... in the early 1990's. Amid political pressure to maintain high levels of economic growth, the banking and financial systems became deregulated. As a result, domestic banks offered higher rates of return to foreign investors, attracting huge financial inflows, as investors were only too keen to pour their money into these countries. Huge loans were being taken on for domestic investment at the cost of large and persistent current account deficits. Domestic banks were taking massive loans from abroad and lending recklessly to domestic firms who invested in unprofitable and risky areas. The problem of misplaced investment was particularly evident in Korea and Thailand, where there was over-investment and over-capacity in the non-traded sector. A lot of funds were used to finance the building of multi-storey offices and luxury hotels. Over investment in this sector led to over-capacity, where in many hotels the room occupancy rate was typically 20% or less of ...

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