Y2K Hits MyCNN!!!
Or, at least the overloading...
Central Standard Time [Y2K started at 6AM CST on December 31, 1999]:
- December 31, 1999: 7AM [1 hour into Y2K]: MyCNN starts destabilizing
- December 31, 1999: 9-10AM [3-4 hours into Y2K]: MyCNN crashes. No error page, total
failure to connect.
- Error page available at about 8AM on January 4, 2000: not available at about 11 PM on
January 3, 2000.
- Barely up on January 5, 2000. Date-sorting seriously impaired, and only a few agencies
clipped.
- Xinhua, African News Service restored January 6, 2000.
- Near-normal coverage restored on January 7, 2000. Password server slightly unstable.
There are going to be partial holes in MyCNN coverage from Dec. 31 1999 to January 4, 2000.
MyCNN Asia coverage will be worse: totally blind through at least January 4, 2000. I'm waiting
to get a reasonable synchronization before pushing through updates. Subpages may (or may not)
be updated earlier than this. I dislike this even more than you ;)
Events related to the Crash
December 29, 1999 [CNNfn]
- China's GDP grew at a rate of 7.1% for 1999, compared to an official target of 7.0%. This is
in spite of two years of deflation, and a savings rate of 40%.
- Russia made its December payment to the IMF. In return, the IMF released $100 million to
be used to reform Russia's coal industry.
- Japan is planning to pass a bill that postpones ending 100% bank deposit guarantees to 2002
instead of 2001. This is delaying part of the "Big Bang" reforms. Resistance from the
nameless business sector is expected.
December 29, 1999 [MyCNN]
- Barclays Bank has reported that Zimbabwe has erased the two prior quarters' macroeconomic
growth in the most recent quarter. Whether Zimbabwe's macroeconomy shrinks, or not,
depends on its handling of the current crisis. Stagflation is the overt risk. Interest rates
currently exceed 60%, with an estimated annualized inflation rate of 61.2%. A severe foreign
currency shortage is aggravating the situation.
- Ecuador plans to start negotiating a medium-term (3-year) plan to reschedule its debts. It
appears that an attempt to get a U.S.$150 million IMF credit line for 2000 has fallen through.
- Ecuador plans to reduce its deficit from 4% of GDP at the end of 1999 to 2.5% of GDP
at the end of 2000.
- Malaysia's CLOB problem [Central Limit Order Book shares, frozen by Malaysia in August or
September 1998] apparently cannot be solved by transferring the shares to Malaysia's Ministry
of Finance -- at least, not without a lawsuit against the Malaysian government being filed with
the Malaysian High Court.
December 28, 1999 [CNNfn]
- Russia's Prime Minister Vladmir Putin reported that Russia had paid off all pensions and wage
debts to federal workers, and that Russia would keep up with its IMF obligations regardless of
new support or not.
December 23, 1999 [CNNfn]
- South Korea has apparently found General Motors' offer for Daewoo Motors' politically
unacceptable (as in too small). South Korea will run a closed bidding contest (to include
General Motors, Ford Motor Co., and Hyundai) for Daewoo Motors. One banker
anonymously mentioned that the purpose of this arrangement is to artificially boost the price
for Daewoo Motors.
December 22, 1999 [CNNfn]
- Secretary of State Madeleine Albright invoked Federal law to override the U.S. Import-Export
Bank's approval of a loan to Tyumen Oil Co. [a Russian oil company which is in a business
partnership with BP Amoco]. Apparently, Tyumen Oil Co.'s business practices are
sufficiently corrupt (at least to the U.S. Dept. of State) that a loan to that company is against
U.S. national interests. There is rather blatant documentation that Russia's attempt to end
Chechnya's secession from Russia [de facto since 1996] was explicitly disregarded (an insult
to many U.S. Republican Congressmen).
December 22, 1999 [MyCNN]
- President Wahid of Indonesia has indicated that Indonesia will not seek to reschedule any
loans from Japan, but will ask for easier terms on future loans from Japan.
- Hmm...easier than 2.2% interest over 30 years??
- The U.S. Embassy in Quito has reopened. It appears that the U.S. Consulate in Guayaquil is
still not openable.
December 21, 1999 [CNNfn]
- Ford Motor Co. has indicated an interest in making an offer to buy Daewoo Motors. It is
unknown whether General Motors' request for exclusive negotiating rights for Daewoo
Motors will be honored by South Korea.
