Events related to the Crash

• Japan's Deposit Insurance Corporation got approval from Japan's Financial Reconstruction Commission to forgive ¥97 billion of ¥197.7 billion of loans from Shinsei Bank [the revised LTCB] to department store operator Sogo Co. Ltd. The alternative was to permit a debt relief deal for Sogo Co. Ltd. to collapse. This debt relief deal is not expected to restore Sogo Co. Ltd.'s viability. It is controversial whether Japan will recover the money involved in this; this is also considered to set a precedent for similar incidents involving Shinsei Bank, and to be a hindrance to Japan's macroeconomic reform program.
• U.S. macroeconomic personal income growth was slower for May 2000 [0.4%] than April 2000 [0.6%]. While this is a hint that U.S. macroeconomic growth is slowing down, the current U.S. macroeconomic growth rate may still be unsustainable. Spending growth at or above 5% is definitely unsustainable, and there is no reason to think it has dropped below that yet.

• The Bank of Thailand issued a new set of foreign debt statistics, revised to be in compliance with international best practices. The new results: "Thailand's adjusted total foreign debt stood at an estimated $92.3 billion at the end of March [2000] against $95.6 billion at the end of 1999 and $109.3 billion at the end of 1997." The old results: "Thailand had only $72.1 billion of foreign debt at the end of March [2000] against $75.6 billion last December and $93.4 billion at the end of 1997."
• Ford Motor Co. is expected to revise its bid down before actually negotiating the sale. Ford's remarkably high bid (along with pledging not to reduce head count, etc.) is thought to be intended to buy time to do due diligence studies [which GM and DaimlerChrysler have already done].
• Hyundai has decided to keep its automobile unit after it finishes restructuring, finally indicating which set of confusing signals it has been sending for the past month is the accurate set. This decision directly defies the South Korean government. It seems that Hyundai and South Korea's Fair Trade Commission disagree on whether Hyundai founder Chung Ju-yung as the leader of Hyundai [Hyundai says no, the Fair Trade Commission says yes]. Since Chung Ju-yung was born in North Korea, he may very well be responsible for Hyundai's 1997 and later investments in North Korea.... It appears that Chung Ju-yung may need his stake in Hyundai Motors as a financing source for his North Korean ventures.

• Fitch IBCA downgraded Japan's sovereign debt to AA+ from AAA. However, Japan's long-term foreign currency rating and short-term rating were held at AA+ and F1+, respectively. Fitch is concerned that there is no hint of a reversal in Japan's JGB issuance increase trend in the foreseeable future.
• Ford Motor Co. placed the winning initial bid for Daewoo Motors, at 7.7 trillion won (approximately U.S.$6.9 billion). It is expected that the ultimate buyer of Daewoo Motors will not recoup their investment for at least 8 years....
• Japan's Ministry of Finance apparently had verification that U.K.-based Garban International conducted ¥75 billion of customers' orders on its own account, rather than acting as a broker. Garban will be banned from participating in JGB auctions from July 10 to July 14, 2000.

• Pakistan has announced its intention to increase exports by 17% in July 2000-June 2001 compared to July 1999-June 2000. While Pakistan has a very dim track record on meeting these goals, the military government is taking concrete action towards meeting them already: it is simplifying the legal paperwork required to import and export from Pakistan. Export growth is expected to be concentrated away from textiles (the current mainstay)
• Japan's unemployment has started to decline [4.6% for May 2000, compared to 4.8% for April 2000 and a record 4.9% for February and March 2000]. However, real spending in May 2000 fell by 1.2% compared to May 1999.

• Germany's import prices increased year-on-year by 11.7% for May 2000, in contrast with 9.8% for April 2000. Month-on-month, the price rise was 2% for May 2000, in contrast with a 0.3% decline for April 2000.
• Japan's industrial production rose 0.2% month-on-month for May 2000, in contrast to a 0.6% decline for April 2000.

• The Korea Medical Association called off their strike (into its sixth day) after South Korea agreed to grant doctors more authority to prescribe drugs. [No concessions were described regarding the sale of drugs.] However, restrictions were put on pharmacists' sales of drugs without a prescription. Initially, a pharamacists' strike was considered, but this was ruled out as too rash.
• The impending elections are clouding the short-term macroeconomic forecasts for Thailand. Apparently, the exact winner of the election has serious consequences for Thailand's macroeconomic policies.

• Japan's banks are thought to face earnings threats from rising interest rates (the end of the zero-interest rate policy) and a surge in bankruptcies forcing many loans to be reclassified to problem loans. Currently, the construction, real estate, and retail sectors are hardest hit by the bankruptcy surge. The 16 largest banks have set aside loan-loss reserves of ¥1.6 trillion for the year April 2000-March 2001. Note that last year, these same banks set aside ¥1.5 trillion, and actually needed ¥4.5 trillion....

