The unravelling of the Brazilian currency last month was a mild affair compared with the latest mudslinging by academics over why emerging economies, one after another, are falling down. The controversial new strand of the debate is an attempt to put the onus for the malaise on the individual actions of domestic companies and banks.
New, as yet unpublished, research into how Asian corporates performed before the crisis will highlight the extent of their heavy borrowing in foreign currencies without any consideration of the risks. Standard value-at-risk analysis was a completely missing element in most corporate treasuries and no account was taken of the likely impact of devaluation, according to this theory.
Running up unsustainable debt is only one of the charges levelled at Asian corporates. In other research they stand accused of rapid investment growth that overwhelmed managerial capacity and produced returns below the cost of capital. Applying a technique called the Altman Z score, which brings together five accounting ratios, shows that Korean, Thai and Indonesian corporates were on the edge financially as far back as 1996.
"The results [of the research] indicate that there have been in Asia serious problems at the micro level - excess leverage and poor profitability," writes Michael Pomerleano, senior capital markets specialist at the World Bank in the winter 1998 issue of the academic journal Emerging Markets Quarterly.