December 21, 1999 [MyCNN]
- Ecuador's government has proceeded to increase security measures around the U.S. Embassy
in Quito and the U.S. Consulate in Guayaquil. It appears that the U.S. Embassy and
Consulate closures were due to a worldwide security alert -- and those in Ecuador are
infamous for their lack of security anyway.
- Standard & Poor's has decided that Pakistan is no longer in selective default. They cite
Pakistan's successful debt restructuring, combined with the skillful management of several
situations (in particular, inflation is under control).
December 19, 1999 [CNNfn]
- Japan's Finance Ministry submitted its largest budget ever for fiscal 2000/2001 -- ¥84.99
trillion. This is up 3.8% from fiscal 1999/2000 (this year).
- Spending on discretionary policy has been boosted to ¥48.1 trillion from ¥46.9 trillion.
- A record ¥85.87 trillion in Japanese government bonds will be issued. ¥32.61 trillion
of this is new issuance; the rest is rollover from prior years.
- Japanese politicians are biased towards spending this time because it is election year.
However, they are also (indirectly) aware that they have used one of the 3-4 years
before their bond rating is reduced from AAA to junk under this heavy spending
regime, and are stating that they do not plan to repeat this level of spending.
- Japan's debt-servicing costs hit a record high of ¥21.97 trillion. This is about
25.84% of the fiscal 2000/2001 budget.
- Tax allocations to local governments were projected at ¥14.93 trillion -- up 10.4%
from fiscal 1999/2000.
December 18, 1999 [MyCNN]
- Takatoshi Ito, deputy vice minister for international affairs, has confirmed that Japan has no
intention of controlling its budget deficit until the Japanese economy is clearly recovering.
- The commentary behind the concerns about Thailand, Indonesia, South Korea, and the
Philippines is superficially relevant (cf. Dec. 6, 1999).
December 17, 1999 [MyCNN]
- The U.S. State Department made the decision to close the U.S. Embassy in Quito, and the
U.S. Consulate in Guayaquil, indefinitely due to multiple security threats.
- This is a weak confirmation of Carlos Mendoza's concerns about the continued
existence of Ecuador. From what little he has described, the situation in Ecuador
should render the U.S. Embassy and U.S. Consulate somewhen before the critical point
he is concerned about.
December 16, 1999 [MyCNN/CNNfn merge]
- Red China's Auditor-General Li Jinhua, of the National Audit Office, released some details of
how much corruption had been located by the National Audit Office (created only five years
ago).
- Audits of 112,000 agencies this year had saved the state 29.8 billion yuan ($3.60
billion) and given investigators more than 1,400 clues to key criminal cases.
- The three most(?) common causes of problems were:
- inexperience in operating a market economy
- loopholes in the legal system
- individual corruption
- In a particularly blatant example, unnamed former Ministry of Finance officials
misappropriated $8.5 billion to set up the Science and Technology Investment
Corporation.
- Yangtze flood control authorities were cited as:
- using nine million yuan of dam construction money to build a hotel.
- paying bonuses and creating a slush fund with 400 million yuan in anti-flood
funds.
- Deputy Auditor-General Liu Jiayi's office investigated the 1998 books at 4,600
branches of the Industrial and Commercial Bank of China (ICBC) and 1,700 branches
of the China Construction Bank:
- "Irregular cases have been reduced year by year,"
- "But there are still problems in compliance with regulations on disclosure of
bank assets."
- [MyCNN summary] "networks of the ICBC and Construction Bank had
overstated their assets by 200 billion yuan and had built up 200 billion yuan in
off-book assets. A tenth of reported assets at the banks were of poor quality."
- Overall, 170 cases of corruption involving 220 people were found.
- The Agricultural Bank of China and the Bank of China, as well as the two banks
audited, are considered by many Western analysts to be technically insolvent
with debts of U.S.$200 billion.
- The Ministry of Water Conservancy was also cited:
- for swiping 116 million yuan in state water funds from 1994 to 1998 to build
luxury offices and buy houses and stocks. This was particularly bad PR, since
the Yangtze flooding in 1998 was the worst in five decades, with 4,100 deaths
and billions of U.S. dollars in damage.
- Zhai Xigui, a second deputy auditor-general, reported that 3.02 billion yuan of
32.25 billion yuan, allocated for flood control projects since 1998, had been
misappropriated.
