Asia's financial dominoes began falling with a devaluation of the Thai baht. A currency devaluation in Thailand led to a banking panic in Southeast Asia

THE power of global capital markets to act as a catalyst for dramatic change in Third World societies was proven most dramatically in the spring of 1998 in Indonesia.

President Suharto, who came to power in a violent military coup, ran the most autocratic and corrupt regime in Southeast Asia, a model of crony capitalism run amok. Even though Indonesia was an ally of the United States, successive presidents in Washington DC were reluctant to antagonise the anti-communist autocrat in Jakarta even though Indonesia invaded East Timor and ran up billions in profligate debts. Yet after the Indonesian rupiah collapsed in the summer of '97 and the local banking system was wiped out, riots erupted in the streets of Jakarta. Within months, President Suharto resigned after thirty two years in power. The White House did not get rid of him. Global capital markets did.

The power of global financial markets to force change in the Third World is not necessarily always benign. For instance, the apartheid regime in South Africa survived for decades because it could raise international loans in the Euro markets or market its bullion wealth in such gold trading entropots as Zurich or Hong Kong. Moreover, a local panic can easily be magnified into a global financial crisis by the sheer magnitude and colossal leverage of the trillion dollar electronic money chain that links countries, markets, currencies and continents.

After all, Asia's financial dominoes began falling with a devaluation of the Thai baht. A currency devaluation in Thailand led to a banking panic in Southeast Asia, the collapse of the Russian rouble, devastation in the Dow and the European stock market, three SOS Fed rate cuts and the near breakdown of the international debt markets due to the collapse of the Legendary Long Term Capital Management (LTCM) hedge fund. To use a metaphor from physics, this was chaos theory in action on a global scale. To use an even more appropriate metaphor from the geopolitics of the Cold War during the Vietnam-US conflict, the dominoes eventually fell in Southeast Asia, only these were the dominoes of money and currencies, not armies and ideologies.

Of course, not all Third World societies are sensitive to the power, prejudices and preferences of the global capital markets. North Korea under Kim Il Sung can continue its anachronistic Marxist - Leninist policies, can build nuclear missiles while its people starve because Pyongyang is a closed society, totally not plugged into the international financial system. Other nations such as, say, Bangladesh or Zimbabwe are simply too far down the economic development totem pole to attract much attention from international financiers. Still, it was not coincidence that the steep fall in the south African rand in late 2001 occurred at the same time as Robert Mugabe's political henchmen evicted white farmers from their lands in Zimbabwe.

Even in countries with capital controls and authoritarian political regimes, the capital markets are ignored at their own peril. The 1998 financial crisis in Russia can be viewed, in retrospect, as nothing less than the global bond market's collective vote of no-confidence in Boris Yeltsin's management of the post-USSR state's currency, economy and banking system. When Vladimir Putin, Yeltsin's successor, instituted banking reforms, signed a IMF pact, made printing money at the central bank a taboo, deregulated state monopolies and led a geopolitical alliance with the West, complete with State visits to George Bush's Texan ranch, the financial markets were ecstatic. It is no coincidence that Russian stocks and bonds have risen seven fold since 1998 when no rational investor in the world wanted to buy any financial asset in the former USSR.

Pakistan is another Third World country at the mercy of the international capital markets. When Pakistan joined the American war against the Taleban, the Paris Club of international bankers restructured its $38 billion foreign debt and set the stage for an extraordinary rally in the Karachi stock market. Even though Third World leaders like Malaysian Prime Minister have railed against the financial markets, they have learnt the lesson of '98 and most of the successful nations in the Third World including Malaysia - have restructured their economies to attract foreign capital. It is no coincidence that the poorest societies in a vibrant economic region such as Asia are also those who are shut off from the financial markets, whose economies are irrelevant to the global bazaar. Vietnam under Ho Chi Minh's successors, the Burma of the Generals, North Korea under its surreal communist Supreme Leader are not exactly welcome borrowers in the Euro markets. Global capitalism can be a destructive and pitiless force in the Third World but it can also, unintentionally, precipitate dramatic economic and political change. The lessons of post - Suharto Indonesia and post - Yeltsin Russia could prove extremely profitable for investors who read the macro financial tea leaves right in the next Third World money panic.