There account deficits in many Asian countries were very high. An account deficit of 5% of GDP is already considered very dangerous. However, evidence shows that during the 1990’s Asian economies had relatively high account deficits.
Particularly in Thailand where the current account deficits was always above 6% of GDP in the 1990’s and approached 9% of GDP in 1995 and 1996 and Malaysia where it has equally high numbers with over 10% of GDP in 1993 and slowly decreasing to 3.7% of GDP in 1996. The Philippines had a current account deficit of about 5% of GDP on all the years. In Korea, it was it was low (0-3%) form 1990-1993 but later rose quickly to almost 5% of GDP in 1996. Indonesia had an account deficit of 4% at the start of the decade, but it shrank in 1992 and 1993, only to widen to 3-4% in 1995-1996. Honk Kong had an account surplus averaging 7% of GDP from 1990-1993, however it dropped to 2% in 1994 and went in to more than 2% deficit in 1995 and 1996. Taiwan turned in high account surpluses with 4.5% of GDP in surplus for 1996. Singapore’s case is very different, its account surplus averaged 10% for 1990-1993 and 16% of GDP for 1994-1996. Due to the weakening of the Asian currencies, the account deficits had a devastating impact.
And those countries with small account deficits or surpluses did not suffer as much. China had a stable currency, Hong Kong had the reserves to successfully defend their dollar. Singapore and Taiwan’s currencies depreciated by only 18%, much lower than other crisis countries.
The account deficits could not be sustained at such high levels. Usually, it is the solvency of an economy which determines how much of a deficit it can sustain. If a country accumulates foreign debt at a rate that higher than the cost of borrowing, it cannot possibly carry on borrowing forever. However, if the economy can generate surpluses in the future, it can still pay off its debt.
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