• Indonesia's Central Bank and Cabinet disagree over whether Sjahril Sabirin's arrest will further destabilize Indonesia's macroeconomy. The initial currency market response was negative.

• In spite of a annualized 2% increase in France's production over Feb. 2000 to April 2000, industrial production actually declined by 0.2% for April 2000. Euro weakness and Eurozone interest rates are expected to make this decline a temporary blip.

• Japan's trade surplus plunged 29% as growth in imports [19.4% year-on-year] seriously exceeded growth in exports [8.2% year-on-year].
• Investigators from Indonesia's attorney-general's office detained Indonesia's Central Bank governor Sjahril Sabirin in relation to the Bank Bali scandal. The intended duration of detainment is at least 20 days. This is considered to be aggravating a political standoff between Wahid and Sjahril (Wahid wants Sjahril to resign, which Sjahril refuses under overt pressure).
• South Korea's doctors' strike intensified on the second day. 95% of private medical clinics have been shut down, and only 2% of general hospitals are reasonably functioning. It is plausible that lawsuits charging the strikers (generically) with killing people by denying medical care will be filed: the local media have already reported at least two instances of this.

• Zimbabwe's problems have already caused 46% of South Africa's manufacturers to reduce exports to Zimbabwe. Over the next 12 months, 21% of South Africa's manufacturers intend to sharply reduce investment in Zimbabwe. 25% of South Africa's manufacturers indicated that they also were planning to cut investment in Zimbabwe over a longer time scale.
• 90% of South Korea's medical clinics have been shut down by a doctors' strike. Many general hospitals have only intensive care units staffed by doctors. This strike is apparently illegal (direct government orders to return to work). If the strikers do not comply, military doctors will staff government hospitals. The strike is over a law illegalizing the sale of most non-injected drugs by doctors; apparently, there is some disagreement over whether a 9% increase in legal fees will sufficiently increase conventional income to prevent mass bankruptcies....

• Thailand officially completed an IMF macroeconomic recovery program. While there is still significant cleanup to be done, both Thailand and the IMF think that official IMF assistance is unnecessary. Thailand's 1Q 2000 macroeconomic growth rate was 5.2%, and was export-driven.
• While South Korea is not expected to re-enter a crisis, failure to complete banking reforms in a timely fashion could cause serious short-term difficulties.

• Pakistan's Finance Minister Shaukat Aziz, however, considers a 24% rise in tax revenues a lower bound on the increase in tax revenues from widening the tax net. He also attributed Pakistan's poverty to its citizens' pervasive corruption.
• However, Pakistan apparently maintains at least two budgets (the less optimistic ones are contingency plans), and possibly more -- ensuring Pakistan's ability to meet international obligations regardless of the whims of the IMF, World Bank, and vagaries of tax collection.
• Also, the traders' strike collapsed last week, failing to prevent the tax survey from taking place.

• Phytoplasma (i.e. "white leaf") disease has started to affect sugar cane in two of Thailand's provinces. 320,000 out of about 32 million tons of the 2000/01 (October-September) crop are already affected. It is already the worst outbreak in a decade, and has the potential to be the worst outbreak in 45 years.
• Arshad Arif, research head at First Capital ABN AMRO Equities, estimated that the Musharraf tax net expansion was not likely to increase tax revenues by more than 10% this year.
• Teikoku Databank reported that Japan's corporate bankruptcies rose for the seventh straight month in May, climbing 12.4 percent year-on-year to 1,528. Total debts owed by firms that went bust last month rose 3.9 percent on year to ¥1.68 trillion ($15.69 billion) -- a post-war record high for May. Debt soared 77.2 percent from the previous month. Three-quarters of the bankruptcies were caused by Japan's economic recession/depression. Aggravating factors include bank restructuring and Japan's Internet ex-bubble [it has already burst....]

• It appears that Kenya's revised electric power rationing schedule gives industrial users merely 32 hours of electricity per week. The maximum estimate for Kenya's macroeconomic growth reported is 1.2%, and there is mention of a possible contraction.

• Hyundai announced that it was in talks with Ford Motor Co. and DaimlerChrysler over a possible joint bid for Daewoo Motors. This apparently is a feasibility study.

