A common explanation of the problems Asia faces at the moment is that debt in the region's economies is too high. I have no argument with this where foreign-currency debt is concerned. The illusion of currency stability in recent years enticed far too many companies into borrowing in US dollars when they had only local-currency revenues. The dangers of this came home to roost last summer when the region's currencies collapsed. But just the other day, I saw one prominent financial commentator saying that Asian borrowers had taken on too much domestic-currency debt as well. Of this I am less certain. The straightforward numbers undoubtedly suggest there are grounds for worry. Take bank loans as a percentage of gross domestic product, and across the region, excluding Japan and China, the ratio stood at 106 per cent at the end of last year. This was up from 57 per cent at the end of 1988. In some countries last year, the ratio went as high as 170 per cent. This is far higher than Latin America and, in several cases, far higher than G7 countries. But consider two points. The first is that a ratio of loans to GDP is a ratio of apples to oranges. GDP is a form of cash flow figure. It represents what an economy produces, not the balance-sheet value of the assets producing it. Loans, however, are a balance-sheet figure. Look at it this way. If your income is 10 (of whatever) a year, and you borrow 20, your ratio of borrowings to income is 200 per cent. But if the total value of what you own is 100, then the ratio of your borrowings to your assets is only 20 per cent. This second figure is perhaps a better way of assessing how stretched you are. The same thing applies to GDP. It's a mighty uncertain exercise to estimate how much all the assets of an economy are worth relative to what they produce, but it is undoubtedly multiples. Assume it is only five times as much (I would guess it is more), and a ratio of 100 per cent in loans to GDP becomes a ratio of only 20 per cent in loans to the value of an economy, which is nowhere near as alarming. My other point is that high figures in Asia for domestic loans to GDP only tell you Asians are savers. As my second chart shows, domestic savings ratios in Asia are much higher than in G7 countries. It is unfortunate Asian financial systems are, as yet, so underdeveloped that most of these savings are channelled back to the economies through the banks alone. It is time we had proper bond markets in Asian currencies. But it still is a fact that, for every dollar of domestic debt, there is a dollar of domestic credit. There has been a mismatch in foreign-currency borrowings, but, in domestic currencies, the domestic savers and borrowers are matched. I accept that much of this domestic credit went to the wrong uses. Make a distinction, however, between how much of it there is and how it is used. High levels of foreign debt in Asia are alarming. High levels of domestic debt are not necessarily so.