Date: Tue, 13 Jan 1998 11:41:39 -0800|
Sender: Forum on Labor in the Global Economy <LABOR-L@YORKU.CA>
From: Sid Shniad <shniad@SFU.CA>
Subject: Asian crisis -- Sach knocks roles of IMF
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
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
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
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
"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.