Asian stocks, currencies thumped. Hong Kong shares drop nearly 9%

By Marcus Gee, in The Globe and Mail
13 January 1998

JAKARTA -- East Asia was hit by a new round of financial turmoil yesterday, deepening what was already its worst crisis in 30 years.

Hong Kong stocks fell by nearly 9 per cent on the news that one of the region's leading investment banks, Peregrine Investment Holdings, was facing liquidation. Share prices also tumbled 9 per cent in Singapore, 3 per cent in Malaysia, 2 per cent in Japan and 5 per cent in Taiwan.

Meanwhile, the Thai and Taiwanese currencies hit new lows. Only the South Korean and Indonesian markets showed some minor improvement.

It was one of the blackest days so far in a crisis that began in July with the devaluation of the Thai baht. Trouble has ricocheted from country to country ever since.

"I don't think there's anybody who isn't amazed at how bad things have become," said Frank Shea, senior adviser at Bank Danamon in Jakarta. "It's like that horror movie, The Blob from Outer Space . It just keeps spreading and swallowing everything."

Just 1=AB months ago, at the Asia-Pacific conference in Vancouver, U.S. President Bill Clinton dismissed Asia's economic troubles as a few small "glitches in the road."

However, Singapore Prime Minister Goh Chok Tong said Sunday that Southeast Asia was facing its greatest test since the Second World War. Unless the region's leaders face it with vigour, he said, the economies of several countries could be crippled, causing social unrest and political instability.

Three countries -- Thailand, Indonesia and South Korea -- have been forced to ask the International Monetary Fund for financial help.

Now Western countries are concerned that the crisis will drag down the rest of the world economy. IMF and U.S. officials are crisscrossing the region this week, trying to persuade Asian governments to reform their economies quickly.

U.S. Defence Secretary William Cohen was in Malaysia yesterday, beginning a tour that will also take him to Indonesia, Singapore, Thailand, China, Japan and South Korea. He said that while the United States was a friend of Asia "in good times and bad," he would urge Asian officials to speed reforms.

Mr. Clinton repeated his view yesterday that economic stability can be restored to the region and the underlying economies of Asia remain strong.

"We can restore stability if the countries take the steps that are necessary. The IMF reform packages have to be followed," Mr. Clinton said.

But independent analysts said the problems are now so big that, even with quick reform, Asian countries cannot expect an early end to the crisis. "To some extent it is just beginning," said Hans Vriens, head of Hong Hong's Political and Economic Risk Consultancy.

Harvard economist Jeffrey Sachs, an adviser to the Indonesian government, blasted the IMF for policies that have worsened the financial crisis.

"They are in a process right now of relentlessly squeezing these economies so inappropriately that clearly they're not only not restoring market confidence, they're pushing those economies deeper into crisis," he told The Globe and Mail. (Please see the ROB's International Business page for the complete interview.)

Though the market effects of the crisis have been huge, pushing the value of some currencies and stock markets down by half or even two-thirds, the wider economic impact is only starting to be felt.

Mr. Vriens's group estimates that unemployment in South Korea will rise to 9 per cent next year from 2.9 per cent last year as the country's troubled conglomerates shed workers.

In Thailand, the government predicts that the economy will shrink by 1.7 per cent next year, raising the number of jobless to 1.5 million.

In Indonesia, the government expects the number of unemployed to rise by almost half to 6.5 million. Fifteen per cent of the country's two million textile workers face layoffs by midyear because, with a devalued currency, garment makers cannot afford to import as much cotton.

One local securities firm estimates that only 22 of the 282 companies on the Jakarta stock market are financially viable.

Even formerly safe havens such as Taiwan and Singapore are in trouble. In the first 10 days of 1998, the Singapore stock market fell by as much as it had in the previous six months.

Once big importers of labour, some Asian countries have started to send their guest workers home. Thailand and Malaysia plan to repatriate hundreds of thousands of Indonesians, Burmese and Bangladeshis.

The next stage of the crisis could be political change.

Thailand has already had a change of government because of the economic crisis, and South Koreans elected veteran democracy activist Kim Dae-jung last month.

Attention now centres on Indonesia, where President Suharto has ruled for 35 years. Opposition leader Megawati Sukarnoputri, daughter of the country's independence hero, Sukarno, said on the weekend that Suharto should step down rather than seek a seventh term in March. Since then two more political leaders -- Muslim scholars Amien Rais and Abdurrahman Wahid -- have backed her.

Yesterday, a leading economist with links to the Suharto family also made an unusual call for political change. "What we are facing now is not simply a monetary or merely an economic crisis, but the outbreak of cumulative pain from a series of institutional diseases in our almost entire body politic," said Sumitro Djojohadikusumo in an interview published in the Jakarta Post.