, but also because the expansion of their productive capacity is typically funded by direct investment of multinational corporations or loans from foreign banks. Payment of profits on investment and debt service has to be made in dollars, yen, marks or other strong international currencies which are obtained by a surplus of exports over imports. If the market for exports shrinks or fails to expand in line with growing capacity, the peripheral country has only one recourse after exhausting its reserve of foreign currencies. And that is to increase its foreign debt or attract more investment from abroad. If this way out works for a while, it can only lead to more trouble in the longer run, as debt service obligations and payment of profits to foreign capital keep on increasing.
Debt peonage is usually the final outcome.
The spurt of unusually rapid growth rates in the region opened new horizons for speculation in stock markets, real estate, and other financial outlets. Japanese, German, and U.S. banks loaded the countries up with debt at handsome interest rates. The signs of an impending debacle were not difficult to detect, just as had happened in the period prior to the widespread debt crisis of the early 1980s and the more recent one in Mexico.