Events related to the Crash

• Daewoo Motors announced a workforce reduction of 6,884 workers [5,494 factory, 1,390 white-collar] in its latest restructuring plan. 2,028 workers had already volunteered for this as of Dec. 28, 2000 (since the reduction was announced on Nov. 27, 2000).

• Japan's Financial Services Agency restricted Nomura Securities Co Ltd [2 months starting Jan. 9, 2001] from most of its its investment advisory business with non-resident customers -- on charges of trading securities for foreign clients without contracts.
• The unions coordinating Kookmin/Housing and Commercial Bank strike were forced to call it off, due to inability to invoke sympathy strikes at other banks -- and demonstrated ability of the police to break up the strike if necessary (such as Dec. 27, 2000). It is unclear whether the strike will be reinstated after Jan. 1, 2001.

• Japan's Management and Coordination Agency reported that spending by wage earners' households fell by a inflation/deflation adjusted 2.3%. Also, year-on-year deflation entered its 15th month, with nationwide consumer prices down 0.5% from Nov. 1999 to Nov. 2000. This has raised speculation that political pressure may be applied to reinstate a zero-interest-rate policy.
• Kyoei Life Insurance Co (which filed bankruptcy on Oct. 20, 2000) reported a negative net worth of ¥185.8 billion as of Oct. 23, 2000 -- slightly more than 41 times the negative net worth of ¥4.5 billion reported for Sept. 30, 2000. Chiyoda Mutual Life Insurance Co suffered a media leak reporting a negative net worth of ¥511.1 billion for Dec. 25, 2000 -- almost 15 times the negative net worth of ¥34.3 billion reported for Sept. 30, 2000. The more-accurate information suggests that the industry-funded Policy Protection Corp may require government funding to avoid annihilation.
• Japan's planned launch (on Jan. 4, 2000) of its Real-Time Gross Settlement system is feared to have exactly the opposite effect: in exchange for reducing systemic risks of counterparty default, banks will need collateral to get emergency loans from the Bank of Japan. This is expected to raise costs for banks. One scenario that has been proposed is that the changeover could reduce liquidity in a positive-feedback cycle, with the effect of disabling arbitrage operations. Germany's Real-Time Gross Settlement system (introduced in late 1998/early 1999?) managed to reduce market turnover by a factor of two, by increasing costs. The U.S. Real-Time Gross Settlement system had no obvious effects, since it did not replace the prior system. Japan's is expected to have more severe illiquidity effects than Germany's, since the Bank of Japan is opting for collateralized loans to cover the 9AM-10AM "dead zone" -- and is not resorting to Germany's "queue management" strategy in an attempt to maximize throughput.

• Japan's unemployment rate rose to 4.8% for Nov. 2000. The post-WWII high for Japan's unemployment rate is [as of this date] 4.9%, set in Feb. 2000.
• The Korean Development Bank has decided, for those corporations not able to cover their corporate debt [that is, only able to honor circa 20%?] to take over 80% of their corporate bonds.
• The Kookmin/Housing and Commercial Bank strike (in South Korea) was reduced to about 10,000 as women were not required to stay (unlike men). Police indicate no intent to break it up until December 27, 2000.

• South Korea's Kookmin Bank, and Housing and Commercial Bank were targeted for a (illegal?) strike by about 16,000 unionized financial workers in retaliation for a just-announced merger.

• Kenya's Parliament is seriously considering whether to sabotage the IMF support program for Kenya by a diverse variety of reintroductions of measures that violate the agreement. These include price controls, and abandoning the privatization of Kenya's telephone system.
• Thai banks made little to no progress on nonperforming loan rates in Nov. 2000.
  • Bangkok Bank reported nonperforming loans at 163.3 billion baht/21.81% for Nov. 2000, vs. 162.5 billion baht/21.62% for Oct. 2000. This is partly due to the complicated proceedings about Thai Petrochemical Industry Plc, whose bankruptcy was finalized today. Bangkok Bank is suspected of being exposed to 10 billion baht of Thai Petrochemical Industry Plc's 160 billion baht of debt.
  • Siam Commercial Bank reported Nov. 2000 nonperforming loans at 21.81%, vs. Oct. 2000 nonperforming loans of 18.90%.
  • Thai Farmers Bank improved: Nov. 2000 nonperforming loans were at 14.45%, vs. 14.75% for Oct. 2000 nonperforming loans.
  • Thai Telephone and Telecommunications Plc had a restructuring plan for 44 billion baht of debt approved (by creditors) Dec. 20, 2000.
  • Progress was also expected in Dec. 2000 on rehabilitating Robinson's Department Store's debt of over U.S.$400 million.

