It was truly the worst of times, at least till Lehman Brothers exploded in our face. Twenty years ago, this month, the Asian currency crisis which racked East Asian countries from Thailand to Indonesia, erupted with the force of a tsunami. To a world still not particularly connected and certainly not used to widespread shock of the kind that the collapse of the Thai baht engineered, it was like a bolt from the blue.
Eight months later, on February 22, 1998, I was in Bali to attend a conference on the crisis organized by Businessweek, then one of the most influential magazines in the world. A month before that, Lawrence Summers, then the US deputy treasury secretary had been to Jakarta along with IMF officials, to ram through a financial stabilization package for Indonesia which contained a harsh series of measures. Not surprisingly, the country was in the midst of political turmoil brought about by rising prices as well as emerging tales of crony capitalism. Thus, in 1997, president Suharto who had been in power for 30 years announced that he had decided the country should have a national car, which would be built by a company owned by one of his cronies. A consortium of Indonesian banks was given instructions by the government to lend nearly $700 million as start-up capital to the company. Many such stories emerged as the crisis battered the Indonesian economy leading to Suharto’s ouster later that year.
The media, as in times of all crises, was looked upon with suspicion. My visa for the trip came just minutes before the Indonesian embassy in Delhi was to shut down the evening before I was to fly out. But the drama wasn’t over. When I reached Denpasar International Airport, I was told I couldn’t enter the country and would have to go back to India. It took some serious intervention from one of the ministers, who played a major role in the conference over the next three days, for the authorities to let me in.
The conference itself was quite somber and cathartic. Many of the sessions were addressed by private bankers who had taken huge hits. They recounted their woes candidly and talked about their culpability. Over and over, we heard tales of excesses and wild spending as businessmen in the region, fattened by years of export earnings, spoke about buying golf courses in Scotland and then being sought out for loans to build resorts around them.
There was much introspection as commentators spoke about how the tag of “Asian Tigers" referring to their turbo-charged exports had given these nations a false sense of invincibility. Between 1990 and 1996, Malaysia’s exports had grown by 18% per year, Thailand’s by 16% and those of South Korea and Indonesia by 12% per year. In reality, they had been beneficiaries of global shifts in trade, helped along by labour arbitrage with growth rates becoming an end in itself.
In hindsight, it invoked the same feeling we get after each crisis: what were they thinking?
But it was on the streets of Bali that the real saga of a nation in the throes of crushing private debt was playing itself out in almost cinematic terms. Gleaming black Mercs parked outside apartment blocks with labels “Must sell today" and often even a price tag pointed to the sweeping desperation. In stores, a collapsing currency meant that bargains were to be had even as you shopped. Memory does play tricks 20 years on, in particular with respect to numbers, but I remember buying six pairs of socks for one dollar. They were of good enough quality to last me the next five years.
An American couple I met on the first day at the hotel was carrying just a suitcase each. When we met again at the airport before our departure, they were carrying extra bags all groaning at the seams. When I commented on their shopping spree, they laughed and said, the dollar goes far here! It did too. The Indonesian rupiah was allowed to float on August 14, 1997 at which point it traded at $1=2,400 Rupiah. By the time I was there in February 1998, it had slumped to $1=14,000, down to a sixth of its earlier value.
It is also a measure of India’s position in the global economy in those early years after liberalization that there were hardly any references to the country. The contagion hadn’t made any significant mark on India and the other Indians at the event—Suresh Rajpal, then CEO of HP in India and Ajai Chowdhry, who headed HCL Ltd—were, like me, passive observers.
But the fire did singe even the powerful Singapore economy. On my way back, I had a longish six-hour transit through Changi airport. Normally crowded, on this occasion, the duty-free stores bore a deserted look.
It was a painful period for the people of the countries involved, but through the excesses and the tales of woe, several lessons were learnt and the crisis wasn’t wasted. Among the lessons, countries learnt never to fund short-term assets with foreign funds. It was also a watershed moment in the history of globalization. It certainly firmed up the role of central bankers as policemen controlling capital flows.
It also kicked off the era of impossible levels of reserves as countries sought to build their defences against speculative attacks of the kind Thailand had suffered. Because it was an asset-liability mismatch and not a credit crisis, the recovery was rapid but its scars can be felt till date.
Sundeep Khanna is a consulting editor at Mint and oversees the newsroom’s corporate coverage. The Corporate Outsider will look at current issues and trends in the corporate sector every week.
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