Asia Crisis
Several asian currencies had appreciated in real terms in the 1990s and large and growing current account balance had emerged in the countries that faced a speculative attack in 1997. The overvaluation was due in part to the widespread choice of fixed exchange rate regimees in the region and the related large capital inflowa in the 1990s. By exchange rate regimes in the region currencies were seriously overvalued and that such ivervaluation was a factor in the worsening of the current account of many countries in the region. The current account imbalances and an investment boom also drove a related growth of foreign debt. Such investment boom was excessive and often in the wrong sectors: real eatste, speculative assets build-up, and so on. Interest rates at which domestic banks coould borrow abroad and lend at home were too low so that domestic firms were able to invest in many projects, which were marginal if not outright unprofitable. Once these investment projectturned out not to be profitable, the firms and the bank that lent them large sums found themselves with a huge amount of foreign debt, mostly in foreign currencies that could not be repaid. The exchangerate crisis that ensured exacerbated the problem as the currency depreciation dramatically increased the real burden in domestic currencies of the debt that was denominated in foreign currencies. A significant faction of the borrowing and lending was not going to finance new investment projects. Instead the loans were financing speculative demand of existing s
