1998: A Tumultuous Year Revisited!


The countdown to the next millennium is now being numbered in mere days, and the economic events of 1998 have the entire world on the edge of their seats. As the global economy teeters by the precipice, which way will it go in 1999—toward stability—or over the edge?

The Asian financial meltdown began in the summer of 1997 and became the world’s worst financial crisis since the 1930s. Amazingly, it was completely unforeseen by leading economists and financial forecasters. What surprises are in store for 1999

if so many highly educated and thoroughly trained experts misread the signals about that magnitude-10 economic earthquake? In 1998, mankind watched spellbound as severe shocks hammered every corner of the global economy. Even after massive bailouts in excess of $200 billion by the International Monetary Fund (IMF), nation after nation still fell into severe economic slowdown and recession.

Last year, Southeast Asia became a financial ghost town overrun by towering unemployment, numbing poverty and spreading social unrest which took the lives of thousands, especially in Indonesia. Hong Kong real estate, some of the highest-priced property in the world, plummeted 46 percent in value from a year earlier as the country went into the abyss of recession. Catastrophic drops in industrial production, trade balances, stock markets and GDP (Gross Domestic Product, the total sales of all goods and services in a country) crushed the economies of countries like Indonesia, Malaysia, South Korea, Hong Kong, Singapore, the Philippines and Thailand.

In Latin America, the financial breakdown which ravaged Asia spread to Brazil, which spent $30 billion in 1998 defending its currency from speculators. In spite of a $41.5 billion IMF bailout in 1998, Brazil ended the year critically wounded (perhaps fatally), along with its other economically ailing South American compadres Argentina, Chile, Columbia and Venezuela.

1998 saw commodity prices for products like oil, steel and grain go into a free fall—back to 1986 levels—which decimated commodity-driven economies like Canada, Venezuela and Mexico. According to The Economist magazine, sugar prices declined in 1998 by 40 percent, nickel prices fell 35 percent, merino wool decreased 30 percent, and coffee, soybeans, copper and maize saw prices erode between 18 and 20 percent. The world’s largest oil producer and exporter, Saudi Arabia, reported a $12.3 billion budget deficit for 1998 due to low oil revenues. With oil hovering in the $10 to $12 per barrel range, memories of the 1986 oil bust have sparked fears of a Middle East oil-related recession.

Russia defaulted on its domestic debts in 1998 as it tried to swallow capitalism and choked. This former superpower is now a dead man standing and has all but totally collapsed from the same economic phenomenon which has swept the other global emerging (and now submerging) markets. According to a poll in the Economist of January 2, for every Russian citizen who thinks the economy improved in 1998, eighteen others think their living standard worsened. While Russia’s people starve and widespread lawlessness threatens the security of nuclear technology and weapons, it is shameful to note that Russia found the money to deploy ten newly designed inter-continental nuclear missiles in 1998, and expects to produce 30 more by the end of 2000.

America, the land of the free-spender, survived a gut-wrenching roller coaster ride in the autumn of 1998 as the stock market fell 20 percent and then erratically rebounded 17 percent while the country desperately fought the effects of falling exports,

declining industrial production and increasing layoffs. Retailers were disappointed with less-than-expected holiday spending. However, shoppers still piled on multiple billions of dollars of consumer debt as the supposedly religious sales frenzy was driven by falling import prices at a time when U.S. manufacturers experienced an eight-year low in sales and falling profits. In spite of an estimated 3.5 percent expansion of the U.S. economy in 1998 due to rampant consumer spending, declining profits forced many companies to lay off large numbers of employees, such as Boeing Aircraft announcing the lay off of 20 percent (48,000) of their workers.

As companies around the globe reeled from financial tsunamis crashing down on them, more and more consolidated in order to raise profits and lower costs through staff reductions and other survival tactics. In 1998, merger-mania produced the world’s biggest-ever year for mergers and acquisitions, reaching $2.4 trillion—50 percent more than 1997’s total. The largest in value terms ($86.4 billion) was the union of two U.S. oil giants, Exxon and Mobil, which simultaneously announced the layoff of 9,000 workers as the worldwide oil business and oil-revenue-dependent countries staggered under basement-priced oil. More ominously, 1998 saw the gobbling up of many American firms by foreign buyers. German car maker Daimler-Benz joined Chrysler in the largest foreign takeover of an American firm ($40.5 billion). Likewise, Germany’s Deutsche Bank paid $10 billion for Bankers Trust, America’s ninth biggest bank. Germany’s media giant, Bertelsmann, bought America’s Random House to become the world’s largest English-language publisher.

Besides buying large chunks of corporate America, Europe also spent months testing and retesting bank computer systems and their links to domestic stock exchanges and clearing houses in preparation for the January 1 launch of their new currency, the euro, which they hope will break the dominance of the dollar. Last year, Europe also struggled under the weight of the global financial crisis, particularly due to their massive loan exposure in bankrupt Russia. Also unsettling the European picture in 1998 was a looming trade war with America, as the sound of rattling trade sabers and import tariff threats continued between the two trading giants over everything from bananas to cheese to suitcases.

Japan, the world’s second-largest economy, saw itself taking a back seat to the new Eurozone, as the land of the setting sun continued its decade-long death-spiral into financial oblivion. Japan’s 17 largest banks were found at the heart of the problem as they struggled under a mountain of bad loans, estimated in late 1998 to be ¥49,490 billion ($427 billion). After an unrelenting slide from a high of 38,915 in 1989, Japan’s Nikkei 225 stock index closed 1998 at 13,842, less than 1,000 points above its 1998 low of 12,880. The Japanese stock market decline has meant that multiple tens of billions of investors’ dollars have evaporated as corporate and personal bankruptcies escalated.

The economic events of 1998 have the entire world on the edge of their seats. As the global economy teeters by the precipice, which way will it go in 1999—toward stability—or over the edge?