Two sides revealed to the regional debt coin

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.