Witnessing the Asian debt crisis firsthand, as I did last week during a brief sweep through the territory, I found that while each country’s problems are different, they share a common cause: their political and business establishments have grown corrupt and must be over-thrown. Revolution is in the air. The Pacific Century, hailed only weeks ago by Jean Chrétien at the APEC summit in Vancouver, has turned to mush, as country leaders plead for more funds from the IMF, while heads of the many endangered conglomerates, on the cusp of bankruptcy, are desperately seeking more time and credit from their banks. Although this has been the
world’s fastest-developing area, its share of the global GDP having grown from 17 per cent to 25 per cent in the past decade, there is little doubt that at least South Korea, Thailand and Indonesia will soon be forced to declare a debt moratorium, as several Latin American countries did in 1982. The crisis, worsening by the day in that doomed trio, flows directly out of the cronyism that pervades these and other nearby economies. Patronage inevitably trumps patriotism. Heads of government use their national treasuries as personal kitties, with scarce resources allocated to retainers and relatives. Indonesian President Suharto’s daughter Tutut owns a series of toll roads commanding access to the country’s main air terminals. Well-connected families run huge state-supported enterprises with little regard for efficiency or profit. That has created overdue bank loans in the region of more than $300 billion, with little chance of payback. The
toughest job facing the IMF is to drastically alter the area’s fiscal culture. The monopolies must be broken up, corruption eliminated. Least touched by the meltdown have been Hong Kong, Singapore and Taipei. While they are far from enlightened democracies, these islands of fiscal sanity have moved far beyond their neighbors run as personal money machines for their rulers. What happens now, not just to the stricken local economies, but to the world at large, including Canada, will depend on the shortand long-term stability of Japan and China. “The problems here are very structural and very deep,” I was told by Gary Coull, a Vancouver investment dealer who now heads one of Hong Kong’s largest financial institutions, Credit Lyonnais Securities (Asia). “It’s not one homogenous Asian flu, it’s 10 or 15 different strains. To date, China has been relatively immune to the really deep problems that have turned the situation in South Korea and Thailand into complete disasters.”
The hottest-selling T-shirt in Bangkok proclaims “Former rich” on its chest. One size fits all. As a result of this year’s IMF bailout, 58 of the country’s 110 finance companies have been shuttered. These and other shakeouts will force two million newly unemployed
The crisis flows out of cronyism. Leaders use their national treasuries as personal kitties for relatives and retainers.
The South Korean won has lost half its value. Because selling treasury stock would have diluted their holdings, Korea’s family dynasties have loaded their companies with bank loans that are
Thais on to the streets. There is no unemployment insurance. The Bangkok Post recently boasted that the city has only two superlatives left to its name: the largest number of onetime financial executives selling noodles, and the world’s richest housewives. The latter category refers to the fact that when cabinet ministers were recently forced to reveal their assets gained while in office, former premier Chavalit Yongchaiyudh declared $620,000, while his wife Phamkrua, who had never held a job, was found to have accumulated $4.3 million.
coming due with a vengeance. When Kia Motors, the largest of the failed conglomerates now propped up by state banks, had to downsize, its owners reacted by closing the staff barbershop. When Indonesia’s dictator, the 76-year-old Suharto, dropped out of sight for a few days in early December and was presumed to have died, the country’s currency dropped 11 per cent and, according to one observer, would have gone through the floor if state radio stations had started playing funereal music. The situation is that fragile. Suharto runs Asia’s most corrupt regime, has no successor, and popular resentment against his family is so intense, there is bound to be violence in any takeover. Asia’s twin anchors of relative fiscal stability are China and Japan. China has been protected because its yuan is not convertible into outside currencies and its stocks, alone among the Asian countries, are not subject to
foreign speculation as only Chinese nationals are allowed to buy shares. Its business potential is so huge that nothing much can hurt it, though China’s stunning growth rate is bound to slow and some of its banks are shaky.
Similarly, despite its troubles with failing investment houses and overextended banks, Japan still holds huge foreign reserves and remains the world’s second-largest economy. But public confidence is fading. Two farmers in the Nagano district were arrested recently for posing as a financial institution by offering investors the chance to buy cows instead of putting their money into banks. The scheme was stopped by the authorities because it was proving too popular.
As usual, Asia is full of contradictions. The place is in turmoil, but earlier this year a private house in Hong Kong sold for $133 million. Just last week, Brook Lee, a Hawaiian beauty who is the current Miss Universe, was modelling jewelry worth $800,000 in a downtown Hong Kong hotel when a local shopkeeper bought the works for his wife.
Perhaps the sanest advice came from Monica Gwee, a columnist for Singapore Business Magazine, who surveyed the Asian meltdown and concluded: “When all hell breaks loose, shop!”
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