- "Economic responsibility audits" of the performance of 17,000 leading officials during
their terms in office had resulted in dismissal or discipline in 10% of the cases.
- Illegally constructed properties were uniformly confiscated and were (in the process of
being) auctioned off.
December 16, 1999 [MyCNN]
- Pakistan's Musharraf government has declared an economic plan that is a slightly enhanced
version of the plan the IMF and World Bank want. This is much more promising than the
government Musharraf removed by coup.
- Zimbabwe's NOCZIM mission had a reasonable strategy: apparently, there had been a
12-month U.S.$60 million credit facility that NOCZIM had retired after completely paying it
off. It was a relatively simple matter (financially) to revive that credit facility with U.S.$100
million, again for 12 months.
- However, a high percentage of gas stations in Zimbabwe had already run out of
gasoline, and an even higher percentage had run out of unleaded gasoline.
- A nameless British government report has concluded that Zimbabwe's debt arrears will grow
profoundly if Zimbabwe does not start using effective fiscal policies. Failure to use effective
fiscal policies risks a deficit of 10% of GDP [the same as Japan's, in terms of GDP]. The 10%
of GDP deficit does not include Zimbabwe's support of Kabila (in the Congo) versus Rwanda
and Uganda (via proxy rebels i.e. 'Restorers of the former government': Kabila's ascension was
by coup....).
- It should be noted that the AIDS infection rate of Western-educated Ugandans has been
reported, repeatedly, as (practically) 100% since 1996 or so. This should disrupt
Uganda's support by 2006 or so.
December 15, 1999 [CNNfn]
- While Red China's 20% tax on new bank savings has indeed reduced new bank savings over
the past two months...this is not translating into spending. It is unclear where the money has
been redirected. Government securities, the stock market, and the mattress have all been
speculated as alternative saving vehicles.
- Nov. 1999: month 26 of deflation. Red China's annualized deflation rate is 2.8%.
- Oct. 1999: Red China's annualized deflation rate is 2.6%.
December 14, 1999 [CNNfn]
- GM has made an initial offer for Daewoo Motors. This GM offer does not propose buying
any of Daewoo Motors' debt.
- The Daewoo Group does not plan to improve its debt restructuring offer (the one that was
blasted by overseas creditors). Apparently, Daewoo cannot adjust the figures to anywhere
close to 75% (the target percentage that over 20 international banks have started to take legal
action to recover).
- The IMF has frozen its loan program to Romania, due to questions about the current
government's ability to push through economic reforms.
December 13, 1999 [CNNfn]
- It seems the decision on whether to auction off Daewoo Motors depends on talks between
Daewoo Motors' creditors and GM.
December 9, 1999 [MyCNN]
- Zimbabwe's Finance Minister Herbert Murerwa is leading a high-level team next week to
Libya and Europe in an effort to gather credit to buy fuel with. It seems that the state fuel
procurer NOCZIM "has run out of foreign currency to purchase more fuel. The Reserve Bank
of Zimbabwe itself no longer has any foreign exchange to meet our fuel procurement needs
and fuel reserves can only last three weeks..."
- "Reserve Bank Governor Leonard Tsumba said levels of foreign exchange reserves had
undermined the central bank's intervention in the interbank market which is struggling
to cope with import demand mostly from NOCZIM and other state utilities."
- Japan apparently has to act to keep its job insurance system from going bankrupt. No details
are forthcoming -- but some sort of action is expected(?) by Jan. 2000.
- Since similar reforms are currently still needed for U.S. Social Security, perhaps there
are systematic causes for this that apply to both Japan and the U.S.?
December 9, 1999 [CNNfn]
- Overseas creditors have explicitly rejected the current proposal for restructuring Daewoo
Corp.:
- "Daewoo's overseas creditors are owed some $6.7 billion in mostly unsecured loans
and bonds. Most of the money they lent went to Daewoo Corp., flagship of the sinking
conglomerate. Overseas bankers say they lent to Daewoo Corp. believing it was the
front for Daewoo Group. Daewoo Corp., trading and construction arm of the group,
has liabilities of 31.99 trillion won ($28 billion) against 17.46 trillion in assets, by far
the most indebted of the Daewoo units. An overseas banker familiar with the group's
debt-buyout proposal said the 18 percent ratio applied to Daewoo Corp." The highest
ratio is 65%.
