May 22-24, 1998

Deep Economic Impact

The agony of deflate: Last week, the Hang Seng crashed on currency worries. If Japan lets the yen fall much farther, chaos like this could become a permanent condition. Anat Givon/AP

The end of the world as we know it? It could happen. Events of the past week have brought us to the brink of the ultimate summer blockbuster: a real-life Armageddon that might just be coming to a global economy near you. Here's how it could unfold:

Tokyo. Present day. The desperate pleas of the White House economic team fall on deaf ears: Japanese Prime Minister Ryutaro Hashimoto, held prisoner by hard-line fiscal conservatives in his own government, refuses once too often to revive his country's economy with a dollop of deficit spending. Investors around the world throw up their hands; currency traders swoop in like wolves from the hills; the value of the yen drops to somewhere near that of the Reconstruction-era Confederate dollar. In America, a new Toyota Camry costs $600.

Beijing. Somewhere in the smoke-filled corridors of the Chinese government, Jiang Zemin rubs his temples as his economic ministers solemnly deliver the bad news. With the yen bottomed out, Japanese exports are now flooding markets across Asia, there is only one thing China can do: devalue the yuan so that its own exports can remain competitive. Hong Kong is waiting on line two. Jiang takes one last puff on his Marlboro, stubs it out in a bejeweled ashtray, and looks up at his advisers. He nods, slowly. And with that, the fate of Asia, from Indonesia to Bangkok to Seoul, is sealed.

Jakarta. With the largest economy in the region, China's yuan devaluation sends Indonesia's rupiah through the floor, and rioting breaks out again across the country. President B.J. Habibie is peering nervously through his curtains at an angry mob of students when four Indonesian Army generals enter without knocking. They inform him that the country's economy is now lost beyond retrieval, and that former President Suharto and his family have fled the country for Geneva, having somehow transferred $2 billion in IMF disbursements to their Swiss bank accounts. The generals usher Habibie out of the presidential residence, and he is still wearing his pajamas when the mob engulfs him. He is never seen again.

Taipei. Bangkok. Kuala Lumpur. The governments of Taiwan, Thailand, and Malaysia are all forced to follow China's lead and devalue their own currencies. Every country in Asia is now desperately trying to export goods, and no one there can afford to buy any.

Living Dangerously: Next time, Indonesia's students may not stop at the palace gate. David Longstreath/AP

Seoul. South Korea, whose economy seemed on the verge of a full recovery just months ago, has no choice but to join the devaluation frenzy. Workers at Hyundai, just returning to work after a two-day strike that began Wednesday, discover that their hard-won paychecks are now worthless. They march on the capital, their ranks swelling at every street corner. Seoul burns.

Cut to Moscow. The Kremlin. When Asia's chaos reaches Red Square, the fiery young Prime Minister, Sergei Kiriyenko, is there to meet it. With the Russian stock market in meltdown and the ruble under attack, the country's Central Bank has run through its last $14 billion in gold and hard currency reserves propping up the currency. Placating angry miners and teachers with even modest amounts of back wages while meeting payment on GKO government bonds paying at 150% interest rates has depleted the Treasury. The government is broke. Counting on the storied patience of the Russian people, Kiriyenko decided to slash the government costs by cutting out gas and oil subsidies, and the Russian populace, cold and starving, has snapped.

Wielding a megaphone and live on CNN, Kiriyenko repeats his pledge of the last week again and again from the Kremlin balcony: "We will not devalue the ruble! We will not devalue the ruble!" Between pledges, he shouts over his shoulder to his fidgeting staff members. "Wake Yeltsin! Wake Yeltsin!" But Yeltsin is drunk again, passed out at his desk, and cannot be roused. It is difficult for the proud young Kiriyenko, but the time has come to apply to the IMF in earnest. The $700 million tranche will be nowhere near enough; Russia will need $20 billion, and soon.

John Odling-Smee, the IMF's chief Russia expert, is already in Moscow on a planned visit to discuss the tranche, but alas, he does not need to call Michel Camdessus to answer Kiriyenko's plea. The IMF, rescuer of nations, is nearly as broke as Russia is. Odling-Smee calls the White House.

Though it is now past midnight in Washington, President Clinton is in the Oval Office for some reason. And though he hates to beg as much as Kiriyenko, when Clinton hangs up with Odling-Smee he makes a call of his own: he must ask Congress for the $18 billion in reserve funds that House Republicans, convinced that the IMF policies are in need of an overhaul, have so far refused to give.

Dick Armey is asleep when the President calls . . . (continued)