• John Wall, the World Bank's country director for Pakistan and Afghanistan, considers Musharraf's tax survey a critical test of the Musharraf regime's ability to reform Pakistan's economy. ".... I always thought for some time that it is very difficult for any government to manage this economy with a tax revenue of 13 percent of gross domestic product (GDP). .... Overall, government revenue should be 21 or 22 percent of GDP and of that 18 percent should be from taxes. It means they have to add another five percent (points) of GDP as tax revenue, from 13 to 18 percent. ...."

• Japan's Economic Planning Agency reported that Japan's macroeconomic growth for Jan.-Mar. 2000 was 2.4%. This brings macroeconomic growth for fiscal April 1999 - March 2000 to 0.5%.
• Japan's Financial Supervisory Agency imposed a trading freeze on the Tokyo branch of BNP Paribas Securities for 3-5 days (depending on targeted markets) in retaliation for helping clients hide ¥9.5 billion in deriviates trade losses between Sept. 1997 and July 1998.

• Kenya's electric utility admitted that the 12-hour rolling blackouts currently in progress will not work, and had begun analysis to determine a more effective power rationing schema.
• Thailand's sugar industry is apparently sufficiently indebted to be forced to manufacture sugar to make bank payments. In spite of very low world prices, the pre-Crash expansion is forcing Thailand to come closer to designed capacity (70 million tons/year to 100 tons/year) in order to improve the cost situation. The current level of production (53.1 tons/year for 1999, estimated 51.9 tons/year for 2000) loses money.
• Pakistan's Finance Minister Shaukat Aziz so far is refusing to yield to traders' demands to call off the tax survey. Sakib Sherani, an economist at ABN Amro Bank, commented: "Given that our current state can be likened to building a Noah's ark while the flood waters have already begun to rise, speed of implementation is of the essence."
• Indonesia's President Wahid formally named Bank Indonesia governor Sjahril Sabirin as a suspect in the Bank Bali scandal. This immediately weakened Indonesia's rupiah.
• Nigeria did a partial rollback of a 50% rise in fuel prices, after being faced with a paralyzing strike in Lagos. There is no particular reason to believe this partial rollback will affect the strike, or prevent it from spreading to the oil sector.

• Pakistani traders have extended their strike for five more days. An inconsistently explained death (Abdul Rehman Baiga, owner of Islamabad's Baiga Hotel: government says it is a suicide, traders say it is a murder) aggravated the situation.
• Japan's leading economic indicators have slid into the decline range for the first time in 14 months. Japan is trying to explain this away in terms of one-time skew in the January 2000 figures [the index went from 70.0 to 28.6].
• The Bank for International Settlements had several comments:
• The single biggest threat to the world macroeconomy is a sudden decline in the U.S.$. This would sabotage Japan's recovery; most emerging economies are convinced that a "hard landing" for the U.S. macroeconomy would hurt them.
• Japan's use of inflation targeting to create inflation has never been attempted before. The risk of severe credibility problems was mentioned; another risk (not discussed) is hyperinflation.
• The two known examples of zero interest rates [U.S. in the Great Depression, and Japan for the past 15 months] were speculated to be evidence for the need of strong banking system, than the intrinsic damaging effects of such interest rates.

• The Korean Confederation of Trade Unions extended their call for a strike to Saturday [June 10, 2000].

• Horst Koehler, the new head of the IMF, is more concerned about how South Korea is going to maintain macroeconomic stability than a repeat of the 1997 currency collapse (that heralded the Crash).

• "Japan's largest insurer Nippon Life Insurance and second-largest Dai-ichi Mutual Life Insurance posted a combined ¥16.7 trillion ($153.5 billion) decline in 1999/00 in the value of individual insurance policies outstanding, to less than ¥535 trillion." This was attributed to the Bank of Japan's zero-interest rate policy and the Euro plunge relative to the yen, which are forcing yields far less than what are guaranteed to policyholders. Nippon Life Insurance is currently heavily exposed to the Euro -- bonds, stocks, and and deposits.

• The general strike of Pakistani traders against a government survey showed signs of wavering: most shops were open in Islamabad today. 80% of shops in Karaichi were closed, however. The strike was also extended three more days (this was day 4).
• Filling it out renders the trader exposed to a 15% sales tax: a dreadful thought, when the illegal economy is as large as the legal economy and less than 2% of the population pays income tax.
• Japan has refused to do a government rescue of Daihyaku Mutual Life Insurance Co. from its 45.3 billion yen of negative net worth as of March 31, 2000. However, it is thought that another large collapse (this is the third in three years) could break the safety net and require intervention.
• Japan's Finance Ministry has banned Merrill Lynch from executing financial interventions because of leaks of classified information (like how much and when the intervention took place).
• Two board members of the Bank of Japan have indicated that serious discussions of when to raise rates have begun.