Remember Mexico's 1982 economic collapse? Suitcase couriers spirited billions of US dollars through Miami Airport as the wealthy fled the failing currency. The same spectre of massive capital flight now haunts Southeast Asia.
This week's currency collapse has gone beyond speculative selling and corporate hedging. Malaysians and Indonesians are liquidating assets and rushing the exits. Suddenly, Mexico of 1982 looks a better parallel than the recovery story of 1994.
Indonesia faces economic catastrophe. Cranking up the printing presses appears the only means of getting cash into the pockets of the poor. The very real possibility of hyperinflation looms large. Already a private sector debt moratorium is effectively in operation since nobody is paying. Making it official cannot be far away.
Talk of social collapse is no longer fanciful. Credit has ceased to exist in an economy characterised by soaring food prices and mass lay-offs. Boiling popular resentment means desperate politicians need a more immediate bogey man than the International Monetary Fund.
Charges of ethnic-Chinese capital flight from Malaysia and Indonesia could yet ignite the fuse of a deeper crisis. Political exclusion and social vulnerability means the chance of money flooding offshore is inevitably higher than in South Korea or Thailand.
Malaysia thought it had contained the contagion. Foreign investors were half convinced by plans for bank mergers, fiscal tightening and tougher monetary conditions. Domestic investors are, perhaps, better informed on what the government is up to.
Recent money supply numbers suggest a gradual credit tightening. Yet, central bank balance-sheet data shows a significant increase in credit creation not reflected in monetary data. The reason is due to direct loans from Malaysia's central Bank Negara to financial institutions, says Simon Ogus, the head of Asian economics at SBC Warburg Dillon Reed.
