BY MAURICE WILLIAMS
When pension and mutual fund managers began selling off Hong Kong stocks, it triggered the largest one-day point lost in the history of the Dow Jones Industrial Average - 554.26 points on October 27. Triggered by the currency crisis sweeping many countries in Asia, the 7.18 percent plunge in stock prices was the was the 12th worst percentage drop in history and forced the New York Stock Exchange to shut down twice.
The next day Wall Street trading exploded with a one- day record 1.2 billion shares as the Dow Jones soared 4.7 percent or 337.17 points to 7498.32.
Southeast Asian markets, however, slid further, with the Hang Seng index in Hong Kong dropping almost 20 percent in two days. Stock prices in the Philippines, Thailand, Malaysia, and Indonesia all plummeted more than 6 percent, and Tokyo's exchange plunged 4.3 percent.
This followed a week of volatility on Wall Street, with the Dow Jones index swinging up and down by hundreds of points.
Meanwhile, working people in one country after another in Asia have begun to resist the effects of the economic crisis, dimming capitalists' hopes that they can easily impose austerity measures there.
"By now - it should be clear that the U.S. economy will not escape the consequences of Asia's turmoil, even if the crisis could somehow be stopped in its tracks today," asserted John Lipsky, chief economist and director of research at the Chase Manhattan Bank, in an article published in the October 28 Wall Street Journal.
Underlying the increasing volatility of the financial markets are fears among capitalists in the United States and other imperialist countries over the currency crisis in Southeast Asia. Like the 1994 - 95 collapse of the peso in Mexico, the recent devaluations threaten the stability of many of the largest imperialist banks, which count among their assets massive loans that they worry may now be difficult to collect. But the scale and scope of this crisis is many times greater, and affects hundreds of millions of people.
Devaluations hit `tiger economies'
Like in Mexico, the International Monetary Fund (IMF) and other imperialist financial institutions have forced massive, unsustainable loans on the capitalists in Thailand, Malaysia, Indonesia, and the many of the other countries in Asia that have been dubbed "tiger economies" - hot spot for capitalist development. The currency devaluations mean it will be more expensive for these regimes to "service" - that is pay interest on - and repay the principle on these loans.
In several cases the IMF and various imperialist governments are trying to come up with "bailout" schemes such as the one Washington foisted on Mexico in 1995. That "rescue" left toilers in Mexico facing worse economic conditions, and accelerated the transfer of much of the country's national patrimony to U.S. capitalists.
To carry out a similar program in Asia, the regimes in the region must force workers and farmers to accept greater austerity. But that is easier said than done.
Ever since Thailand government officials released the Thai baht's peg with the U.S. dollar on July 2, one Asian currency after another has fallen against the dollar. The Thai currency has lost 38 percent of its value since then. Many companies in the region have been forced to repay loans with diminishing export earnings. According to figures from a 1997 report by the World Bank, Thailand's foreign debt climbed from $8.2 billion in 1980 to more than 56 billion in 1995.
Indonesia's currency, the rupiah, has lost about 35 - 40 percent of its value against the dollar since August 14, when it was freed from any set relation with the U.S. currency. With a public debt estimated at more than $50 billion and private debt at $55 billion, the regime requested aid from the IMF and the World Bank on October 8. At least $25 billion of the private debt is due to be paid by the summer of 1998.
Several companies in the Philippines announced problems with debt payments. "You're definitely going to see a surge in bad debt," declared Seema Desai, regional economist at Schroders Securities in Singapore.
Workers resist austerity drive
The regime in Thailand has so far been unable to impose austerity measures demanded by the International Monetary Fund (IMF) as a condition for delivering its $17 billion "rescue package."
In early October protests by working people forced the government there to withdraw a new oil tax that had been imposed after the devaluation. And later that month thousands of workers, farmers, and others marched for four days in the streets from October 20 - 23 demanding the resignation of Prime Minister Chavalit Yongchaiyudh. The protests has already forced all 48 cabinet members to resign from the Chavalit regime.
On October 13, some 16,000 aerospace workers in Bandung, Indonesia, went on strike and held mass rallies protesting threatened layoffs. IMF officials are pressing the Indonesian government to impose steeper budget cuts and a reduction in subsidies on imported diesel and kerosene. More than 60 percent of the people living in rural areas rely on kerosene for energy and lighting.
Anticipating social explosions in the country of more than 200 million people, Indonesian Gen. Feisal Tanjung threatened repression, vowing to crush any action he claims to be disruptive to the upcoming presidential elections.
Pile of debt in Hong Kong
Commenting on the political instability stalking the region, Kenneth Courtis, vice president of Deutsche Bank Asia, remarked, "It's quite clear there is going to be political spill from all this. Governments that are in power now are going to be severely tested."
