Events related to the Crash -- April 1999
April 30, 1999 [CNN Custom]
- Ecuador has received $500 million in quick-disbursement loans to help clean up its banking
sector. 10 of 38 banks are reported as having been shut down "due to liquidity problems", and
an audit to identify which banks are viable is expected to be completed in two months.
April 28, 1999 [CNN Custom]
- SUMMARY: It seems that the most insolvent of Indonesia's banks have been killed off. The
reform process is still very shaky; most of the primary concerns are political. If Indonesia's
reform process continues past the June 1999 elections, there is a significant chance that the
reform process itself will be altered. Indonesia's current plan is also very sensitive to
exchange rates. Several parts of Indonesia's reform plan, if realistically handled, could
damage exchange rates [and the overall reform plan]
April 28, 1999 [CNNfn]
- Mexico's stock market exchange was disrupted by a power failure in the satellite Solidaridad
One at 2 PM E.T. [U.S.A.]. The Iusacell cellular and beeper company, the Canal 22 TV station
are known to also have been disrupted; several Mexican banks are thought to have been disrupted.
[UPDATE: May 1, 1999: The power failure was caused by a problem that made the satellite
Solidaridad One spin. This problem was corrected on April 28, 1999.]
- The IMF has reached a deal to loan $4.5 billion to Russia over the next 18 months; however,
technical details must be worked out. Also, Russia must pass new legislation to qualify for
the loans. Russia is already the IMF's biggest borrower. Also, questions about diversion of
IMF money through an offshore company based in Britain's Channel Islands are still unanswered.
April 27, 1999 [CNN Custom]
- Francisco Lopes, the immediately former president of the Brazilian Central Bank [he presided
over the devaluation of Brazil's real in January 1999, before being removed], was arrested by
federal police for refusing to sign an oath to tell the truth to a Senate panel about his
knowledge of insider trading on the currency exchange markets. Francisco Lopes was released on
a 300 real (U.S. $175) bail after 6 hours. Lawmakers immediately froze his assets, and
authorized "scrutiny of his bank accounts, income tax declarations and telephone records."
Bovespa [San Paolo stock index] was said to fall 2.1% on this news. However, it did manage to
close up 0.8%.
- Mexico central Bank governor Guillermo Ortiz, today, was concerned that the new IMF
emergency credit line would not be available for countries that already had normal IMF loans
(such as Mexico). He didn't see why a country that already had a normal IMF loan could not
also be subject to "contagion".
- Mexico has been trying to refinance its IMF loans. Mexico has also decided to try to get
a $5.2 billion dollar, 18-month standby loan from the IMF. This was described by Mexican
Finance Minister Jose Angel Gurria as 'Mexico was going for "real money," not "virtual money,"
.'
April 26, 1999 [CNN Custom]
- Francisco Alarcon, head of the Industrial Chamber of Guayaquil, has announced his forecast
for Ecuador's 1999 macroeconomic performance: inflation 150%, economic growth -5% to -6%.
1998 was inflation 43%, economic growth 0.4%. The root of much of this is said to be a budget
deficit of 6.5% of GDP [the austerity measures are said to be worsening the forecast].
Ecuador's sucre was floated in late 1998, due to hard cash reserves "hemorraging" out of
Ecuador. [IMO, combined with the above forecast, Ecuador is definitely Indonesizing. Perhaps
the absence of Islam will make the situation less violent than Indonesia.]
- There is still a partial freeze on all Ecuadorian bank deposits in sucre. I think all
Ecuadorian foreign currency deposits are still frozen.
April 23, 1999 [CNNfn]
- Japan's Economic Planning Agency released a report with the following claims:
- Japan's economy has avoided sliding into a deflationary spiral
- The rising jobless rate, and the effects of corporate restructuring to scrap overcapacity,
remain concerns.
- The Bank of Japan need to inject ample funds into money markets until the recovery
becomes self-sustaining.
- Each item in the current stimulus plan has been implemented smoothly.
- My concern: While the honesty of the above report is beyond question, its veracity is more
problematic. See IMF commentary on April 21, 1999 and Japan's immediate political response to
that commentary on the same day.
April 22, 1999 [CNN Custom]
- Ecuador's businesses in Guayaquil staged a massive strike, shutting almost all businesses
in the city. Streets had to be reopened by security forces. Late at night on April 21, 1999,
Ecuador's Congress passed a 61-law austerity packaged aimed at reducing Ecuador's budget
deficit from 6.5% of GDP [Gross Domestic Product] to 3.5% of GDP. This package is necessary to
enable a loan from the IMF.
