By IPS Correspondents
BANGKOK, Oct 27 1997 (IPS)

This is the city where it all began in July with the collapse of the Thai baht. It has taken four months for the panic to spread to Hong Kong where the region’s pivotal stock market lost a record 23 percent of its value last week, sending tidal waves across the world’s exchanges.

Till as early as June, there was nowhere to go but up for Asia’s Tigers and emerging economies. Today, the cranes are idle, Bangkok’s ambitious mass transit system is on hold, Malaysia has put off construction of South-east Asia’s biggest dam in Borneo and investors have sulked off to lick their wounds.

The lesson from all this, of course, is that tigers cannot just play by the rules of their little jungle anymore. This is the age of economic globalisation and factors from beyond the forest have a direct impact on economies.

This is proof, if more proof was needed, that Asia’s economic future is inextricably linked to the rest of the world through a criss-crossing web of stock, currency and trade transactions. Cash and liquidity have no boundaries and investors can and will pull out their money and put it elsewhere in the world at the speed of light.

Thursday’s drop in the Hong Kong stock market was the result of a massive speculative battering on the Hong Kong dollar. Luckily for Hong Kong, it has 80 billion dollars in reserves and they dipped into the kitty to shore up the currency.

In hindsight, it is interesting to note that things started going wrong with Asia’s tiger economies just as Hong Kong was handed back to China at midnight on Jun 30. It hard to say whether this was the final straw for nervous speculators to start chipping away at Asian currencies, and the Baht just happened to be the most vulnerable.

But there is no doubt now that the turmoil has run its course and has returned to where it was all triggered, in Hong Kong. And after the currencies started to tumble across Asia, it was unnatural for Hong Kong to have a dollar that was so artificially high.

China, which has enormous stakes in keeping Hong Kong’s U.S.- dollar pegged currency and financial markets stable has so far not interfered but Beijing has said it is willing to come to Hong Kong’s rescue if Friday’s rebound does not last the course of this week.

When the Baht crisis first exploded in Thailand, economic analysts were hesitant to call it a Mexico. Now, especially after Hong Kong, it is clear that this is going to be much, much worse than a tequila hangover.

And this time, it is the whole world that is affected–just like a butterfly setting off a hurricane on the other side of the planet by flapping its wings.

The warning signs were there last Monday when Thai opposition groups camped out in a thunderstorm outside Prime Minister Chavalit Yongchaiyudh’s office in Bangkok to urge him to resign can let loose a chain of events that could affect world markets.

Thailand’s finance minister threatened to resign if Chavalit reshuffled the government, financial analysts found Malaysia’s budget released on Monday was not austere enough and the Ringgit plunged further. And then there was the slump in jittery Asian markets on Oct 19, the tenth anniversary of the Black Monday 1997 stock market crash.

Political unwillingness throughout the region to implement reforms and tighten fiscal spending were already fuelling speculation that interests rates would have to go up to shore up local currencies. As a result, foreign investors started pulling money out from Asia because they feared further economic downturn.

By Thursday the pressure cooker burst in Hong Kong.

There is a lesson in all this for South-east Asia’s prolific spenders who lavished money as if there was no tomorrow on unproductive real-estate ventures and glamour projects.

The worst of this was happening in Thailand, it is the way of the market (or the laws of jungle) that Thailand which was the most vulnerable had to pay the highest price.

Now, despite the reshuffle of the cabinet announced by Chavalit, financial analysts are still not convinced that he is serious.

And his reluctance to implement a list of reforms demanded by the International Monetary Fund for a 17 billion dollar rescue package is putting further pressure on the Baht to lose more than the 40 percent of its value that has already been slashed since July.

When all this is over, it is doubtful if anyone will ever remember the name-calling that went on between Malaysian Prime Minister Mahahthir Mohamad George Soros who blamed each other (respecitvely) for mismanagement and greed.

Both are quiet now, and the undeniable fact is that both are partly right. The Tigers were living in a bubble and the speculators were having a rampage trampelling whatever currency that they came across which looked slightly vulnerable.

And of course, no one is really talking about the human cost. There are an estimated 100,000 Thais who will be out of their jobs before the end of the year and the hundreds of thousands more across Indonesia, Malaysia and the Philippines.

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