The Baht's Fall
Yoo Jae-won, deep in concentration over his monitor, heard the shrill ring of his phone. Checking the caller ID, he felt a flicker of tension and answered at once.
“President Greenhill?”
—Mr. Chairman, the baht has crashed hard.
“Ah.”
At the urgency in Vincent Greenhill’s voice, Yoo Jae-won pulled up the calendar on his desktop. July 2. Exactly the date he remembered for the Thai baht’s collapse.
“What’s the movement?”
—It’s dropped more than twenty percent in the last two days. Last year it averaged twenty-five baht to the dollar; now it’s at twenty-nine.
From twenty-five to twenty-nine did not sound dramatic, yet on a national scale the difference was catastrophic. Foreign capital that had poured into Thailand was suddenly facing losses of twenty percent or more. Naturally, that money wanted out. Thai authorities first vowed to defend the peg, then, as reserves dwindled, began toying with a floating rate. The flip-flop shattered credibility and triggered the final stampede. Thailand would soon be forced to request IMF assistance.
—Shall I report the returns?
“No need. We’ll settle the full accounting once the crisis runs its course.”
—Understood, sir.
Yoo Jae-won had already positioned himself for the baht’s fall. Knowing the direction of events, he had chosen to move in a way that might also cushion Korea rather than sit idle. Still, he had not deployed the massive speculative sums typical of hedge funds. His very existence was already a massive variable; the future could diverge from his memories, and Korea’s own crisis might arrive earlier than expected. So he had used only a measured portion of his capital.
Ding!
The moment the call with Vincent Greenhill ended, ID Talk chimed.
—Chairman Yoo, have you heard about Thailand?
George Soros.
—It’s only the beginning. I wonder where this will finally end.
Yoo Jae-won gave a wry smile at the message. The very man who had helped engineer the baht’s collapse was now speaking as though he were a mere spectator.
“Indeed. It’s only the start. Good luck to you.”
His reply was deliberately dry. If Soros also bet against the yen at the crisis’s peak, gratitude might be in order, but if Korea remained the final target, they would still be rivals in the end.
After finishing the exchange with Soros, Yoo Jae-won did not return to work. Something felt missing.
“What about Korea?”
Soros had contacted him immediately, yet Korea remained silent. Of course, the Korean branches of ID Group, under Choi Kang-wook, had already prepared for the Thai crisis. But there had been no word from his closer contacts: Grandfather Jeon Myeong-heon, Lee Yong-kwon of TG Group, or even Park Sang-kwon of Busan Group.
“Is it nighttime there? No, it shouldn’t be.”
He glanced at the darkened window and shook his head. It was actually bedtime for him; East Asia should still be in daylight. That only confirmed how little importance people were giving the Thai baht’s collapse.
Many would dismiss it as a distant foreign affair, yet this was the very spark that would ignite Korea’s foreign-exchange crisis. Yoo Jae-won decided to wait a little longer; if no calls came, he would simply go to bed. His concentration was already broken and his mind restless. Better to sleep early and rise fresh.
The next day.
“Thankfully, there were more messages than I expected.”
Upon waking, he found a considerable number of missed calls, ID Talk messages, and emails. Most of the corporate communications were reports and analyses of the baht crash. The personal messages had come through his Tiffany Phone.
After a cold shower and a simple breakfast, Yoo Jae-won reviewed the backlog. His earlier concern proved unnecessary; his Korean contacts had not been indifferent to the Thai crisis. He compiled a list of people to call, adjusting for Korean time zones. At the very top was Jeon Myeong-heon. While Choi Kang-wook would serve as his avatar inside the coming crisis, politically it was Jeon Myeong-heon and the Tongil National Party who mattered. They might prove even more influential than Choi Kang-wook, so the effort was justified.
Instead of picking up his spoon again, Yoo Jae-won composed a text message—this one to Tiffany. Though their engagement had made the relationship official, he continued his usual steady contact. He had learned from books how many couples grew careless after catching their “fish” and paid the price; after the engagement he had actually increased the frequency of his messages.
Tiffany had finished her internship and been posted to Chevron headquarters, though she had not yet been thrown straight into operations. Even after becoming a full employee she was still rotating through departments. Recently she had been excited about an upcoming trip to a Department of Energy supercomputing center. That facility, naturally, focused on nuclear research. The United States had conducted far more nuclear tests than the Soviet Union or Russia and had amassed enormous data; it was now possible to run simulations without actual detonations. The DOE center was one of the organizations capable of such work. Yet a Chevron employee visiting for fossil-fuel-related projects struck an odd note.
Tiffany’s explanation was simple. The Department of Energy also had divisions handling fossil fuels, and one project aimed to improve the accuracy of seismic data analysis for new oil-field exploration. Chevron was participating, and Tiffany had been assigned a role.
Listening to her story reminded Yoo Jae-won of America’s formidable depth. At the same time he felt a twinge of guilt. Inside his Memory Palace lay a complete map of every oil field that would be discovered and proven commercially viable through the mid-twenty-first century. When he had been promised regression, that information—alongside lottery numbers, stock movements, and breakthrough drug data—had been among the most valuable assets he could carry back. The U.S. government and the Seven Sisters had spent astronomical sums acquiring it; he could retrieve it at will. Yet he felt no shame. The price he had paid for regression was real, and even after striking the bargain he had spent decades in anxious uncertainty.
