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Miracle To Meltdown


Miracle to meltdown
From the fallout of Thailand's financial crash,
Nicola Bullard tells the tale of Mayuree.

Where did it all go? Illustration by Michael Terry. Eight years ago, Mayuree climbed onto an overcrowded bus in her dusty village in Central Thailand and headed south. At the end of the five-hour trip down a partially built highway lived her older sister and brother-in-law.

The couple had just moved into a new apartment block on the outskirts of Bangkok where, not so long ago, there had been paddy fields and fishponds. Today the skyline that surrounds them is a clutter of high-rises – the Thai developer’s idea of a middle-class dream come true. Mayuree loved the noise and bustle and excitement of Bangkok. Her sister paid for her to do a secretarial course and she soon found work as a clerk with a finance company near Silom Road – Bangkok’s answer to Wall Street.

Getting a job was easy and good money was to be made. Mayuree did not earn as much as some of her colleagues – graduates who’d studied in the US, changed jobs every 18 months and were never seen out of the company of their mobile phones. But it was enough to be able to send money home to help put her younger brother and sister through school, and to start saving up for an apartment for herself and her boyfriend.

After a few months, because she was good with computers and polite to people on the telephone, she was promoted to the ‘collections department’. Her friends laughed because collections was such a backwater. ‘No one really cared if clients were behind in their repayments. I just had to keep the records of everyone who hadn’t made their loan repayments, send them reminder letters and occasionally ring them to find out what was going on. We didn’t take anything very seriously. We talked about our boyfriends and our families and shopping. The boss was very relaxed – he seemed more interested in his latest car than what we did in the office.’

Most of the Bangkok finance companies functioned by borrowing from abroad and lending within Thailand. The foreign banks would lend them money at a rate of 7 or 8 per cent which they would re-loan to local clients at anything between 15 and 20 per cent. The flow of money from abroad seemed unstoppable, especially after 1993 when the Thai Government relaxed the rules to make it even simpler.

At first Mayuree was shocked at how easy it was to borrow money. ‘Maybe it’s because I’m from the country, but I remember how hard it was for my parents to get loans from the Bank for Agriculture and Co-operatives. Sometimes, if they were really desperate, they’d have to go to the moneylender who’d charge 25 per cent interest and then hound them if they were a moment late in paying.’

Most of the clients of Mayuree’s finance company were property developers. Thailand’s aspiring nouveaux riches would buy new properties as an investment; they never actually lived in those slick, neoclassical apartments. If they had, they would have noticed the poor plastering, the doubtful wiring, the unsafe structures. Instead they watched property prices soar, waiting until they could sell for a quick profit. It was a game that suited everyone. The foreign banks got more interest than they could in the US, Europe or Japan, the developers were making such good profits from selling apartment blocks that they didn’t care about the interest rates and Mayuree’s finance company was raking in profits. Even when property prices began levelling out in 1995, developers continued to build. Everyone wanted to be part of the dream, and no one thought it would end.

At least, that is how it was until May last year when the director of Mayuree’s firm arrived unusually early and started demanding lists of all the outstanding loans. ‘You could tell that he was really shocked by the figures, although he shouldn’t have been because we used to prepare a report for the Board meeting every month. But in those days the joke had been that the Board lunch was longer than the Board meeting.’

Mayuree’s boss started paying a lot of attention to the finer details of who was and, more significantly, who wasn’t paying back their loans. Although Mayuree’s job was only to enter numbers into the computer and print out the reports, she had noticed over the past few months that the numbers were getting bigger as more and more clients were falling behind. When she rang to remind them, they’d say that they couldn’t pay this month because a deal hadn’t come through. They didn’t apologize and it wasn’t her job to ask questions.

‘I’d spend days trying to get through to the client and his secretary would always say that he was in a meeting, or on site, or overseas. They were really slippery.’

With reason. The Bangkok property boom had outstripped actual demand and by 1996 an astounding $20 billion in new property stood unsold.

Eventually, the non-performing loans amounted to about 40 per cent of the company’s total business, leaving it, like most of the finance market, virtually bankrupt.

Then, on 2 June 1997, the Government floated the Thai currency, the baht, effectively devaluing it. For weeks the Central Bank had used up nearly all the government reserves trying to keep the currency’s value pegged to the dollar, without success.

The devaluation hit Mayuree’s company hard, as it had to pay back foreign loans in dollars, yen and pounds. Every week it needed to find more and more baht to make up the difference. The books were disastrously unbalanced – the more the baht plunged against the dollar, the more finance companies had to repay foreign banks, and the less their clients would cough up on their loans. Mayuree’s company became one of 52 suspended and eventually closed by the Finance Restructuring Authority in December 1997. ‘I was with some friends watching the news on TV and when we heard the name of our company we all started to cry.’ Nearly 400 people lost their jobs from her company alone.

A whole generation of young, educated people who had known nothing but boom times now face unemployment. ‘What am I going to do?’ says Muyuree. ’Some of my friends have gone back to their parents and others are working in bars. But I don’t want to do that. I studied hard and was good at my job and now it’s all gone. I now sell some clothes with a friend at weekend markets, but it’s hardly enough to make ends meet. My boyfriend worked in the same company and he also lost his job.’

She is angry and frustrated. Last October, when Prime Minister Chavalit was still in power, she joined the rally in Silom Road demanding his resignation.

Many pinned their hopes on the IMF coming up with a solution to the crisis. ‘But nothing seems to have changed except that taxes and interest rates have risen. Every day there’s something on television about a factory closing or people being laid off work or another company going bankrupt.

‘Some of my friends blame foreigners. They believe that the crisis was created so that foreign companies could come and buy up the country. Others say it’s because of corruption, or because people gambled on the stock exchange, or because rich people wasted their money on overseas trips. I don’t know what to think. It’s all very confusing. All I know is that I want a new job so that I can get on with my life.’

