Abstract 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."
Abstract The paper shows that more than two years after its collapse, the state of the Thai Baht was still being discussed as one of the crucial economic international events of 1997, one that threatened to bring the world's developing economies to the brink of chaos. The paper investigates the cause of this crisis and the results which are still felt today.
From the Paper "However, this bubble, created by industrial expansion and an overvalued currency, could not last indefinitely. Thai domestic factors began to come into play. The country began to be marked by rising wages of low-skilled laborers and consequent cost increases in production of exportable goods. This eroded Thai competitiveness in labor-intensive goods vis-a-vis late-starting industrial states such as China and Vietnam. Thailand's trade deficit mounted. Also, newly-rising industrial states such as China and Vietnam were attracting new and greater rates of foreign investment, diverting funds that had once been invested in Thailand for the same purposes. Thai exports, which recorded a hefty growth of 24% in 1995, flattened to an almost negligible percentage a year before the baht's collapse."
Tags: International, Monetary, Fund, Bank, of, Thailand, banking, short-term, debt
Abstract The essay examines the conditions in Thailand that led to effective devaluation of the Thai Baht in July of 1997 and the reasons for the "contagion" that affected other East Asian economies. The paper also includes a survey of the reforms undertaken by the Thai Government since the crisis.
Contents:
Introduction
Economic Growth before the Crisis
Macroeconomic Policy Mix before the Crisis
Financial Sector before the Crisis
Regulatory Weaknesses before the Crisis
Reasons for Contagion in Other Countries
Survey of Reforms
Conclusion
From the Paper "The countries of East Asia have long been called the "Asian Tigers" due to growth rates averaging 8 per cent annually over the past two decades; large rises in per capita income, high domestic savings, low budget deficits and low inflation. However, it appears that the very success of high economic growth of these countries led foreign investors to underestimate the underlying economic weaknesses as the East Asian Financial crisis unfolded."
Tags:baht, contagion, government, policies, post, reform
Abstract Paul Krugman's book, The Return of Depression Economics, examines the economies of seven different countries that produce the majority of the economic output of the world, and how each has been affected by major economic slumps throughout the world. This interesting yet very complicated book offers a tour of the major economic crises which have spread across the world in the 1990s, including those of East Asia, Brazil, Mexico, and Russia. Paul Krugman provides brief accounts of the devaluation of Thailand's baht currency, the "financial doomsday machine" created by hedge funds, and the "liquidity trap" of the Japanese economy. Krugman's light journalistic style is easy to read for the most part and is well-targeted at his intended audience. Many of the nine chapters stand very well on their own as slightly extended versions of what is known in the US as op-ed pieces. For example, the chapter on hedge funds contains as clear an explanation of the operation of such funds as a layman could get anywhere. It also contains a number of brief, enlightening and well-written stories under sub-headings like 'The Legend of George Soros' and 'The Madness of Prime Minister Mahathir', and concludes with 'The Panic of 1998' which outlines the demise of Long Term Capital Management. In other chapters there are equally succinct and fascinating stories concerning Mexico, Argentina, Thailand and so on. Some of these extracts ought to make very useful reading to stimulate discussion on undergraduate macro, international or development economics courses. It is the purpose of this paper to examine the major themes of Krugman's book.
Abstract This paper explores the causes of the Asian economic crisis in 1997 and traces the roots of the crisis back to the area's economic growth that started in the early 1990s. The paper explains that, while the crisis is believed to have begun in Thailand, conditions that existed throughout the region contributed to the destabilization of the economies of the other Southeast Asian countries as well.
From the Paper "Throughout the early 1990s, growth in southeast Asia attracted much foreign capital. However, by 1995 and 1996, Thailand's current account deficit had grown (from 5.7% in ?93 to 8.5% in ?96 [Pesenti et al., 1998]). When domestic production slowed, this account imbalance represented an even greater percentage, when compared to GDP. Much of the instability in Thailand's economy was brought about by heavy short-term borrowing that required stringent debt maintenance. A boom in real estate and the Thai stock market attracted foreign speculation that could not be sustained in the face of investor doubts. The Thai government attempted to shore up shaky investor confidence by officially backing the financial institutions that were heavily indebted abroad."
