Where the crisis goes next

When Paul Thrush and Robert Morrice arrive at Canary Wharf tomorrow for Barclay Capital's weekly risk management committee meeting, the bankruptcy of Yamaichi Securities nine days ago will be ancient history. "Last week?" said Robert Morrice, co-head of fixed-income trading at Barclays. "I'm having trouble remembering yesterday."

Mr Morrice and Mr Thrush, head of foreign exchange trading at Barclays, are two of perhaps a dozen executives navigating Barclays through the Asian financial crisis. Their assessment of where things stand:

o The shift in focus to Tokyo and Seoul represents a new, darker phase of the crisis.

o The critical event ahead is the announcement by the Japanese government - due on 10 December but rumoured to be delayed a week - of its plan to restore financial stability.

"The plan must be credible," said Mr Thrush. "Enough public funds must be committed to shore up the banking system. There must be a large fund - estimates range up to $800bn (pounds 470bn) - into which non-performing loans accumulated by Japanese banks can be placed. Steps must be taken to restore the confidence of the Japanese public, which is sceptical of both the government and big business."

o If Tokyo comes up with a plan satisfactory to Washington, the Clinton administration will allow the yen to fall to 130-to-the-dollar, which will provide Japan with the necessary insulation to the economy during the restructuring of the financial system and economy.

o Sometime in the next two weeks the IMF and the South Korean government must announce a credible bail-out plan for Korea - with the bail-out far exceeding the $20bn now on the table.

o Korea must find $30-$35bn to honour or roll over international debts. But it remains uncertain whether the country - which has a reputation for labour militancy, and which goes to the polls to elect a new president on 18 December - will accept the economic pain the IMF will impose before it lends the funds.

o The greatest risk is the unknown. "No one knows how large the number for bad Japanese bank loans is," said Mr Morrice. "No one knows the exact structure of Korean debt. No one knows the foreign reserves held by the Korean central bank."

o Volatility in the financial system could get worse. "Korea may need $80bn," said Mr Thrush. "If it gets too little, the market will punish it. The market overall is long," added Mr Morrice, "and people will be looking toward settling their positions for year-end." The fear is that a natural December sell-off could spiral into something far worse as a result of market jitters about Asia.

o Asian authorities are aware of the seriousness of the situation. Korean central bank officials have met with authorities in London and New York, as well as traders including George Soros, and, said Mr Morrice: "They are looking for advice on how to restore market confidence."

o What the markets fear most is a forced sell-off of securities by Asian investors. "The selling we've seen by Japanese investors has been in yen- denominated securities, and it's been handled extremely well." said Mr Morrice.

o Even if the ticklish financial situation in Tokyo and Seoul is handled well, the Asian financial crisis could spread to other emerging markets. "I would be concerned about the Brazilian economy, as well as present developments in Russia, if we see a further 10-15 per cent devaluation of their currencies," Mr Thrush said.

o All bets about the longer-term economic consequences of Asian turmoil are off. The IMF and other official bodies have downplayed the effect of the Asian crisis on the global economy. But Mr Thrush said: "I'm bearish. I can see the Asian situation knocking one to two percentage points off global economic growth next year."

o The chance of a 1930s-style slump should be discounted. "Basically," Mr Thrush argued, "the US and European economies are in sound shape."