al or simply wrong. Although many tactical tools for active risk management in developing countries have been developed in the past decade, a framework for developing a strategy that incorporates country-specific factors has lagged far behind.
For example, in case when the Federal Reserve Bank (the "Fed") last September arranged a $ 3.6 billion bailout of Long Term Capital Management (LTCM) - a Connecticut-based hedge fund-critics of the US financial establishment cries foul. The bailout contrasted strikingly with IMF treatment of indebted firms in Asia. When indebted businesses in Asia were unable to replay foreign loads, US and IMF officials insisted that they be forced to close and their assets sold off to creditors. Bailing out ailing businesses with endless lines of bank credit was, US officials claimed, the essence of "crony capitalism" and the cause of all Asia's problems "Reducing expectations of bailouts," declared the IMF, must be step number one in restructuring Asia's financial markets.
To Japanese officials, the LTCM bailout was a clear case of the US "ignoring its own principles". Representative Bruce Vento (Democrat, Minnesota), in a Congressional investigation of the LTCM bailout, said that "there seem to be two rules, a double standard. "But this view is incorrect. Where bailouts are concerned, there is only one standard. Whether in Korea, Thailand, Connecticut or Brazil, US-and IMF-organized bailouts conform, to the same quiding principle: whatever happens, whoever is at fault, the wealth of Western credits must be protected and enhanced.
Until 1997, Western creditors were bullish on Asia and "emerging markets" generally. They poured billions into stocks, banks and businesses in Thailand, Indonesia, Korea, expecting mega-returns and a piece of the action as the former "Third World" embraced freemarket capitalism. Beginning in 1997, though, Western investors began to worry that they might have over-lent. They pulled out of Thailand first, selling baht for dollars; as the baht's value collapsed, worry turned to panic. Soon, international financial operators were selling won, ringgit, rupiah and rubles in an effort to cut potential losses and get their funds safety back to Europe and the US. In the ensuing capital flight, Asian stock prices plunged and the value of Asian currencies collapsed. Local businesses that had taken out dollar payments to Western creditors.
For a time, local governments tries to stave off default by lending their reserves of foreign currency to indebted firms. South Korea used up some $ 30 billion in this way. But this money soon ran out. Western banks refused to make new loans or roll over old debts. Asian businesses defaulted, cutting output and laying off workers. As the economies worsened, panic intensified. Asian currencies lost 35 to 85 per cent of their foreign-exchange value, driving up prices on imported goods and pushing down the stand...