- The current forecast is for Ecuador's macro-economy to shrink by 4% in 1999; it grew by a
mere 0.4% in 1998.
April 21, 1999 [CNN Custom]
- International Monetary Fund Managing Director Michel Camdessus said Wednesday Brazil's
expected drop in output this year would likely be less than the 3.8 percent fall the fund
forecast earlier this week. Camdessus expects Brazil's inflation rate to run at 10 to 12 percent
this year.
- Brazil released indicated pricing for its landmark global bond on Wednesday. Brazil would
rather have investors trade in Brady bonds than pay cash, but Brady bonds currently have both
higher interest rates, and shorter terms, than the new Brazil global bond. The new bond
[Morgan Stanley Dean Witter & Salomon Smith Barney] said that the new Brazil bonds would be
priced at a spread of between 675 and 700 basis points over the 5-year U.S. Treasury note.
This translates into a coupon rate of about 11.75 percent. Final pricing will be set on April
22, 1999, and the exchange offer closes on April 23, 1999.
- The relevant IDU Brady bonds (interest due and unpaid) mature in 2001, and were trading at
685 basis points on April 21, 1999. The relevant EI (eligible interest) bonds amortize at a rate
of 12.3 percent of principal per year through 2006, which gives an average life of less than
four years; they were trading at 785 basis points over Treasuries on April 21, 1999. In the
absence of a significantly different default risk, it makes no sense to trade in EI Brady bonds
for the new Brazil global bond.
- There is some speculation that a cash bid on the Brazil global bonds could be downsized or
rejected.
- Japan's Prime Minister Obuchi has called the IMF economic forecast for Japan "harsh", and
"would like to study what figures were used to calculate" the forecast. Obuchi has made a 0.5%
growth rate for fiscal 1999/2000 a political promise.
- Taichi Saikya, of Japan's Economic Planning Agency, was reported as informing Ichizo Ohara
[Liberal Democratic Party elder] has serious doubts that a 0.5% growth rate for Japan's economy
is possible.
April 21, 1999 [CNNfn]
- The IMF (International Money Fund) has downgraded their estimate of Japan's macroeconomic
growth for 1999 to -1.4%. This is forcing political gymnastics in Japan (whose official growth
forecast for 1999 is 0.5%).
April 20, 1999 [CNN Custom]
- Not only have the news clipping feeds been restored, the April 18 stories are now visible.
April 17 has been lost (it's outside the viewing window), and some sections do not have April
18 because of overload from April 19 [in particular, Japan].
April 20, 1999 [CNNfn]
- A group of international banks is preparing to reject Moscow's debt-restructuring plan
(sketched out below). Deutsche Bank, Chase Manhattan, and Crédit Lyonnais have accepted
Moscow's plan (Deutsche Bank was removed from the leadership of the 19-bank coalition for this).
CSFB had an "innovative solution" last month which would have put the frozen assets into an
infrastructure fund, and seen creditors paid from the proceeds -- but this was not accepted by
any other bank. The remaining investors (including German and Swiss banks) hope to force
Moscow into making a voluntary offer.
- Considering Mikhail Kasyanov's comments reported two days ago -- this should have
"interesting" fallout whether Russia backs down, or not.
April 19, 1999 [CNN Custom]
- The news clipping feeds into CNN Custom have been disrupted. Of the sections I normally
scan (which is much more than those I have listed in my Research page), less than five have
news stories dated April 17; none have news stores dated April 18; and less than ten have news
stores dated April 19. I hope normal volume will resume today ;)
- Brazil is having a global bond issue denominated in U.S. dollars, that is estimated to be
somewhere between $1 billion and $5 billion. Most of the issue is likely to be cash however,
rather than trade-ins of Brady bonds (which have sufficiently high yields than a seriously
competitive rate would distort Brazil's yield curve).
April 19, 1999 [CNNfn]
- "Mr. Yen" [Eisuke Sakakibara] has said that Japan's current target ¥/U.S.$ dollar exchange
rate is ¥120/U.S.$1, and that a serious strengthening of the yen will be intervened
against (to protect exports). This weakened the ¥/U.S.$ dollar exchange rate past
¥118/U.S.$1 (hours before, it had gone the other way)
- Japan's corporations' attempts to maintain employment, and reduce overcapacity, are
contradictory. So far, maintaining employment has had a higher priority.