Hong Kong's property industry has accumulated a pile of debt of roughly $51 billion, with property values widely expected to fall sharply. Higher interest rates would cut corporate profits and lead to loan defaults for Hong Kong's banks. The banks have extended more than 40 percent of their loans to property companies there.
As the currency devaluations spread throughout Southeast Asia, the crisis in Hong Kong was fueled by speculators who also saw its real estate and currency as being overvalued and sought to drive the currency down, breaking its link with the U.S. dollar. Hong Kong banking officials raised interest rates 300 percent and the government reportedly spent a total of $8 billion October 22 and 24 buying Hong Kong dollars in order to maintain its fixed exchange rate of 7.75 to 1 with the U.S. currency.
"We will not change our system or our dollar link," declared Donald Tsang, Hong Kong's financial secretary. "The only people who will be burned by speculation against the Hong Kong dollar will be the speculators."
Meanwhile, Hong Kong stocks fell 10.4 percent October 23 and nearly 6 percent October 27. During the month of October, Hong Kong's stock market lost 30 percent of its value.
The economic turmoil in Asia is fueling instability in other so-called emerging markets, particularly in Latin America. The Bovespa Index in Brazil plunged nearly 15 percent October 27, the fourth largest drop in the history of the Sao Paulo Stock Exchange. Capitalist investors fear that the debt crisis in Brazil could trigger a currency devaluation similar to that plaguing Southeast Asia.
Mexico's stock market, the Bolsa, dropped 13 percent October 27 before bouncing back nearly 12 percent the next day. The Mexican peso had fallen to a record low of 8.5 to the dollar, sliding below its previous low point reached during that country's financial crisis in 1994.
In Argentina, the Merval index in Buenos Aires plummeted a record one-day loss of 13.7 percent. The regime of President of Carlos Menem is trying to impose an austerity package on working people that includes wage cuts, higher taxes, and a longer work day at a time when some 16 percent of the workforce remains on the streets. The government's economic policies sparked a wave of social explosions in major cities throughout the country last April and May.
`Japan is an economy in deep trouble'
"Japan is an economy in deep trouble right now," said Robert Hormats, vice chairman of the investment firm Goldman Sachs International. U.S. capitalists are fearful that Japanese banks would sell billions of dollars of U.S. Treasury bonds to generate cash if one or more of Japan's giant banks faced bankruptcy. More that 20 percent of Tokyo's trade is with Hong Kong and 40 percent of the country's exports go to Southeast Asia. Many of Japan's banks have lent heavily in the region
Hormats expressed concern that a sell off of U.S. Treasury bonds by Japanese banks could trigger a recession in the United States. The currency devaluations could also set off a regional slowdown or recession that would increase "excess capacity" - the capitalists' ability to produce more than they can sell for a profit - while intensifying competitive and deflationary pressures.
Meanwhile, for some 30 million working people in the United States, the stock plunge put some $1 trillion invested in 401k retirement accounts at risk.
As Wall Street investors bit their nails during the wild swings in market trading, White House spokesman Michael McCurry urged them not to panic. "We want everyone to take a deep breath and think about where we are. The market has taken breathtaking drops in the past - so let's just be calm and reasonable."
Just as the stock prices were plummeting, U.S. president William Clinton bragged to the Democratic Leadership Council that his 1993 budget deficit reduction plan was the key to the "strong performance" in the U.S. economy. He announced that in five years the federal deficit had dropped from $290 billion or almost 5 percent of the gross domestic product to $22.6 billion or 0.3 percent of the GDP.
Big-business commentators repeated assurances that the October 27 stock market dive not similar to 1987 crash, but only a "correction."
"There is no sense of urgency today like in 1987," asserted William Johnston, president of the New York Stock Exchange.
In 1987, major banks, suddenly finding themselves with mounting bad debts, began turning down credit requests from brokerage firms attempting to pay for stocks their clients were anxiously trying to sell. The Federal Reserve stepped in an ordered the banks to continue lending, narrowly averting a complete collapse.
So-called circuit breakers that were installed after the 1987 meltdown to stem market volatility and "promote investor confidence" were used for the first time on October 27. Under these rules a decline of 350 points in the Dow Jones Industrial Average triggers a market halt for 30 minutes. A second trading halt of 60 minutes is tripped by a fall of 550 points. Johnston boasted that the circuit breakers worked "absolutely beautifully" in their trial run.
The October 30 editorial of the London daily Financial
Times, however, asserted the mechanism would "actually
increase the general level of alarm." The editors
cautioned, "When the cinema is on fire, it does not
usually make sense to lock the doors."
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