The 1997 Asian financial crisis is much easier to explain than most people think. Thailand encouraged foreign currency-denominated borrowing at lower interest rates to “boom” economic growth. In return, the government “guaranteed” to hold the baht/US dollar exchange rate at a stable and constant level.
After spending 25 percent of its foreign currency reserves doing that, the peg broke and local companies defaulted on their debts.
South Korea saw its banks’ nonperforming loans explode as its large corporate conglomerates—Chaebols—borrowed money for government-encouraged aggressive expansion. The South Korean government quietly bailed out the loans by borrowing in the international markets. The government debt-to-GDP ratio went from 13 percent to 30 percent and foreign lenders demanded higher and higher interest on the loans.
Eventually, the Korean won fell from 800 to 1,700 against the US dollar.
The economic collapse of South Korea and its inability to pay its existing foreign debt forced the government to borrow $57 billion from the International Monetary Fund. In the wake of the currency collapse, by the third quarter of 1998, the Korean economy was shrinking at an annual rate of about 7.5 percent.
During the first week of January 1998, a nationwide campaign led by large business groups including Daewoo, Samsung and Hyundai (some of the companies that were major players in the crash) was launched to have ordinary citizens donate personal gold holdings to help pay the nation’s foreign debts.
From Forbes.com: “At the time, it was estimated that South Korean households held roughly $20 billion in gold. Nearly 3.5 million people, almost a quarter of the entire population, voluntarily participated in the campaign. In as little as two months, 226 metric tons, valued at $2.2 billion, were collected, every last scrap of which was melted into ingots and promptly delivered to the IMF.”
History is repeating itself. Malaysian Prime Minister Mahathir Mohamad launched the Tabung Harapan Malaysia on May 30, 2018. The purpose of the fund is a platform for the people to help the country and to receive the people’s donations to strengthen the government’s finances. As of August 30, 2018, the fund has earned nearly RM180 million ($44 million).
The point is that, along with complaining and criticizing government actions, the people can step up to help their country.
The Indonesian government is raising tariffs on more than 1,000 items of mostly consumer goods to discourage Indonesians from buying foreign-produced goods. Their inflation rate will soon skyrocket.
But do we need the government to do that or can we take personal responsibility for our economy? What does your own kitchen cabinet and pantry hold? Are you buying canned tomatoes from Spain and spaghetti noodles from Italy? Have you checked the label on the canned “Spam” luncheon meat? It is made from Chinese pigs in factories employing Chinese workers and a licensing fee is paid to an American company.
A colleague stopped at a local convenience store to buy a bottle of water. In the cooler was a brand name she had not seen before. The price was the same as all the other brands. The label said it was “Bottled at the source” but also in French. And where is the source of this “trusted, fresh mineral water”? Also on the label was, “Source: Pasuruan, East Java Province, Indonesia.”
We strongly support free enterprise and are cautious about protectionist trade policies. But are we “rich” enough as a nation and as individuals to buy a P15 bottle of water from Indonesia?