East Asia’s economic turmoil claimed a major Hong Kong finance house Monday, driving it into liquidation and sending stocks tumbling again. The global wave of selling seemed at first to be swamping Wall Street, too, with the blue-chip Dow Jones industrial average falling 137 points at the opening of trading Monday. But Wall Street quickly recovered, and the Dow closed the day up nearly 67 points.
Indonesia’s market also strengthened Monday on its leader’s pledge for deeper reform.
A senior U.S. official, Lawrence Summers, met Indonesian President Suharto today in Jakarta, and emerged from the talks saying the 76-year-old head of state “recognizes the need to take strong steps” to overcome the economic crisis in the world’s fourth most populous country.
“Our team was carrying President Clinton’s message on the importance of economic reform,” said Summers, deputy secretary of the treasury.
Last week, Indonesia’s rupiah plummeted to a record low on fears that Suharto’s government was not complying with commitments made to the International Monetary Fund in exchange for a $40 billion economic bailout put together in October.
After the rupiah crashed last week and a wave of panic-buying broke out across Jakarta, Clinton called Suharto and stressed the need to take tough reforms.
Over the past two days Suharto has assured officials from the International Monetary Fund, as well as Japanese Prime Minister Ryutaro Hashimoto and German Chancellor Helmut Kohl, that he is committed to making big changes.
Industrialized economies fear that Indonesia’s problems could worsen Asia’s troubles and spill over into the global economy.
IMF First Deputy Secretary Stanley Fischer, met Suharto on Monday and was attending a series of meetings with Indonesian finance officials this morning.
Fischer said he expected Indonesia to announce a package of measures to deepen and accelerate the IMF bailout package within the next few days. He declined to say what the deeper reforms might be.
Indonesia’s economy has been among the most troubled in the Asian crisis. Bad debts in Indonesia were blamed for the failure of Hong Kong-based Peregrine Investment Holdings Ltd.
Even before the investment bank disclosed Monday that it was liquidating, Hong Kong traders saw big trouble coming for Peregrine and stocks fell to their lowest level in three years.
Investors wondered how much harder they could be hit. One Hong Kong bank clerk, Chau Ho-yeung, said his $9,000 investment was now worth about $1,300.
“I’m expecting the worst. I’ve lost everything, and I’m now only holding on to a pile of wastepaper,” Chau said, standing in front of a stock market screen at a downtown bank.
Hong Kong’s key Hang Seng index plunged nearly 9 percent Monday, but opened today up 5.1 percent at 8,532.41 points on across-the-board buying.
Share prices crashed to a nearly seven-year low on Monday in Singapore, and fell in Japan, Taiwan, Thailand, Malaysia, Australia and New Zealand.
Tokyo stocks closed slightly higher despite persistent concern over the prospects for the economy. The U.S. dollar was higher against the yen.
The benchmark 225-issue Nikkei Stock Average ended today at 14,755.94 points, up 91.50 points, or 0.62 percent. The session was marred the last two hours of trading when an armed man took a ministry official hostage and demanded a meeting with the finance minister.
On Monday, the Nikkei shed 330.66 points, or 2.21 percent.
In Indonesia, share prices rose 2.1 percent this morning on the Jakarta Stock Exchange. The composite index gained 7.267 points, closing at 350.237.
The defunct Peregrine finance house had lent substantial funds to an Indonesian cab company, Steady Safe. The company’s ability to repay the debt, reportedly amounting to $260 million, was thrown into doubt following the rupiah’s decline.
Hong Kong leader Tung Chee-hwa expressed confidence that the territory’s “banking system will not be greatly affected.” He said he has been working with Peregrine and Hong Kong financial officials to ensure that stockholders who invested through the company are well protected.
Nevertheless, about 200 worried investors flocked to Peregrine’s office Monday in Hong Kong’s high-rise Central business district, Hong Kong radio reported.
Meanwhile in Seoul, South Korean President-elect Kim Dae-jung met IMF head Michel Camdessus and announced he would push through legislation making layoffs easier despite threats of strikes by militant labor unions.
Layoffs are a key condition of the IMF’s record $57 billion bailout of the sinking South Korean economy, currently saddled with inefficiencies.
Also today, the heads of four of Korea’s most powerful business conglomerates pledged to take steps that would drastically reduce their influence in the Korean economy.
The announcement by the leaders of Korea’s Samsung, Hyundai, LG and Sunkyoung Groups represents the most significant impact to date of the economic reforms imposed by the International Monetary Fund in exchange for the bailout.
Bowing to international pressure, the executives agreed to improve their accounting procedures, including the release of comprehensive financial statements, abolish cross-guarantees of loans between sister companies, reduce their high debt levels and eliminate unprofitable companies, and make their management more responsive to shareholders.
Upon arrival in Seoul, Camdessus said “yes” when asked whether he is content with reforms made so far by South Korea. Analysts said that helped boost investor sentiment.
Share prices on the Korea Stock Exchange closed higher Monday, with the benchmark index at 456.20, up 15.42 points, or 2.43 percent.
In this morning’s session, stock prices rose slightly, by 0.24 percent to 457.29 points.