July 2nd represents the 2nd anniversary of the official start of the
Asian financial crisis; a crisis which some like our own Federal
Reserve would say is largely over, while others would say
continues to this day. This week PBS” “Frontline” program
focused on the background to the financial panic that enveloped
large portions of the globe as well as the role of the IMF and the
U.S. Treasury.
So, I thought I would start with a simple outline of the main
events of the crisis. Next week I will backtrack a bit and discuss
the Mexican peso crisis of 1994-95, a precursor to Asia”s chaos.
May 14, 1997: Thailand (with Singapore”s help) spends billions
of dollars of its foreign reserves in an effort to defend its
currency, the baht, against speculators.
July 2, 1997: Thailand devalues the baht, with the currency
plummeting 20%. Thai authorities request assistance from the
IMF. [The Thai stock market climbed 7.9% that day, its biggest
gain in 5 years. The rest of the world was far from concerned].
July 8, 1997: Malaysia”s central bank intervenes to defend its
currency, the ringgit.
July 11, 1997: The Philippine peso is devalued. Indonesia
widened its trading band for the rupiah in a move to discourage
speculators.
July 16, 1997: Dow Jones hits a new all-time high of 8038.
July 18, 1997: The IMF announces that it will make more than a
billion dollars available to the Philippines to help relieve pressure
on the peso. This is the first use of the IMF”s “emergency
funding mechanism.”
July 24, 1997: Malaysian Prime Minister Mahathir Mohamad
accuses “rogue speculators” for Southeast Asia”s economic
upheaval, later singling out George Soros.
August 5, 1997: Thailand agrees to adopt tough economic
measures proposed by the IMF in return for a $17 billion loan
from the international lender and Asian nations. The Thai
government closes 42 ailing finance companies and imposes tax
hikes as part of the IMF”s insistence on austerity.
August 6, 1997: Dow Jones hits another all-time high of 8259.
August 14, 1997: Indonesia allows the rupiah to float freely,
triggering a plunge in the currency.
October 8, 1997: Indonesia asks the IMF and World Bank for
help after the rupiah falls more than 30% in two months.
October 23, 1997: Hong Kong”s stocks index falls 10.4% after it
raises bank lending rates to 300% to fend off speculative attacks
on the Hong Kong dollar. The South Korean won begins to
weaken.
Oct. 27, 1997: Wall Street finally reacts in a big way,
plummeting 554 points (7.2%) for its biggest point loss ever.
Trading on U.S. stocks markets is suspended. [The Dow Jones
rallied back 5% the next day].
October 31, 1997: The IMF agrees to a loan package for
Indonesia that eventually swells to $40 billion.
November 3, 1997: Sanyo Securities Co. Ltd., one of Japan”s
top 10 brokerage firms, goes bankrupt with liabilities of more
than $3 billion. It is the first Japanese securities house to go bust
since World War II.
November 17, 1997: Hokkaido Takushoku Bank, Ltd., one of
Japan”s top 10 banks, collapses under a pile of bad loans. The
Bank of Korea abandons its effort to prop up the value of the
won, allowing it to fall below 1000 against the dollar, a record
low.
November 21, 1997: South Korea requests IMF aid. The next
day President Kim Young Sam apologizes on television to the
country for South Korea”s economic malaise.
November 23, 1997: President Clinton describes the Southeast
Asian economies as temporarily experiencing a “few glitches in
the road.”
December 3, 1997: The IMF approves a $57 billion bailout
package to South Korea, the largest in history.
December 8, 1997: The Thai government announces that it will
close 56 insolvent finance companies as part of the IMF”s
economic restructuring plan. 30,000 white-collar workers lose
their jobs.
December 18, 1997: Kim Dae Jung becomes South Korea”s first
president elected from the country”s opposition party. Within
days, the South Korean won hits new lows.
December 31, 1997: The Dow Jones closes the year at 7908, up
22.6% on the year, but still off over 4% from its August high.
Asian markets such as South Korea and Thailand finish the year
off 70% in dollar terms.
Around this time Morgan Stanley Dean Witter”s Barton Biggs
said, “The Asian contagion is like a virus that is incredibly
malignant and keeps mutating as it spreads around the world and
infecting other markets. It is a plague, and it needs to be stamped
out before it becomes epidemic.”
Next week, Mexico. In following weeks, back to the Asian
crisis.
Brian Trumbore