- The rejection is based on charges of "murky bookkeeping": the formerly undeclared
British Financial Centre, a London-based subsidiary of Daewoo, is responsible for
transfers of $7.5 billion from Daewoo Corp. to its other subsidiaries. Unless a
restructuring plan that explicitly accounts for these transfers is immediately
forthcoming, overseas creditors apparently plan to use court action to override South
Korea and force an equitable restructuring.
- Did anyone mention to South Korea that many, many overseas jurisdictions have
no statute of limitations regarding fraud -- which is what this British Financial
Centre is perceived as its raison d'être?
- The resulting liens, etc. would severely disrupt South Korea's intended
restructuring as currently declared.
December 8, 1999 [MyCNN]
- Tokyo prosecutors have filed indictments on:
- London headquarters of Credit Suisse Financial Products (CSFP) for violation of
Japanese banking laws.
- Shinji Yamada, former head of CSFP's Tokyo branch for:
- Conspiring with two other unidentified company employees early this year to
hide documents in a room, the existence of which they concealed from
authorities, despite demands from inspectors to hand over the papers.
- giving false responses to FSA inspectors.
- Credit Suisse is not contesting the indictment of Shinji Yamada. In contrast, they are
contesting the indictment of the London headquarters:
- "Spokeswoman Karin Rhomberg said Credit Suisse saw no reason why the
London head office should be indicted. She noted that an independent
investigation it ordered when it heard about the employees' behaviour found that
'senior management outside Japan was unaware of the misconduct.'. 'The group
is unable to reconcile such an unprecedented decision with its understanding of
the facts,' she said. 'At no time did CSFP or the group endorse this isolated
behaviour.'"
- Apparently, advisers are studying "whether the Japanese authorities could legally
bring charges against company offices in Britain."
December 8, 1999 [CNNfn]
- The IMF has made a list of reforms that are expected of Russia before the next $640 million
installment of a $4.5 billion loans. [Chechnya is not mentioned: it is inappropriate to endanger
national security as a condition, contrary to popular opinion among politicians.]
- Increase rates of cash collection for electric power, heating, natural gas, and rail and
freight services.
- Of the five requirements, this is the one that is obviously in Russia's best
interest, and (excepting paranoia) has no ulterior motives. The other four have
plausible "creative interpretations". If Russia is not already exerting maximum
effort towards this goal, there is something seriously wrong with the
government.
- Pass amendments in the Duma, the state parliament, to insolvency laws that currently
favor corporate restructuring over bankruptcy.
- Award contracts for financial management reviews and annual audits of state pensions,
social insurance, medical insurance and road funds.
- Eliminate the deposit requirement for prepayment of imports.
- Accept DMA amendments to certain bankruptcy laws.
- "The IMF said an audit showed Russia lied about what it did with a previous loan, but
the fund has found no evidence that its money was involved" in the ROCML
Scheme@BNY.
December 7, 1999 [MyCNN]
- Ecuador has cancelled a third round of talks with creditors that had been scheduled for this
week. Apparently, private creditor demands to force inclusion of international agency loans
(such as IMF loans) in restructuring plans will prevent the approval of an Ecuadorean debt
reorganization until late January (the earliest time the IMF could approve such a package).
- Over 90% of the Eurobond holders in Pakistan's debt swap have approved it. All three of the
affected Eurobonds fall due between December 1999 and December 2000; this debt swap was
an approval condition for Pakistan's Paris club debt reorganization.
- Pakistan's holdings were vastly overestimated: Pakistani owners were only 33%, in
contrast to a priori estimates of up to 75%.
- Pakistan may elect to covertly buy off the 10% of the Eurobond holders who did not
approve the swap, rather than risk lawsuits.
- Pakistan can reopen the exchange any time before Dec. 13, 1999.
December 7, 1999 [CNNfn]
- Daewoo Corp.'s overseas lenders, and Daewoo Corp., have mutually incompatible opinions
about whether the recent disclosure of 18 years of bad accounting will endanger Daewoo's
restructuring plan. [Overseas creditors: yes, Daewoo: no.] The British Financial Centre, a
previously undisclosed Daewoo unit, was documented as funneling $7.5 billion to overseas
subsidiaries from 1982 to 1999.
- In a collective letter from the overseas creditors to South Korea's Financial Supervisory
Commission:
- "any workout of the Daewoo companies on a company-by-company basis will
result in substantial prejudicial treatment to the foreign creditors."
