Wednesday, December 20, 2006

Monetary Control

The regional stock markets of South East Asia fell sharply today after the unexpected announcement of capital controls to curb speculation on the Baht by the Bank of Thailand. The “harsh” measure caught lots of foreign investors off-guard. Does Bangkok sense that another bout of monetary crisis is brewing in the region?

1997 Crisis destroyed the emerging countries’ economy utterly a decade ago. The miracle of economy achievement evaporated, the speculators (hedge fund) mercilessly vacuumed billions of hard-earned savings out of the region, while foreign companies desperately retreating their investments to safe havens. Malaysian Ringgit, Thai Bhat, Philippines Peso, Korean Won had devalued almost 45%, and 75% to Indonesian Rupiah.

Prior to the catastrophe,
International Monetary Fund (IMF) encouraged developing countries liberalizing financial sector i.e. eliminating restriction on capital flows. They again stepped in hypocritically offering assistance in the aftermath. People in retrospect believe that the well coordinated manipulation of currencies was a deliberate attempt to destabilize the region economies, and I believe IMF is the mastermind of this ploy.

Plenty of proposals and packages were presented to help reforming the vulnerable economy, targeted to push the governments to sell off the key assets e.g. bank, electric, water etc, of course cheaply. For instance,
- Indonesia to sell off part of PT Bank Central Asia, Indonesia's largest retail bank
- Korean Daewoo Motors was sold off to American General Motors

Malaysia surprised the world for not accepting any advice from IMF but imposing series of monetary control. Tons of furious critics against the same, saying this act would lead Malaysia economy to bog down further. The years passed and this tactic convinced and proved to the rest of its success.