when the bank of Thailand floated the baht on 2 July 1997 - and sauj its value fall by more than half in eight months, the ujorld naturally thought of it as primarily a currency crisis. But it is the massive failure of the financial system, the otherhalf of the twin crises, that had a more profound impact and ujhich wrought significant institutional changes to the economic system of the country. The story of the events that led to the denouement of 2 July 1997 is well knotun, so me need merely to cover it in one short paragraph,1 Beginning in 1990 but accelerating in 1993, the Bank of Thailand engaged in a series of moves to liberalise the capital account. The control on foreign inward movements of capital was removed, and foreign lenders were allowed to lend money to Thai financial institutions and to Thai corporations in a regime ujith fixed exchange rates. Given the strength of the Thai economy prevailing in the early 1990s, these lenders found that lending to Thai companies and banks tuas quite profitable and carried little risk, fls the economy heated up during the bubble that preceded the collapse (from about 1993), the Bank of Thailand began to tighten up interest rates, fls could be expected, the only impact this policy had mas to inducemore money, mostly short-term, to flotu in, ujith the result that Thai companies became heavily indebted in dollars. UJorse, a substantial chunk of this dollar debt was intermediated by Thai banks, uiho borrowed short-term from foreign banks. By mid-1995total short-term external debt from the private sector plus the annual current account deficit exceeded the foreign exchange reserves of the Bank of Thailand, flfter that it was a matter of time before the speculators realised that the fixed exchange rate regime was no longer tenable. In November 1996, the first attack on the baht began, and after three waves of attack, it was all over The Bank of Thailand's net foreign exchange reserves were nearly exhausted, and the baht was devalued.
展开▼