April 18, 1999 [CNNfn]
- Mikhail Kasyanov, first deputy finance minister and Russia's chief external debt negotiator,
said only the sixth and seventh tranches ($3.5 million) of $11 million in MinFin bonds were
Russian debt [which is planned to be paid in full]. The prior tranches are considered to be
Soviet debt [which is currently planned not to be paid in full; the Russian negotiation target is
75% forgiven]. The third tranche repayment, and $300 million in MinFin interest, is due
mid-May.
- GKO and OFZ bonds, which were frozen August 1998, have redemption terms at 5 cents on the
dollar [5%] which expire this month [April 1999]. These terms are described as final.
April 14, 1999 [CNNfn and CNN Custom query via Japan]
- Japan's trade surplus fell again in February 1999 by 32.2% to 9.34 billion [American?]. This
is being blamed on a stronger yen [~120 now, vs. ~140 back in Nov-Dec 1998]. Exports were down
13.0% from a year ago, while imports were down 5.4% from a year ago. The Finance Ministry is
playing this down. In 1998, the total trade surplus [compared to 1997] was up 38.7%.
- Considering that Japan's economy runs on an import-export engine [import raw materials,
export finished products], and that Japan must import food and energy [oil]: I see
problems if exports "fall through the floor". This is qualititively [but not quantitatively]
similar to the Indonesian "import/export" choke: a doubling of the exchange rate [2,500
rupiah/$ to 5,000 rupiah/%] was quite sufficient to totally shut down all exports that depended
on imported raw materials. [This was observed Jan-Feb 1998.] I would be concerned about
Japan's "Indonesizing" if the yen approaches 200-220. Note: Indonesia didn't have nearly as
large [percentagewise or absolute] need to import food or energy.
- Apparently, canned pineapple is not so affected (in the U.S.); Indonesian canned
pineapple (brands: Geisha and Liberty Gold) is phenomenally cheap. The last time I checked,
Geisha at Hyvee at 151st & U.S. 69 was running at $0.79/can (~April 1, 1999), and Liberty
Gold at Walmart at Paola was running at $0.93/can (~April 24, 1999).
April 14, 1999 [CNNfn]
- Warren Buffett, the legendary billionaire investor, has stated that he has no interest in Internet
or high-technology stocks because he does not understand them. He believes there will be more
failures than successes, and that the failures could include some companies with "very
substantial market capitalizations".
- Brazil has lowered its Selic interest rate from 39.5% to 34%. The consensus estimate of the
cut had ranged from 32% to 35%. This is the third cut in three weeks. At the last meeting in
March, the rate was hiked to 45%; Central Bank President Arminio Fraga used the bias to cut to
lower the Selic rate to 42%, then to 39.5%.
April 12, 1999 [CNN Custom, query via Ecuador]
- "Paris Club" is demanding that Pakistan reschedule its Eurobonds before renegotiating its
sovereign loans. Pakistan (so far) has not indicated it is planning to do this; this would make
it the first nation to default on Eurobonds.
- Ecuador is already $300 in arrears on $1.2 billion in Paris Club debts, and is at risk of missing
a payment on a $500 million Eurobond and nearly $8 billion in U.S.-backed Brady bonds.
- French President Jacques Chirac has proposed that the debt writeoff for the poorest countries
exceed the current 80% ceiling. The Paris club is also considering a proposal to "bail in"
private creditors to support official debt "bail outs".
April 11, 1999 [CNN Custom, query via Japan]
- Japan's Financial Reconstruction Committee [FRC] took control of the Tokyo-based Kokumin
bank. Kokumin was reported (unconfirmed) by Japanese media as having a negative net worth of
at least ¥50 billion i.e. at least $413 billion. It is 75.3% owned by corporate groups, of
which the leading owner is Kokusai Kogyo Co. Ltd, an unlisted transport company. Note: the
owner reported is different from the original version. Original version is Kokusai Kogyo Co,
an aerial surveyor with connections to the late Prime Minister Kakuei Tanaka (who resigned from
office over 20 years ago in the wake of a bribery scandal).
- [review] In 1998, the FRC took over Nippon Credit Bank Ltd. and Long-Term Credit Bank of
Japan.
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