Crisis to crisis: What Asia learned from the financial chaos of 1997

[reader]

From Bangkok Post 

Twenty-five years ago this month marked the beginning of economic, political and financial market turmoil that would become known as the Asian Financial Crisis. Currencies and stock markets tumbled. Governments were overthrown. Poverty rates soared.

The crisis raised serious doubts about the Asian miracle, a period of rapid growth that saw the Tiger economies become the envy of the world. The firestorm was triggered by Thailand’s decision to devalue the baht on July 2, a shockwave that soon reverberated across the region’s emerging markets and beyond as the fallout stretched into 1998.

A quarter of a century later, Asia’s economies have been transformed. China is the world’s second-largest economy, and the region is a major source of global growth even as it recovers from the pandemic.

Here, in the words of some of the key players during the crisis, is the story of what happened, how the region recovered and what the prospects are for economies facing a new economic crisis. Interviews have been edited for clarity and brevity.

Continues at

https://www.bangkokpost.com/business/2338403/crisis-to-crisis-what-asia-learned-from-the-financial-chaos-of-1997

[Guest]

As for recovery, well anyone who had the foresight to buy something like Aberdeen Asia Smaller Companies* at the bottom would have made over 50x their money on a dividends reinvested basis.    Which would be one hell of a return for a diversified investment trust.

(* Now renamed as Aberdeen Standard Focus)

 

[vinapu]

1 hour ago, z909 said:

As for recovery, well anyone who had the foresight to buy something like Aberdeen Asia Smaller Companies* at the bottom would have made over 50x their money on a dividends reinvested basis.    Which would be one hell of a return for a diversified investment trust.

(* Now renamed as Aberdeen Standard Focus)

 

and no doubt there were people like that following mantra  '" buy when everybody is selling"

[PeterRS]

That's a fascinating read. Having lived in Asia through the 1997 crisis it took a while before the real reason for its occurrence became known to many. I do remember it was such a massive shock in Thailand that many stores failed to raise prices on existing stock purchased prior to July 1997. Shopping in Bangkok even in December that year was one big bargain sale. You could even have gone into Robinsons, then located in Siam Centre, and purchased a concert grand Steinway piano for roughly half price - effectively a $100,000 discount.

The crony capitalism practised in many Asian countries highlighted in the article is obviously now far less prominent than prior to the crisis, but it is still there even if much reduced. As highlighted, in the 1990s the Thai government was determined to defend the Baht 25 = US$1 peg at all costs. And this was less for the country's good than the large companies run by their pals. The boom of the early 1990s had seen a large amount of capital inflow, some resulting from the long period of stagflation which hit Japan at the start of the decade. This had seen Thailand's annual growth maintained at about 8%. But by 1996 the warning signs were evident to some. Growth began to slow to just over 6% in 1996, partly as a result of the huge rise in dodgy finance companies keen to make a quick buck.

Only a very few saw a financial tsunami on the cards. Real estate companies, spurred by the 400% increase in property values since 1990 had mushroomed but were being left with a huge amount of unsold residential and commercial property. Exports fell dramatically. Less obvious in the article is that Thailand had had very high interest rates continuously averaging 11% throughout the 1990s in order to maintain the currency peg. As a result many companies, large and small, decided to tap the Eurodollar market for loans with interest rates usually around 5% less. Assuming the baht/$ peg would never be changed, they failed to hedge their borrowings. Once the baht peg collapsed, their fate was sealed.

Yet, the possibility of a tsunami had reared its head in May 1996 when, with a portfolio packed with bad loans, the Bangkok Bank of Commerce failed with debts of $3 billion, mostly in non-performing loans. It had to be taken over by the government to retain confidence in the increasingly shaky financial markets. Then, speculators had in fact hit the baht big time earlier in 1997. Using its considerable foreign exchange reserves, the government was able to fend them off and bought up many basically insolvent companies. But in doing so by May it had used up $28 billion of its $30 billion reserves. Thereafter there was little ammunition to fend off another attack were it to come. That was why the second wave at the start of July could not be defended.

As a result of the crisis, currencies in every country in the region fell by an average of around 20% and were to stay at those levels for some time. Surprisingly, the only ones that remained at pre-crisis levels were China and Hong Kong. The Hong Kong dollar was also pegged to the US% - as it remains today. It is different from Bangkok's peg in that for every HK$ issued there is the equivalent of a US$ in a special currency fund. For almost three years it managed to avoid most of the fallout of the crisis. But by 2000 it was to enter its worst recession since World War 2. Even so, the government continued to maintain the currency peg.

As an interesting aside, the speculators descended on Hong Kong in May 1998. Its government announced the threat in advance and stated that for every stock shorted by the speculators, it would purchase with government funds an equivalent amount. It expected this would cost around $100 million. It ended up spending a whopping $15 billion in the defence but won the fight and the speculators were left with major losses. As those securities had been purchased when the market was low, the government ended up with a huge surplus on its actions as the stock market rose.

[vinapu]

9 hours ago, PeterRS said:

That's a fascinating read. Having lived in Asia through the 1997 crisis it took a while before the real reason for its occurrence became known to many. I do remember it was such a massive shock in Thailand that many stores failed to raise prices on existing stock purchased prior to July 1997. Shopping in Bangkok even in December that year was one big bargain sale.

at least there's enormous monument of that crisis easy for all to see - shell of Sathorn Unique building by the river right beside Saphan Taksin BTS station. 

[reader]

Was looking at that building today while waiting for train at Saphan Taskin. It’s now an advertising billboard.

It’s been exposed to the elements for so long now it cannot be used. The only alternative is to raze it. But the cost of doing so probably outweighs the original price of erecting it. 

i imagine it’s mired in legal limbo for foreseeable future.

[vinapu]

up to few years ago it was actually possible to go up to the top ( by bribing guard I guess), ChristianPFC not only managed to do it but in process was bitten by wasps.

After some Swede committed suicide atop few years ago  access is now sealed