220/YOUR MONEY OR YOUR LIFE!
The Global Stock Market Crisis
The crisis was not limited to the four 'dragons'. In October 1997, it
hit Hong Kong hard and began to undermine South Korea. It
deepened the economic crisis already affecting Japan. By late October
and early November, all the world's stock markets were shaken (see
Box 7). The big institutional investors - pension and mutual funds,
insurance companies and banks - panicked in the face of the
monetary and stock market instability (for which they are largely
responsible). They deepened the crisis by selling off some of their
shares to convert them into liquidity or to buy bonds from
governments in the most industrialised countries. These bonds were
seen as safe havens, although their yield immediately dropped in
response to the flood of money in their direction. Capital flight out of
Southeast Asia began in early 1997; the scale of this flight forced the
'dragons' progressively to devalue their currencies relative to the
dollar from July onwards. The outward flow of capital eventually
affected Hong Kong - the main stock market in the Third World and
the sixth biggest in the world. The bourgeoisies of Latin America had
hoped to attract this outflow of investment from Asia into long-term
investment in Latin America, but this was not to be. On 2 7 October,
the Mexico City, Sao Paolo and Buenos Aires stock markets - the
three main financial centres in Latin America - crashed simulta
neously. By December 1997 the Mexico City stock market had
recovered, but for how long? The crisis spun out of control; all the
world's stock markets plummeted on 2 7 and 28 of October. As for the
four 'dragons' - under the combined effects of the huge devaluation
of their currencies, emergency loans from the IMF, World Bank, other
financial institutions and some governments - the weight of their
external debt has increased dramatically. Now that the two
American credit-rating agencies, Moody's and Standard and Poor's,
have downgraded the country-risk rating of the 'dragons' and South
Korea, these countries have to pay very high short-term interest rates
in order to contract loans aimed at paying off past debts.
The Social Costs in Southeast Asia and the Knock-on
Effect in the Industrialised Countries
Beginning in the summer of 1997, the economies of Southeast Asia
have seen a significant fall in industrial growth. How long will the