Stocks and currencies fell throughout Asia yesterday in the latest phase of a crisis that is now beginning to hurt European exporters because of the elimination of buying power in the region and the increasing competitiveness of cheap Asian exports.
The Indonesian currency continued its freefall yesterday in the absence of any plan to repay massive corporate debt, forcing more major firms into default and dragging the rest of Asia into a downward spiral.
In Hong Kong, two stockbroking companies collapsed only a week after the liquidation of Peregrine Investments Holdings, one of Asia's largest independent investment banks. The stock market lost several points in Hong Kong, Tokyo, Manila, Seoul and Kuala Lumpur, with a knock-on effect on European markets, including Dublin.
The International Monetary Fund and Indonesian bankers and government are engaged in talks on restructuring the country's debt burden as the credibility of President Suharto's ability and willingness to enact a second round of reforms, agreed with the IMF last week, evaporates.
Indonesia's failure to produce proposals to repay its corporate debt was compounded by President Suharto's suggestion that he would appoint as vice-president and potential successor, his profligate Research and Technology Minister, Mr Jusuf Habibie. The markets reacted with horror.
The frantic clamour for US dollars in Indonesia pushed the rupiah to a record low of 15,000 to the dollar before recovering to close at 11,400 with some help from the central bank. The currency has now lost a staggering 60 per cent of its value since the beginning of the year.
Indonesian manufacturers have reached the point where they cannot afford to buy foreign parts or materials and there are certain to be factory closures and mass layoffs in the coming weeks.
IMF managing director, Mr Michel Camdessus, last week negotiated reforms with President Suharto which superseded earlier measures agreed in return for a $43 billion (£31 billion) rescue package. The move initially steadied the Asian markets but the continuing political and financial uncertainty in Jakarta has demolished the rupiah and spread despair throughout the region.
Finance Minister, Mr Mar'ie Muhammad, said on Wednesday the government was working to resolve the corporate debt problem, but reiterated that there would be no government bail-out. Corporate foreign debt is estimated at around $66 billion of Indonesia's total foreign debt at $140 billion.
The crisis is now so severe that the effects will be felt in Europe in the coming months. South-east Asia accounts for 5 per cent of European exports but the collapse of financial resources in Indonesia, Thailand, Malaysia and South Korea is hitting some European companies hard and threatening to increase unemployment.
With the fall in Asian currencies, exports from the region are getting cheaper, depressing prices throughout the EU. Also, big Asian conglomerates are cutting back investment in Europe.
In Hong Kong the Hang Seng index closed almost 4 per cent down, as evidence mounted of the vulnerability of the territory's financial system. Despite its record of openness, no one knows to what extent Hong Kong financial institutions are over-extended in the region.
Yesterday, another blow fell when CA Pacific Securities and sister company CA Pacific Finance were put into liquidation. Panicking investors protested outside Hong Kong government offices, demanding their cash and shares back.
At Sun Hung Kai Securities, clients queued up to change their margin accounts to cash accounts.