Nicola Bullard is a writer and researcher with the Focus on the Global South program based in Bangkok. She has been following the Asian economic crisis since it began.


...how the crisis gathered momentum

1990: Liberalization and deregulation in the Asian Tiger economies open the gates to tides of short-term foreign investment (‘hot money’) which funds 85% of economic growth.

1990 to mid-1996: The East Asian economies become exemplars of the fast-track capitalism and export-led growth favoured by the World Bank and the IMF, with average annual growth rates of around 8%. Most foreign investment capital is funnelled into high-profit, short-term ventures.

December 1996: The IMF praises the Thai Government’s ‘consistent record for sound macro-economic management policies’.

July-1997: Thai property companies get into difficulties after a real-estate bubble bursts, wiping a third of the value off the stock market and leading to the collapse of the banks which backed them. Foreign investors lose confidence and start pulling out. The Thai currency’s peg to the dollar wobbles. Currency speculators move in for a killing. The Thai baht is floated and the currencies of the Philippines, Malaysia, Indonesia and South Korea also suffer. A wave of devaluations follow, triggering a massive haemorrhage of funds as panicky foreign investors sell up their stocks and bonds. The economies of Thailand, Indonesia, South Korea and the Philippines go into free fall.

December 1997: By now millions are without work and decades of social and economic progress have been thrown into reverse. Of 282 firms on the Indonesian stock market only 22 are technically solvent.

January 1998: A $120 billion rescue plan, crafted by the IMF and the US Treasury, is set in motion in order to enable South Korea, Thailand, Indonesia and the Philippines to pay back the billions of dollars owed to US, European and Japanese banks and lure back foreign investors. In exchange the four countries have to restructure their economies, opening up their markets even further to foreign capital. Transnational corporations from the US, Europe and Japan buy Asian companies at rock-bottom prices.

April 1998: Japan slips into recession. A couple of months later the yen tumbles.

May 1998: Escalating pro-democracy protests and riots in Indonesia, fuelled by the economic crisis, oust the dictatorial President Suharto.

Mid 1998: 20,000 South Korean firms have gone bust since the crisis began. Jobless rates of 11% and 10% are predicted for Indonesia and South Korea. The Thai Government decides to expel up to one million migrant workers by the end of 1999, South Korea 146,000 and Malaysia 900,000.

July 1998: Other countries begin to feel the fallout. The devaluation of several Asian currencies, especially the yen, hits Brazil’s exports to Asia. Foreign investors are reluctant to put their money into any emerging economy. South Africa’s currency, the rand, plunges to an all-time low.

August 1998: Western manufacturers complain that undercutting by desperate Asian countries, notably South Korea, is causing job losses in the West.

Crisis, crisis
...and this little pig had none.

My daily paper has improved its coverage of Asia recently. It’s bad news of course, the only kind that makes the Western news media sit up and take notice. And it’s been a while coming.

When the Asian markets suddenly nose-dived last year, their currencies collapsing by up to 80 per cent against the dollar, my first thought was: it’s a blip. Markets do this sort of thing. Like it or not, capitalism has an amazing, reptilian flexibility. It can snake out of tight spots and alter its hue, chameleon-like, to suit local conditions

Later I thought: the Asian markets’ crash is like an earthquake, sending shock waves along the fault line. Except that this particular fault line is actually a vast network, connecting markets internationally – New York, Moscow, Tokyo, Frankfurt, Hong Kong, Bangkok, Jakarta, to name but a few. Does this mean we are heading for a 1929-style crash, leading first to recession, then global depression?

Well, there were mini crashes in markets around the world as a result of the Asian crisis. But they were less dramatic than the doomsayers had predicted. Then the IMF deployed the biggest financial rescue package in history. The kinds of noises experts were making suggested that the situation might be salvaged.

It doesn’t seem quite like that now. The crisis is not going away. If anything, it appears to be deepening and its shock waves are spreading around the world. Squeals of protest are coming from Western manufacturers as Asian companies undercut them in a desperate bid for export earnings. This is translating into job losses in Europe and the US.

There are still several unanswered questions at the back of my mind. How could this export-led model of capitalist development, endlessly peddled and lauded by the IMF and the World Bank, collapse like a pack of cards? Miracle to meltdown in a matter of months. Are there any remedies? And what’s it like for ordinary people trying to survive at the very epicentre of the crisis?

A recipe for change

The world’s financial system is inherently perilous. Globalization has gone too far. What’s needed is:

  • Controls on the flow of capital – especially ‘hot money’ – going in and out of developing economies. In Chile, for example, 30% of short-term investment has to spend a year in the Central Reserve Bank without interest to encourage longer -term investment. Another measure is to apply a transactions tax on all cross-border flows of capital that are not clearly marked for productive investment.

  • Though the right kind of foreign investment is important, growth must be financed principally from domestic savings and investment. This requires progressive taxation systems. One of the key reasons Southeast Asian élites relied on foreign capital for development was that they did not want to tax themselves.

  • Development needs to be re-oriented around the domestic market. Dependence on exports has made the region vulnerable to the vagaries of the global market and has sparked a race to the bottom that has beggared sections of the labour force while benefiting only foreign investors and domestic manufacturing élites.

  • High growth rates of 8% or 10% are not environmentally sustainable. The élites’ addiction to high growth is partly explained by their desire for the lion’s share of wealth. The alternative – redistribution of wealth – is clearly less acceptable to the ruling groups but is vital to a pattern of development that combines economic growth with political stability and ecological sustainability.

Source: Walden Bello, co-director of Focus on the Global South program, Bangkok.

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