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Living on borrowed time

Too many people believe that the Asian crisis is over. It has only just started. Investors are encouraged by the reforms that Asian governments have said they will implement. The World Bank, IMF and US government - if those last two can still be considered separately - have added to the euphoria by praising the governments for the swiftness in capitulating to their demands. And the markets have responded. Capital gains on some Asian benchmarks were 18% in the first quarter.

Unfortunately the bounce does not reflect fundamentals. There has been little actual reform and this is unlikely to change in the short term. The reforms are too profound, too alien and too politically difficult to be implemented quickly.

Meanwhile, the region's economies are collapsing and the banking crises have not even begun to unwind.

Korea is the biggest problem. The corporate sector must repay $80 billion in foreign debt this year, the economy will contract 5% and non-performing loans in the banking sector will peak at around 40%.

Compare this with other banking crises. During the tequila crisis non-performers were 9% in Brazil and 17% in Venezuela.