The Asian Crisis

The Asian Crisis

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