Hiccup? Or Global Meltdown?

PERHAPS YOU HAD TO BE AT THE epicenter to understand the force of the earthquake. In Bangkok last August, a young American, the manager of the Thailand office of a major U.S. bank, sat in his high-rise office in the city's center. Lining its walls was a row of clocks displaying the time around the globe: Tokyo, London, New York. He eyed the two that read KO SAMUI and PHUKET--tempting beach resorts an easy flight away from the urban horror Bangkok had become. Outside it was about 100 degrees, and Thailand's financial markets were melting down.

There was an unmistakably shellshocked quality about him, suggesting that, years from now, he might hear the name of a failed Thai bank and scramble under his desk for cover. Sure, he had been in Tokyo in the early 1990s, when Japan's bubble economy began to collapse. But he'd ridden through that and had come to Thailand young, confident and competent. Southeast Asia was a place to make both your money and your name. No one, the young man said, had seen the debacle coming--certainly not in Thailand, with its growth rates and go-go attitude, nor anyone living anywhere else.

Could it really be that bad? he was asked. This was, after all, the East Asian miracle. The Thai market meltdown was only a bump in the road, a healthy correction that would make everything right again. His firm's own regional economist in Singapore had said just the day before that the disruption signaled only a slowdown in a handful of small Southeast Asian economies. Nothing more. He waved off the question. ""Yeah, well, maybe. I talk to him every day, he's a smart guy and all.'' Pause.

""But look out the window,'' he said finally. There, in one direction only, stood at least seven enormous skyscrapers, either fully constructed or not yet completed, that would never be inhabited. Alone they represented more than $100 million lost, and at least several Thai banks vaporized. And there were many more where they came from. ""You have to understand,'' the banker implored, ""this is a meltdown that I never in my life expected to experience. This is a disaster.''

THE WEEK BEFORE, IN A HOTEL COFFEE SHOP IN HONG Kong, an economist named Ken Courtis from Deutsche Bank in Tokyo was musing aloud about ""Mrs. O'Leary's cow.'' In Hong Kong then there was talk of an imminent collapse in the local currency, the Hong Kong dollar, partly driven by the concurrent fall of currencies throughout Southeast Asia. On a scrap of paper, Courtis wrote the names of 11 emerging-market economies, not all in East Asia. It included Argentina, the Czech Republic, Slovakia. What if, Courtis mused, they all go the way of Thailand? Runs on their currencies, bank failures, financial crises, recessions. Mrs. O'Leary's cow, legend has it, knocked over the lantern that lit up the barn that eventually set off the great Chicago fire. That was in 1871, and the whole place burned down. ""Could Thailand,'' the economist wondered, ""be Mrs. O'Leary's cow?''

THIS FALL, SOUTH KOREA IMPLODED, REQUIRING THE BIGGEST IMF bailout in history--a $57 billion transfusion; more may be needed. The turmoil was so deeply felt that the South Koreans, in a startling repudiation of their ruling elite, on Dec. 19 elected longtime dissident Kim Dae Jung as their president. Elsewhere this autumn, emerging markets throughout the globe were sent reeling. Even healthy European stock markets buckled momentarily. And Japan, the world's second largest economy, stood on the cusp of a financial disaster for the ages. The yen has plummeted 15 percent against the dollar in 1997; the Nikkei stock index has lost nearly 20 percent of its value. A Japanese banking house and a major securities firm have gone bankrupt. One of Japan's most senior politicians, Kiichi Miyazawa, who is now in charge of putting together an economic rescue package for the ruling Liberal Democratic Party, was asked in early December what urgent steps the country could take to arrest a mounting sense of economic crisis. None really, he replied in an answer that was the verbal equivalent of a little boy's standing ankle deep in gasoline, flicking matches into the wind. Japan, he said, ""will muddle through.''