Lessons of the Currency and Stock Exchange Crisis in the Southeast Asian Countries

In June-August 1997, a sharp devaluation of the currencies of the countries of Southeast Asia (SEA) occurred owing to the outflow of short-term capital; the Thai baht decreased in value by almost 30 percent by September, and the currencies of Indonesia, Malaysia, and the Philippines by 15-20 percent. The second act of the drama began at the end of October, when share prices in Hong Kong dropped by 13 percent in just one day (October 28, 1997), once again owing to the outflow of short-term capital (the decline has totaled more than 40 percent as of the beginning of August). All of the major and small world exchanges followed Hong Kong, including the Russianâthe Moscow Times index dropped by 20 percent on October 28, and trading on the Russian Trading System was halted for three hours for the first time in its brief history. The currencies of South Korea, Singapore, and Taiwan, which had held up during the summer crisis, dropped 5-10 percent. World stock exchange indexes later corrected themselves somewhat, but the tension and instability in world markets continued into November, and they have not recovered from the shock to this day. The world press continues an animated commentary on these events, because a feeling of the loss of control over the situation has lingered even in the leading developed countries.