IF AUGUST tends to be the season for financial markets to get jittery about a crash, then this month should see dealers really sweating.
It was a year ago next week that a few words from thefinancier George Soros triggered a crisis in Russia that started a chain of events that almost led to a global recession. And 12 months before that, the Asian crisis, sparked by the devaluation of the Thai baht, was well under way.
There is certainly a febrile atmosphere. The coincidence of these anniversaries, combined with the giddy heights achieved by stocks on Wall Street, has led to forecasts of another financial crisis. Even within the past few weeks, two relatively minor events have sent a tremor through the financial markets.
The first was a crowd-pleasing comment by a Brazilian presidential candidate hinting at a default on debts to the International Monetary Fund (IMF), which caused panic in the Latin American stock markets. More recently, the woes of the ailing Korean car maker Daewoo led to fears of another Asian crisis, wiping almost 4 per cent off Seoul's stock market. But more of this later.
The three-trillion dollar question is where the next shock will come from. The first step, perhaps, is to look at where the last shock emanated from - Russia.
It is worth recalling what happened a year ago. On 13 August, Mr Soros called on Russia to devalue the rouble by up to 25 per cent and peg it to the euro or the dollar. With insufficient revenues to prop up the rouble - and a powerful speculator on its back - Russia was faced with a choice of printing more money and risking hyperinflation or defaulting on its debt. On 17 August, it pressed the default button. The rouble was massively devalued, the Russian stock market imploded and swathes of the domestic banking system faced bankruptcy.
Suddenly US hedge funds were exposed to default on billions of dollars of debt and the financial markets threatened to grind to a halt.
Since then, Russia has undoubtedly made substantial achievements. The devaluation has stimulated domestic demand. Goldman Sachs, which is bullish on Russia, forecasts 3.1 per cent GDP growth in 2000 compared with minus 4.3 per cent last year.
A consultant economist, Al Breach, said: "Right now the prospects are good. Indeed, they have never looked better this decade. Russia's second attempt at capitalism is only just beginning." But in a move that highlighted the political threats to the recovery, the IMF threatened to cut off funding unless Moscow carried out reforms. Shares plunged 7 per cent in reaction.
Politics plays a huge part in the Russian economy - Boris Yeltsin has a tendency to sack the government, and his health continues to be in doubt.
Gintaras Shlyzhius, of Raiffeisen Bank, said recovery depended on reforms being implemented. "Both the IMF and the government acknowledge serious reforms are unlikely in the light of the coming elections," he said. "Most problems Russia had before the crisis remain and most are structural problems."
The country has tax revenue shortfalls and needs to improve corporate governance and shake up inefficient Soviet-style management.
In Asia, the pattern is similar - analysts are bullish but sceptics warn of political expediencies that could slow up the reform process.
Shares and currencies in the five main countries - Indonesia, Malaysia, Korea, Philippines and Thailand - have rebounded strongly. Analysts are urging clients to invest in the recovery, pencilling in GDP growth of 5 per cent next year.
But Joseph Stiglitz, the World Bank's chief economist, said most of the countries were nowhere near recovery in terms of output, employment and real wages. …