- which "makes it virtually impossible for the Steering Committee to recommend
that the foreign creditors accept any solution that resembles the current workout
plan for Daewoo Corp." (The plan referred to has already been approved by local
creditors).
- This is the second day of a strike by Romanian rail workers in Romania. Until the wage
demands become negotiable, the strikers apparently will not come down below a 70% wage
increase, while the Romanian transport ministry will not go above a 20% wage increase.
- Transport Minister Traian Basescu has stated that the railworker union's demands will
result in up to 40% fare increase.
- The railroads are functioning near 30% capacity, as required by Romanian law during a
strike.
December 6, 1999 [MyCNN]
- Pakistan's debt swap of Eurobonds for a new 6-year bond appears set to go through (80% of
the Eurobond holders have accepted the swap). The remaining 20% want to be paid off
immediately, if discreetly. Ecuador is considering a similar move (but has yet to do anything
except default). Judging by some of the proposed delays that Ecuador has already floated,
Ecuador may be in far worse economic shape than Pakistan.
- General Motor's [GM China division] in-progress takeover of Daewoo Motors has been put
on hold while the Daewoo debt restructuring is going on (since October 1999). GM China is
still interested, however.
- A due diligence study in November, however, indicated that Daewoo motor had 18.6
trillion won of liabilities, as opposed to 12.9 trillion won of assets.
- META: There are concerns that it may become impossible to both balance the national budget
and revive the national economy for the following nations:
- Indonesia: external debt expected to hit 98% of GDP in 2000, vs. 49% of GDP at end
of 1997.
- Thailand: public debt at 34.3% of GDP in June 1999, vs. 15% at the end of fiscal 1996
[October-September].
- South Korea: maximum expected debt is 25% of GDP in 2003 (vs. 23% at end of 1999
and 14.5% at end of 1997); however, ABN Amro Bank expects South Korea to attain a
debt of 43% of GDP due to bank restructuring.
- The Philippines: Jan.-Oct. 1999 budget gap 96.80 billion pesos, vs. 1999 target of 85
billion pesos. Target year for balanced budget 2003: this is now on the verge of
questionable.
- There are three obvious options for deficit control:
- Let interest payments pile up (which risks default, and destroys the sovereign
credit rating).
- Monetize the debt: this causes runaway inflation and currency depreciation.
- Servicing debts promptly and cutting public spending (the second which can
induce macro-economic depression, which is still a serious risk factor for these
nations).
December 5, 1999 [CNNfn]
- Japan's GDP contracted by 1% in July 1999-Sept. 1999. The forecast range had been 0.6%
growth to 0.9% contraction. [Then again, the Jan-March 1999 growth had looked unnatural. It
mostly cancels out.] It appears that the economic stimulus package created in November 1999
will be useful. Japan's EPA revised Jan-March 1999 growth down to 1.5% from 2.0%, and
revised April-June 1999 growth from 0.1% to 1%.
December 3, 1999 [CNNfn/MyCNN]
- South Korea is studying more extravagant bank restructuring measures.
- Work on details has begun for a scheme for South Korean banks to buy Daewoo debt
from foreign banks, and then pass it on to Korea Asset Management Corp [which is
state-run].
- World Bank Chief Economist Joseph Stiglitz had the following points:
- South Korean banks generally need to continue learning how to assess
creditworthiness (as opposed to decades of government-directed lending).
- Nonbank financial institutions need much more accounting transparency (i.e.,
need to use Western accounting). They should be regulated almost as much as
banks -- as opposed to, for instance, not using market values to list the value of
assets that do have clearly-defined market values.
December 2, 1999 [MyCNN]
- U.S. Treasury Secretary Lawrence Summers announced the forgiving of $12.3 million in
public debt owed the U.S., and the reduction of future obligations by $9.4 million by means of
rescheduling other debts owed the U.S. If the saved money is used on social programs,
another $40 million in debt relief is possible. [This is against $4 billion in public debt owed to
various lenders....]
December 2, 1999 [CNNfn]
- Russia has stated that it will not make a $963 million payment to London Club commercial
creditors today, since that is under negotiations due to be completed later this month. [It seems
that Russia is not able to meet even the first revised debt restructuring started in August
1997....] The $188 million IMF payment is considered to be certain by Russia, however,
regardless of whether the IMF unfreezes its loan program or not.
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