Just clearing away about ?13 trillion of bad loans at the nation's biggest lenders will cost up to 200,000 jobs as insolvent companies are shuttered, says Economic and Fiscal Policy Minister Heizo Takenaka.
"The lesson is that it's best to address these problems quickly, otherwise they come back to haunt you as Korea and Malaysia are now finding out," said Manu Bhaskaran, Asian strategist at SG Securities Pte.
In Thailand, about 855 billion baht (US$19 billion) or almost one fifth of all loans, are at least three months overdue. Lending by Thailand's commercial banks has fallen 10 percent this year.
"People joke you need US$1 million to borrow US$1 million," said Peter Brimble, president for policy research at Brooker Group Plc, which plans to sell about US$663,000 of shares in an initial offer to fund its expansion.
"We'd eventually like to have a much better option of a mix between equity and debt financing, but right now the option doesn't really exist for loan financing," he said.
The problem is also deterring foreign investment, particularly in Southeast Asia. Foreign investment in Asia, excluding Japan and China, fell about 17 percent between 1997 to 2000, to just over US$50 billion, as fund managers and companies sought more stable locations to put their money. A lot of money was reallocated to China.
"The rest of the world has a better understanding of what's happening in these economies," than it did in 1997, said Kevin Chan, a banking analyst at Nomura International Ltd. He estimates bad loans in Asia are worth between US$1.3 trillion and US$2 trillion. "They don't really care about Southeast Asia." Investors' apathy compounds Asia's problems. The lack of outside scrutiny may mean governments feel less pressure to clean up their banking systems.
Poor leadership isn't helping. Indonesian President Abdurrahman Wahid faces impeachment on charges he misappropriated part of US$6.2 million in state funds that disappeared, including a US$2 million donation from the Sultan of Brunei. Wahid claims the Sultan's money was a personal gift.
In the Philippines, Joseph Estrada was ousted in January, then arrested on corruption charges. Thailand's new premier, Thaksin Shinawatra, faces a possible five-year ban from political office for failing to declare personal assets of 10.5 billion baht in 1997.
Japan has had 11 leaders in the past 12 years.
"What we need is stronger government leaders with long-term vision and power to put through policies," Chan said.
Even with strong political leadership, there's no easy fix, and bad loans in Asia wouldn't disappear overnight, analysts say.
"We're talking about a minimum of five years to deal with this problem," said Bijan Aghevli, head of Asia Pacific research at JP Morgan & Co in Hong Kong and a former deputy director of the IMF.
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