But the very top-down nature of the Asian model has proved fatal. In Korea, banks lent vast amounts on the basis of political connections and corruption rather than risk assessment. The highest mountains in the country are now made up of bad debts that the International Monetary Fund cannot possibly pay off. All eyes are now on Japan. The malaise is evident there, and how it responds is crucial.
Japan is stronger.
It has currency reserves and the export surplus that will enable it to meet external debt. Apprehension about the scale of the hidden losses has compounded the crisis of confidence. The financial authorities are inviting panic by fudging. They must now face up to capitalizing the system with public money, writing off and restructuring the poorly managed or inadequately capitalized banks. This is of vital importance beyond Japan because it is the Japanese banks that have made huge loans to the Asian countries in crisis.