Why thai baht collapse

Post, Thailand is no longer a favored investment destination in the region. Many factors are to blame for this, including an aging society, high cost of labor, shortage of unskilled labor and red tape. Share Post. This file photo dated 05 September, shows exchange rates at the Bangkok Bank. Once a rising star Thailand had achieved high economic growth between and , hitting double digits in some years. Lesson learned? Costly populist policies Certain populist policies implemented after , such as the universal healthcare scheme and village revolving fund implemented, did help narrow the inequality gap, said former finance minister Thirachai Phuvanatnaranubala.

Instead, they depended on debt financing, which is not sustainable, Thirachai said. Repeat not expected Many economists believe Thailand has learned its lesson and will not suffer a repeat of the crisis. However, new challenges have emerged. Tags: Bangkok. The second was the speed at which investors and fund operators, including American investment trusts,retreated from Latin America at the sign of Mexican currency crisis.

The article also suggested that Hong Kong, which was in the midst of a real estate bubble, and which had a firm policy of linking its dollar to the Greenback, might face selling pressure on its currency. If we substitute Thailand for Mexico, and Indonesia and the Philippines for Argentina and Brazil, the situation today is extremely similar. It is fair to say that the "lessons for Asia" were not learned. The Thai Economy and the Causes of the Currency Crisis Since , Thailand has actively lured Japanese companies and pursed export-led economic development.

From onwards, it achieved economic growth averaging 9. Thailand was among the first countries to embark on an export-led industrialization strategy. In , one year ahead of Singapore and Malaysia, it achieved double-digit export growth.

Thailand's leadership is apparent from the fact that its annual average export growth rate value terms, customs clearance basis during the nine years between and was the highest among the ASEAN-4 at Thailand had been under strong pressure at home and abroad to apply the fruits of its economic growth since the late s to such purposes as the reinforcenment of corporate fundamentals, the sophistication of its industrial structure through the improvement of technology development of supporting industries, and the creation of industrial base.

Unfortunately, the administration's ability to take economic policy initiatives was weakened by the government's instability, with the result that the policies were implemented reactively.

In addition inflationary pressures strengthened due to such factors as the raises in government sector wages and minimum wages agaist the backdrop of low unempolyment rate. The correction in the value of the currency was motivated by the expansion of the current account deficit, and delays in improving the financial and economic systems.

On that day, selling by American institutional investors pushed the value of the Thai currency down to Thailand and Singapore intervened to prop up the baht, and Malaysia, Australia and Hong Kong also provided buying support.

Thailand's central bank meanwhile induced a punitive rise in baht interest rates. These efforts brought the exchange rate back to 25 bahts to the dollar and temporarily stabilized the currency. The exchange rate began to fluctuate wildly in early July. Neighboring currencies were also drawn into the upheaval, which still continues unabated. The Thai government moved quickly in July to shift the baht to a managed floating exchange rate system and to raise the official discount rate.

It also intervened actively in the foreign exchange market. In addition, Thailand asked governments and financial institutions in neighboring countries, starting with Japan, for assistance through establishing credit lines.

Furthermore, the trend had rippled outwards from Singapore to Australia. Stock prices also fell. The biggest decline, Interestingly, the Hong Kong dollar, which had been the subject of frequent rumors ever since the Mexican currency crisis, remained unmoved. The affected countries implemented a variety of countermeasures while maintaining close communication with the IMF and governments that were providing support. Malaysia, Indonesia and the Philippines adopted what was in effect a de facto floating exchange rate system, while Thailand and the Philippines adjusted their reserve requirements ratios.

Thailand and Malaysia also took steps to reduce their current account deficits. Dollar Creates Impression of Overvalued Baht In , Thailand switched from a fixed exchange rate system to a currency basket system. In , Thailand switched from a fixed exchange rate system to a currency basket system. Trade with the United States accounts for Even though the majority of trade settlemets are conducted in U. The baht's low against the U. Thereafter, it remained firm at around 25 bahts, reaching a high of A comparison of movements in the currencies of Thailand and its neighbors, namely Malaysia, Indonesia and the Philippines, against the U.

The Malaysian ringgit was extremely strong relative to the U. Since then, it has marked time. In , Thailand's exports accounted for This also meant the appreciation of East Asian currencies that were pegged to the U.

Exports slumped and corporate profits declined. East Asian governments and connected financial institutions found it increasingly difficult to borrow in U. These pressures came to a head in as one after another they abandoned their pegs and devalued their currencies.

In turn, they had to follow strict conditions including higher taxes and interest rates, and a drop in public spending. Many of the countries affected were beginning to show signs of recovery by Many of the lessons learned from the Asian financial crisis can still be applied to situations happening today and can also be used to help alleviate problems in the future.

First, investors should beware of asset bubbles —some of them may end up bursting, leaving investors in the lurch once they do. Another possible lesson is for governments to keep an eye on spending. Any infrastructure spending dictated by the government could have contributed to the asset bubbles that caused this crisis—and the same can also be true of any future events. The world markets have fluctuated greatly over the past two years, from the beginning of through the second quarter of This caused the Federal Reserve to fear the possibility of a second Asian financial crisis.

For example, China sent a shockwave through equity markets in the United States on August 11, , when it devalued the yuan against the USD. This caused the Chinese economy to slow, resulting in lower domestic interest rates and a large amount of bond float. The low interest rates enacted by China encouraged other Asian countries to decrease their domestic interest rates.

Japan, for example, cut its already-low short-term interest rates into the negative numbers in early This prolonged period of low interest rates forced Japan to borrow increasingly larger sums of money to invest in global equities markets.

The Japanese yen responded counterintuitively by increasing in value, making Japanese products more expensive and further weakening its economy. The U. For the United States, the adverse direct trade impact resulting from the Asian crisis proved manageable, and was partly offset by some other more positive spillovers, including reduced inflation pressures from cheaper Asian imports and weaker global commodity prices and lower bond yields from a flight to dollar assets. The adverse fallout for some other countries was more substantial.

Board of Governors of the Federal Reserve System. Boughton, James. Blustein, Paul. New York: PublicAffairs, Fischer, Stanley. Cambridge: MIT Press, Rhodes, William. New York: McGraw—Hill, Rubin, Robert, and Jacob Weisberg.