In any case, there was little he could say to Tiffany except to wish her a good trip.
—Okay! I’ll bring back lots of souvenirs ♥
Somehow the words looked even more saccharine in text than they would have sounded aloud. Still, hearing that she loved him lifted his mood. It was a pleasant morning.
The good feeling did not last. Once he began serious work, grim data from East Asia flooded in. The numbers on his monitor represented countless ordinary lives; their collapse meant those lives were unraveling. The thought left him uneasy. He even felt anger toward those who failed to grasp what the numbers truly signified.
“Honestly, how frustrating. The core issue is the exchange rate!”
The moment the words left his mouth he regretted them. His voice had risen more than intended, and the person on the other end was none other than Grandfather Jeon Myeong-heon.
—Hm? Exchange rate? What do you mean?
Fortunately, Jeon Myeong-heon did not seem to notice the raised tone and simply asked for clarification. Yoo Jae-won therefore launched into an explanation of how Thailand’s crisis would transmit to Korea.
“Thailand collapsed because it tried to keep the baht artificially stronger than the market believed it should be.”
—Market intervention?
Yoo Jae-won continued, assuming Jeon Myeong-heon was not asking out of ignorance.
“Government intervention meant selling dollars to buy baht. The problem was that they were buying an overvalued currency with precious dollars. Hedge funds saw an opportunity to sell baht at inflated prices and did so in volume. Once Thailand’s reserves were exhausted, it surrendered yesterday. Korea is now in the same danger.”
Neither excess nor shortage was desirable; the same held for exchange rates. The ideal was alignment with true market value. Yet because movements in the rate created clear winners and losers, governments were tempted to intervene. Ordinarily such adjustments caused no great harm—hedge funds attacking a nation-state rarely succeeded. But once a weakness was spotted, as with Britain or Thailand, the story changed.
—So the same thing is happening in Korea right now? All for the sake of that cursed ten-thousand-dollar per-capita income figure.
Jeon Myeong-heon had grasped the point at once.
“Exactly.”
President Kim was a man who followed through. Seeking re-election in the 1997 presidential race, he had two signature achievements to offer voters: the “rectification of history” and dazzling economic performance. Yoo Jae-won had no quarrel with the former. Chun Doo-hwan and Roh Tae-woo, both former presidents with military backgrounds, had been imprisoned, along with the military power brokers who had supported them. Investigations into past atrocities had begun, offering some measure of solace to Jeju and Gwangju. The old Japanese colonial headquarters that had blocked the view of Gyeongbok Palace had been demolished, and the government had pushed back firmly against Japanese claims on Dokdo and historical grievances. All of that was commendable.
The trouble lay with the “dazzling economic performance.” The civilian government treated OECD membership as proof of advanced-nation status. To meet the accession criteria it had dramatically widened financial-market openings and was revising labor laws for greater flexibility, souring relations with the two major labor federations. The government’s proposed labor-law amendments were even more aggressive than the version Yoo Jae-won himself had helped draft. Moreover, the centerpiece of the ten-thousand-dollar income target was a deliberately low exchange rate. By artificially inflating the won’s value, the government could claim the symbolic milestone even though real incomes had not risen correspondingly. President Kim’s determination to defend that milestone at all costs translated into aggressive intervention in the foreign-exchange market—exactly as Thailand had done, selling foreign currency to prop up the won.
“It would be fortunate if the rate could be maintained to the end, but with Korea’s meager reserves, is that realistic? And foreign capital inflows have already dried up, haven’t they?”
Foreign funds that had been easy to raise only months earlier were now scarce. Even banks, which enjoyed higher credit ratings than ordinary companies, faced the same difficulty. By August or September, rolling over the bonds banks had issued to borrow abroad would become problematic. The reason was simple: doubts about the Korean economy had not been dispelled; they had intensified. The string of corporate defaults that began with Hanbo Steel had not been properly addressed. Revelations that the president’s son had arranged illegal loans had further eroded confidence. Rumors were already circulating that foreign rating agencies would soon downgrade Korea’s credit rating.
—It’s impossible.
Jeon Myeong-heon answered heavily. Impossible. That was the truth. Which left only two remaining options: a Russian-style moratorium or an IMF bailout request.
—Then what am I supposed to say when I go around?
Yoo Jae-won felt a touch of bitterness at the question. Rather than focusing on the harsh realities that would follow an IMF program, Jeon Myeong-heon was already thinking about the upcoming election. The election in question was the December 1997 presidential vote. Although still months away, every party had begun its nomination race. The Tongil National Party was no exception; instead of a coronation it had opted for a primary to build momentum. This, too, was reality. For Yoo Jae-won there was no better card than Jeon Myeong-heon, and to play it he needed Jeon Myeong-heon to become the next president. Lost in thought, Yoo Jae-won finally opened his mouth.