City & Business: Asian crisis: the brinkmanship goes on

After its convulsions this autumn, Asia is in what bankers would call the workout phase. The continent has put too much money on its card. Usage has been restricted, a repayment schedule negotiated.

Hamish McRae offers lessons to be learned on page 5. Meanwhile, the drama of will-the-market-meltdown-or-won't-it lumbers on. Last week saw a new level of fever reached as the likelihood reared its head that Korea will default on its short-term foreign debt. If Korea cannot pay a bank in Tokyo the yen it owes and the bank in Tokyo cannot pay the bank in London the sterling it owes and the bank in London cannot pay the bank in New York the dollars it owes - that's the definition of a meltdown.

And yet there was a certain element of bluff and brinkmanship going on last week. Japan is a rich country. It seems likely to remain a bulwark against a true inter-bank crisis spreading from Asia.

Furthermore, no one seriously believes Korea will stabilise until after its presidential election on Thursday. Only when the country has a new leader and this leader has clarified his position with regard to the conditions imposed on Seoul by the International Monetary Fund in return for a $57 billion bailout will the struggle between Korea and the international financial community begin in earnest.

Bluff and brinkmanship at this level is called playing with fire. But that's become the order of the day in international finance. It's about as far as you can get from the financial system Keynes and his compatriots envisioned at Bretton Woods, New Hampshire in 1944. The question is what cumulative toll is this drama taking on its participants? When does a player crack?