---------- Forwarded message ---------- Date: Fri, 9 Jan 1998 22:12:16 -0600 From: Kim Scipes <[EMAIL PROTECTED]> Reply-To: Forum on Labor in the Global Economy <[EMAIL PROTECTED]> To: [EMAIL PROTECTED] Subject: Asia economic crisis January 9, 1997 For those of you who have seen my recent post, this is a follow-up to that. In today's New York Times (NYT), on the front page, there was an article about the fear of economic collapse and economic turmoil in Indonesia. Indonesians are scared the IMF will cut off the money it had promised (approximately $40 billion) because the government is not taking measures the IMF feels is appropriate. The IMF is sending two of its top officers out to see Suharto and explain to him that he has to get his act together. Interestingly, the article states, "At this point, however, it is unclear what the IMF can do. Many investors are steering clear of Indonesia. 'This isn't like South Korea', a senior official of an international organization in Washington said tonight. 'There is no emergency package up anyone's sleeve'." The Indonesia Rupiah has fallen drastically the past few days. On Wed, it was R 8375 to one dollar; on Thursday, it was R 9400 to the dollar, and "The nation's currency , the rupiah, fell sharply today, to a record low of 10,550 to the dollar. The rupiah has lost roughly half its value SINCE 1998 BEGAN (emphasis added) and fallen 75 percent sinceJuly." "Without an unforseen recovery, the weak currency could demolish the economic assumptions that underlie the IMF rescue package, undermining hope that the country's slide could be halted. [para] The rupiah's drop in value steeply increases the cost of repaying Indonesia's huge commercial and Government debts. More than half of those are due this year." Seth Mydays, "Markets Tumble and Rumors Sweep Indoniesia Capital: Panic Buying in Shops--Fears of IMF Aid Cutoff Stir Talk of Political Instability and Suharto Succession", NYT, Jan 9, 1998: A-1, C-2. This panic has spread across SE Asia. Stocks were hit in Singapore (-7.74%), the Philippines (-6.8%),Indonesia (-11.95%), Malaysia (-2.4%--after a 2.7% drop on Thursday), Thailand (-2.7%), and Hong Kong (-4.18%, after -8.7% the preceeding two days). Data from Edward A. Gargan, "Southeast Asian Markets Dive in Wild Seeling Bouts: Deepening Crisis in Indonesia Spurs Selloffs," NYT, Jan 9, 1998: C-2. And from this week's "Business Week" (BW). They present an interesting chart, which they title "Submerging Markets", which lists the percentage change in currency value (against US dollar) and the percentage change in dollar value of stocks since Dec 31 (although they do not list the cutoff date--my guess would be around Jan 6). Note that these changes are only since Dec 31, and NOT July, when the crisis first began. In any case, I give change in currency first, and then change in stock value after for listed countries: Indonesia -36.1, -36.7 Malaysia -14.3, -25.1 Philippines -13.5, -18.8 Thailand -13.2, -13.7 South Korea -8.3, 0.7 Singapore -3.5, -13.9 Japan -0.9, -1.8 China 0.0, -16.7 Hong Kong 0.0, -10.9 The managing director and head of regional research at Merrill Lynch (Asia Pacific) Ltd., Michael Unsworth, says, "'There is nothing holding these currencies up'." I quote further from the article: "Washington officials concede that they were surprised by the speed of the latest Asian financial collapse. If the hysteria runs much longer, Asia could be sucked into recession or even depression. That could face the international financial system with its biggest test since the oil shocks of the 1970s. [para] But even if markets calm quickly, Asia faces a large-scale rescheduling of debts and a sharp downturn in demand in what had until recently been th world's fastest-growing region. 'The biggest risk is that Asian instability will trigger a world crisis, as opposed to just a financial market problem,' says David A. Wyss, chief economist for Standard & Poor's DRI in Lexington, MA. [para] The two biggest wories are Korea and Indonesia. Although Korea won a respite by getting foreign banks to roll over $10 billion to $15 billion in loans, it's still scrambling to put together a multibillion-dollar, long-term funding package. *** 'Korea is not out of the woods by a long shot,' warns Peter Churchouse, a managing director at Morgan Stanley Asia Ltd. in Hong Kong. [para] Indonesia is even more explosive because of a volatile political and racial mix on top of a dire economic situation. It has more than $100 bilion in foreign debt, about $35 billion of which is due by June, and the country's corporate sector is effectively bankrupt. *** [para] As everyone from hedge funds to local consumers scramble for dollars, Asia is going into a funk deeper than anyone ever thought possible only a few months back." Mark L. Clifford and Kerry Capell with Michael Shari, "'There's Nothing Holding These Currencies Up': Asia's Markets are crumbling--and the panic is sparking a mad rush to the dollar", BW, Jan 19, 1998: 54-55. In the same issue of BW, there is an article about how the Korean Chaebol are refusing to make real changes in spite of the crisis. I won't quote from it, but the article is by Moon Ihlwan with Brian Bremmer, "Korea Inc. Balks: So far, the Chaebol are refusing to make real changes", BW, Jan 19, 1998: 44-45. This issue of BW focuses on Microsoft and "Zero Inflation" in the US economy. In their editorial on "Zero Inflation", however, there is a very interesting comment: "... keep your eye on US corporate earnings. THE MELTDOWN IN ASIA IS FAR MORE SEVERE THAN ANYONE AT THE FED OR IN THE ADMINISTRATION EVER ANTICIPATED, AND IT COULD GET WORSE (emphasis added). If earnings begin to fall sharply and the market tanks, then deflation could get ugly. Asset deflation ala Japana ;will set the alarm bells off at the Fed." "Zero Inflation--Savor the Moment," BW, Jan 19, 1998: 96. In short, folks, this only give additional strength to my previous comments: the economic crisis in Asia i not under control. Because of the interdependencies between the various economies and the sources of direct foreign investment in the region, problems in Indonesia, Thailand, Malaysia and the Philippines hurt the Koreans (and can hurt Taiwan as well, and because of economic ties, this can effect Hong Kong and China, too), and problems in Korea hurt Japan, and since Japan is a major global economy, problems there will hurt the rest of the world. But nobody wants to talk about this--either in the US government or most of the US news media. I wonder why.... Kim Scipes Kim Scipes is a PhD student in Sociology at the University of Illinois at Chicago. His dissertation, which he is just starting, will be on "Changes in the Global Economy and Its Effects on Low Educated Workers in the Chicago (USA) Metropolitan Area since World War II." He is the author of KMU: BUILDING GENUINE TRADE UNIONISM IN THE PHILIPPINES, 1980-1994 (Quezon City, Metro Manila: New Day Publishers, 1996), which is available through Sulu Arts and Books in San Francisco. Permission to repost is granted as long as substantive changes are not made without the author's permission.
