Collapse of the Thai Baht

Paper Summary:

When the Thai Baht was floated in July 1997, the Thai economy was overheated, along with extremely shaky balance sheets of many of its financial institutions. Inevitably, this led to currency devaluation and a run on the baht. This paper examines the reasons for the baht's collapse and the repercussions on domestic and regional economy.

Paper Outline
Factors that Led to the Collapse of the Thai Baht
The Purchasing Power Parity Theorem and the Collapse of the Thai Baht
Role of Speculators in the Baht Crisis
Steps the Government could have Taken to Preempt the Crisis
The Effect on Domestic Businesses
Similarities with the Collapse of the Korean Won

From the Paper:

"However, the Thai case was influenced by several factors beyond the logic of the purchasing power parity theorem: depletion of foreign exchange reserves by the government purchasing its own currency in an effort to prop up the exchange rate; raising of interest rates to make holding the baht more attractive; a high debt-equity ratio among Thai corporates which was further aggravated with the devaluation of the baht; and the degree of non-performing assets with financial institutions."

More papers on Collapse of the Thai Baht:

• Analytical Essay # 8366 : "The Collapse of the Thai Baht"
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• Analytical Essay # 142389 : "The Collapse of the Roman Empire and Post-Roman Civilization"

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