Tom Yum Kung Crisis?
Currency depreciation in emerging countries Creeping anxiety August 29 16:20
I'm not saying that Tom Yum Goong, the signature Thai dish, may go away.
The Asian currency crisis that occurred in 1997 is called the "Tom Yum Kung Crisis" in Thailand.
It's been 25 years since then.
Now, emerging countries are being hit by depreciation of currencies again due to the rapid interest rate hike in the United States.
On August 26th, at the Jackson Hole conference to discuss monetary policy issues, Chairman Jerome Powell of the Fed (Federal Reserve System) made it clear that he would continue to raise interest rates.
How much anxiety is creeping up in emerging countries?
(Keita Kage, Reporter for Asia General Bureau)
People exchanging money with a weak baht
In Bangkok, the capital of Thailand, you will often see exchange offices in shopping centers.
Due to the spread of the new coronavirus, there were no foreign tourists, and the birds were quiet.
When I talk to people in line, they say that they are trying to exchange dollars for Thai currency baht.
The baht continued to fall, falling about 11% against the dollar in mid-July compared to the beginning of the year, reaching its lowest level in about 15 years.
Foreign tourists and wealthy people who have dollars in hand are visiting exchange offices because they can get more baht if they exchange money now.
Raise the price of food
However, it is said that this depreciation of the baht has a big negative side for citizens.
The Thai restaurant, which has 11 restaurants in Bangkok and elsewhere, raised the price of all dishes for the first time since its establishment in June.
It is a popular restaurant that has been offering rice topped with fried pork called Mutoot at a reasonable price, starting at 25 baht per plate, about 90 yen in Japanese yen, but the price is uniformly raised by 2 baht. It is said that there was no choice but to do so.
In addition to soaring raw material prices, the depreciation of the currency pushed up the prices of imported goods. The purchase price of plastic products such as bags used to take home meals rose by about 10%, and the price of gas for cooking also rose by about 10%. However, it is said that it can no longer be done at the selling price so far.
A male customer who paid more for lunch lamented, ``I have to save as much as possible and buy only the essentials.''
US interest rate hike triggers
The trigger for the currency depreciation was the interest rate hike in the United States, the world's largest economy.
In order to curb record-breaking inflation, the Fed turned to monetary tightening in March and decided to raise interest rates by 0.75% twice in a row in June and July.
On August 26, FRB Chairman Jerome Powell gave a speech at Jackson Hole, a highland resort in the west of the United States.
Investors believe that the rate hike will increase the yield of the world's key currency dollar, and while they are strengthening the movement to buy the dollar, the currencies of emerging countries are being sold.
Concern about currency crisis
When it comes to currency depreciation in Thailand, some people may recall the Asian currency crisis.
The Asian currency crisis occurred exactly 25 years ago in the summer of 1997.
Thailand was the epicenter.
At the time, the baht was virtually linked to the U.S. dollar, but hedge funds noticed that the baht's market value was higher than it actually was because of the strong dollar, and began selling the baht around May. It is
The central bank intervened in the market and supported the baht by buying it, but when the bottom of the foreign currency reserves that had been the foundation of the baht was seen, it could no longer support it, and on July 2, the exchange rate system was shifted to a floating exchange rate system.
The baht crashed, and it is said that it fell about 20% against the dollar in just one day on July 2nd.
The crisis spread quickly.
It spread to Malaysia, Indonesia, South Korea, and other countries, causing economic stagnation, and even led to a change of government in Indonesia.
This led to the Russian ruble crisis of 1998.
It left a huge scar on not only the growing Asian economy, but also the world economy.
Fear conveyed by ruins
I heard that there is a place that conveys the horror of the currency crisis to the present, so I went to interview it.
A 49-story skyscraper that rises one block from the main street in central Bangkok.
It is called "Ghost Tower".
The ground is overgrown with weeds, and the first floor of the tower is bare concrete covered in graffiti.
I saw a lot of garbage dumped in the basement.
Of course no one lives there.
The construction of the high-rise building, which had been constructed at a cost of about 7 billion yen in Japanese yen at today's rate, was suspended due to the impact of the currency crisis in 1997.
The building, which was supposed to be a super-luxury condominium, has been left mostly abandoned for the next 25 years because the financing from financial institutions has stopped.
Thai people who know 25 years ago are beginning to voice concerns about the serious impact of the current depreciation of the currency.
One of them is Mr. Sawat, whose steelworks went bankrupt during the Asian currency crisis.
Mr. Sawat:
"The Tom Yum Kung crisis was serious, but only a few countries were affected. The current currency depreciation spreads to more countries, and no one can predict what will happen in the future. My company went bankrupt 25 years ago and I'm lucky that I'm not taking any risks at this stage."
Currency depreciation spreading across countries
Currency depreciation is not limited to Thailand, but spreads to many countries.
This trend is particularly noticeable in emerging countries, with Indian rupees and Chilean pesos selling to record lows against the dollar.
By the way, the Japanese yen was also sold, and the yen depreciated to the mid-139 yen level to the dollar at one point, dropping more than 20% compared to the beginning of the year (as of 4:00 pm on the 29th).
This is the first level in about 24 years, and if you look only at the depreciation rate of the exchange rate, it is sold more than the currencies of emerging countries.
WHERE MORE RISKS
Furthermore, international organizations and economic experts have pointed out the problem of debt in emerging countries as a risk.
It is said that there is a growing risk that some countries will not be able to repay their debts due to rising interest rates and depreciating currencies due to interest rate hikes.
Chief Economist Nishihama
: “If emerging countries are denominated in dollars, the appreciation of the dollar and the depreciation of the currencies of emerging countries will increase the amount of debt when viewed in terms of their own currencies. The increased burden will lead to an economic slowdown, and there is a risk that some countries will default on their debts.
Mr. Sawat, who ran a steel mill in Thailand, who was introduced earlier, revealed that he was driven by the expansion of dollar-denominated debt caused by the depreciation of the currency itself.
At the time, the $2.7 billion in foreign currency debt had nearly doubled in baht terms due to the currency crash.
He says his financial advisors at the time told him there was no way he would be able to pay the debt so high.
12 countries default?
In a document released in March, the World Bank warned of rising debt, especially in emerging and developing countries, and up to 12 countries will be unable to repay their debts over the next year. point out that there is a possibility
In April, shortly after the materials were released, the South Asian island country of Sri Lanka was recognized by a major rating agency as having partially defaulted on its debts.
Unable to change its weak economic base, which relied on imports and continued to run a current account deficit, it fell into a sudden shortage of foreign currency and was forced to suspend the repayment of its external debts.
Sri Lanka has fallen into an economic crisis due to a currency crash and violent inflation, and people's lives are becoming more difficult.
If the World Bank is right, 11 more countries could be in a similar situation to Sri Lanka.
With the rise of energy and food prices against the backdrop of Russia's invasion of Ukraine, and the acceleration of interest rate hikes by the United States, a major power in the world, is the bud of a crisis spreading in this phase of major changes in the world economy?
I feel that the Ghost Tower is quietly telling us that the currency crisis is by no means an old story, and that we should still be vigilant.
Reporter
Keita Kage Joined the bureau
in 2005 Covering
finance and public finances in the Economics Department
Current position since 2020