se loans were all approved by the international banks. Why didn't the foreign banks have stricter loan policies? Why did they so eagerly throw money into Asia? The foreign banks weren't compelled to keep making loans into the region. Obviously, once a bank had a huge amount of capital and investment tied up in Asia it would be more willing to make repeated loans if it thought that the sequential loans would help recover the lost capital. However, before the initial loans were made the banks should have taken a deep look into the heart of the Asian model. It seems that the foreign banks thought that whatever problems or short-term inter-bank liabilities might arise would be effectively guaranteed by government measures and intervention or by bailouts from the IMF. It seems that most of the foreign debt accumulated by the Asian banks was in the form of short-term, foreign currency denominated, bank-related, unhedged liabilities. These short-term liabilities accounted for 50% of the total foreign debt in the Asian nations involved in the crisis (and in a few nations, over 100%!!). This shows the financial fragility of the Asian nations.Earlier it was stated that the Asian economies were following a model developed by the Japanese in the years following World War II. This model relied heavily on exports. Well, the Japanese economy stagnated in the early 1990's. This meant a general slowdown/reduction in the amount of exports for many of the Asian nations. Starting around 1995, the American Dollar and the European Monetary Unit began to see serious appreciation. The dollar appreciated sharply around 1996. Now, the Asian nations whose currencies were pegged to the dollar experienced problems. In real exchange rates, their currencies also appreciated (although in the nominal rates just about all of them depreciated to extreme levels). This made their competitiveness in the area of exports drop. Many of the nations lost the competitive edge in ...
