In the Hit the Top Korean telenovela, there’s this scene which reminded me of the 1997 financial crisis that happened 22 years and a day ago today. The main character did a time heist (it used to be called time travel) 23 years into the future. Time-warped, he retraced events in his life, eventually recalling he had kept a huge sum of money in a safety deposit box (SDB). The SDB was in a bank that was gobbled up during the Asian Financial Crisis. However, the surviving financial institution still honored the SDB key on condition the holder keys in the correct password.
The Korean currency won and the Indonesian rupiah, had taken the deepest hit in that 1997 crisis. Its shattering impact eventually reached Philippine financial shores, sending the peso on a wild gyration versus the US dollar.
We members of the Bangko Sentral ng Pilipinas (BSP) Press Corps knew something big was about to happen. We were holding fort in the press room patiently waiting for Governor Gabriel “Gabby” C. Singson, who was in Malacanang meeting with President Fidel V. Ramos and Executive Secretary Ruben Torres.
There was no Internet and online news then but the story, although past deadline time could not be ignored. It was late, breaking important news, which merited a call to stop the presses. The call was never made, though. But, the announcement by Gov. Gabby for a de facto devaluation of the peso was the headline news in the front page the following day, a coup for the economic journalists whose stories were normally relegated to the Business pages.
“I was on a plane from Hong Kong with our Citibank country head. We boarded the plane 7:00 a.m. The world was fine. When we landed around 9:00 a.m, The Thai baht had crashed. And the markets in panic,” recalled Edwin Bautista, chief executive officer of Union Bank of the Philippines.
Corporates borrowed in green because interest were lower despite the lack of US dollar income to settle the obligation. Foreign exchange (FX) rate risk was not covered. Short-term foreign debt piled up with limited international reserves to back it up. “When FX rate tanked, they (corporates) went kaput,” he remembered.
As the news of the de facto devaluation circulated, trading in FX got messed up. “Spreads were very wide,” his colleague in Citibank Manila office, Eugene Acevedo, reminisced. Mr. Eugene was then the new treasury Marketing Head. An expert in derivatives, business development, and risk control, Mr. Eugene is now the president and chief executive officer Rizal Commercial Banking Corporation.
Scabs from the wounds have since smoothened. virtually, invisible. The crisis, however, taught policymakers, market movers, and players to be more cautious and prudent. Transact only on the basis of underlying exposures and explain to clients the risks of treasury products.
“One can never go wrong with fundamental analysis. Never succumb to greed,” stressed Cora Guidote, recalling the difficulty she had as managing director of UBS Securities Holding explaining to clients to “take profits at the back of the very values, especially banks.” Ms. Cora now sits on the board of Cirtek Holdings as independent director.
To end this reminiscing, I am sharing this thought. In the introduction of the book “Fire Fighting the Financial Crisis and Its Lessons” collectively authored by former US Federal Reserves Ben Bernanke, US Secretary of State Tim Geithner, and former US Treasury Secretary Hank Paulson: “Epic financial infernos don’t happen often. Usually turmoil in financial markets burns itself out. Markets adjust, firms fail, and life goes on. Sometimes, financial fires get so serious that policymakers need to help put them out. They make loans when firms need liquidity, or find a safe way to wind down a troubled firm, and life goes on. It’s exceedingly rare that a fire rages out of control threatening to consume the financial system and the rest of the economy, creating extreme disruption and deprivation.”
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