Tags: indonesia, korea, japan, foreign, investment, domestic, production, development, baht
Abstract The paper posits that the British media suppressed reporting of the Asian Meltdown because of British leaders' involvement in the crisis. It reviews the crisis itself, when the Thai currency, the baht, failed, and a domino chain of other Southeast Asian currencies followed. The paper then examines the Asian Miracle of the 1980s, and shows that the seeds for the later failure were planted then. It shows how the IMF (International Monetary Fund) bailout of the banks exacerbated and prolonged the crisis. The writer contrasts the Asian and American economic models of investment, especially debt to equity ratios, and the intervention of speculators. In conclusion, the writer blames corruption and greed as the root causes of the crisis.
Sections:
Thesis Statement
The Admissions Statement of the BBC
The Origins of the Crisis
Other Factors to Consider in "From Miracle to Crisis"
What Defines the Asian Miracle
The US Observation of the Miracle
Debt and Corruption - The Handmaiden of Speculation
Reform and Conclusions
From the Paper "Among US observers, the "Asian Miracle," aroused both awe and fear, especially in the 1980s when Asian countries became formidable US competitors. Japan, which has now become the world's second most powerful economy after the US made sharp inroads into US domestic automobile and electronics' markets during the decade. Fierce competition with Japan and other Asian countries contributed to the yawning US trade deficits - when the value of US imports exceeds the value of its exports - and fueled a wave of protectionist sentiment in the US Congress.
"Moreover, this economic war between the US and Japan triggered and embolden the European Common Market by allowing it to form alliances on the mainland that became strong, strong competitive factors that were beginning to leave the British behind because of their reluctance to join the EU as a full partner. This, of course was over the currency issue raging between Conservative and Liberal parliaments and has yet to be settled.
"Southeast Asia's success seemed to vindicate certain economic policies that the US had largely shunned. Those policies gave Asian governments a large hand in shaping the marketplace. Asian bureaucrats took a leadership role in promoting certain industries and businesses and maturing them with tax credits or outright subsidies. Rather than allow the ravages of the free market to determine which businesses should succeed government leaders picked winners and ensured their prosperity."
Tags: IMF, International Monetary Fund, Japan, Thailand, Korea, Banking, Speculation
Abstract Three times in the past two decades we have seen an economic crisis hit developing countries. These were the debt crisis in the 1980s, the Tequila Crisis in 1994-1995, and the Asian Crisis that started in 1997. Each of these had impacts that affected other countries as well. This paper looks at the ways in which such crises start and possible means to determine which countries are susceptible to them. The ways in which this type of crisis spreads is also examined, since it appears that the same methods of determining whether a country might be the source of such a problem can also show if a country is open to contagion in the event a crisis does occur in another country. The paper begins by looking at some of the events involved in the three crises discussed. Only the latest crisis-in Asia-is discussed in detail. The two prevailing hypotheses to explain these events are then discussed with their shortcomings. One interpretation is that the governments are to blame. This outlook claims that the latest crisis-in Asia-is the result of weak government regulations and strong government guarantees. This also leads straight into the moral hazard theory. The other side focuses on economics and claims that fragile markets in the region can allow a crisis in one market to trigger a panic and financial collapse in others. In the case of the Asian crisis this is traced back to Thailand. It is shown that by putting these two hypotheses together, rather than trying to keep them mutually exclusive, a more cohesive picture-and hypothesis-can be created. Information concerning the three crises examined is shown to be more readily explained by using the approaches together rather than separately.
Paper Outline:
Introduction
A Brief Look at Three Debt Crises
A Look at Prevailing Theories and Problems with Them
Tying the Two Approaches Together
Contagion
Conclusion and Comments
Works Cited
From the Paper "Financial system reform is another area in which the realms of government and economics are clearly linked. Such reforms are virtually always the result of government action and not due to the efforts of business and industry. In fact, these reforms are often done despite the desires of the various sectors of commerce. The IMF again gives us striking examples of this. The conditions the IMF places on loans frequently require that a government take actions that will affect the economy. That is, in fact, the rationale behind the conditions."
Abstract This paper presents a review of the Asian financial crisis, triggered by the devaluation of Thailand's national currency, the baht, in 1997, and the role that the IMF played in making the crisis worse than it had to be.
From the Paper "In July, the Thai government ended a long-time policy of linking the value of their national currency, the baht, to the U S dollar and it triggered a financial crisis in Asia. A rapid devaluation of the baht suddenly reduced export revenues, made imports much more expensive and made capital investments in Thailand less attractive. This was an economic meltdown that soon spread to Malaysia, Indonesia, the Philippines and Japan. Asian stock prices plunged as a result and there were worldwide repercussions. Some analysts suggest that speculators and the..."