• Indonesia's legislature has made it clear (by action) that they prefer not to reform their central bank. Their preference is strong enough that they have suspended the IMF support program for Indonesia. It is unclear whether they intend to conduct the reforms at all: their rhetoric is uninformative. Considering that IMF suggestions/requirements contributed to Suharto's downfall, I understand their insistence on reviewing IMF requirements. The aid issue is less urgent as long as crude oil prices are high.

• It appears that in contrast to the rhetoric in 1997 and beyond, Japan's public works spending has been consistently declining since fiscal 1995-1996 [Apr. 1995 to Jun. 1996].

• Argentina has just informally concluded a U.S.$39.7 billion IMF-coordinated aid package to prevent government debt defaults in 2001. About U.S.$24.4 billion will be available in 2001. Official approval is expected in Jan. 2001.

• Japan's Financial Reconstruction Commission proceeded with imposing the bankruptcies of Kansai Kogin and Tokyo Shogin credit unions. The FRC reported negative net worths of ¥51 billion and ¥21 billion, respectively, at the end of June 2000. For Kansai Kogin, this is a substantial drop from a reported positive net worth of approximately ¥130 billion at the end of March 2000. Substantial enough to suspect accounting errors.

• Japan's Financial Reconstruction Commission announced its intent to declare eight credit unions bankrupt -- that all primarily serve those of Korean ancestry. One of those targeted is Kansai Kogin, based in Osaka; it apparently plans to countersue. Kansai Kogin is the nation's largest credit union, with ¥967.4 billion ($8.64 billion) in outstanding loans and ¥1.09 trillion in deposits as of the end of March 2000. Tokyo Shogin Credit Union was also mentioned as a target.

• Tianjin International Trust and Investment Corp (TITIC) has failed to meet a Samurai bond interest payment. If no payment arrives before the 2-week grace period is up (Dec. 27, 2000), it will be in default...making the second Samurai bond default this year. It is unclear whether the Tianjin government will back the bond, or not.

• For the next few weeks or months, the yen is expected to be weaker as international fund managers sell off yen-denominated holdings in order to match the adjustments to Morgan Stanley's International Capital EAFE index.

• Japan's Finance Minister Kiichi Miyazawa has taken verbal action to attempt to defuse political pressure (LDP, etc.) to reinstitute the zero-interest-rate policy.

• The IMF provided U.S.$7.5 billion in loans to replenish Turkey's central bank reserves, which have lost an estimated U.S.$7 billion in the past two weeks to a liquidity crunch. It is definite that reserves fell from U.S.$24.43 billion on Nov. 21, 2000 to U.S.$18.8 billion or so on Dec. 2 or 3, 2000.

• Japan's GDP grew an inflation-adjusted 0.2% for July-Sept. 2000. There are concerns that a slowdown in the U.S. and Asian macroeconomies could force Japan into GDP contraction for the next quarter [Oct.-Dec. 2000]. Changes in the calculation method for Japan's GDP forced a nominal correction of Apr-June 2000 GDP growth from 1.0% (old method) to 0.2% (new method). Jan-March. 2000, however, was revised only from 2.5% to 2.4%.
• South Korea's current situation is complicated by relatively high oil prices, and relatively low semiconductor prices. There are concerns that failure to vigorously restructure further could provoke a repeat of what happened in June 1997.
  • However, it wasn't import/export prices that created the won, baht, and rupiah collapses in June and July 1997: it was an excessive proportion of foreign-denominated debt due within 6 months. I have no news reports that this is happening. In fact, South Korea used just under 60% of its U.S.$58.35 IMF bailout, and has no immediate need to use the rest of it.

• The Euro hit a 2-month high of 1 Euro/U.S.$0.89. A proper recovery is thought to be signaled by 1 Euro/U.S.$0.92, however.

• The union for South Korea's Korea Electric Power Corp (24,000 workers) canceled an earlier strike declaration [intended to start Dec. 4, 2000] after obtaining guarantees of job security. It is projected that large gains in electric power demand will actually increase the number of workers needed by 2015.