Thailand - The Currency Crisis and Beyond

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Thailand has advantages of its own: it may be small, but it is a member of the ASEAN Free Trade Area, a trade block of ten South-East Asian countries with a total population of over 500m. That makes it a bigger market than the whole of Latin America.

- The Economist, 28th February 2002.

Introduction

Thailand, one of South East Asia's most important countries had seen 17 military coups (the last in 1991) since the removal of absolute monarchy in 1932. Civilian governments had often been short-lived and unstable. But the widely respected king himself had been around for a long time. From the 1950s until the mid-1990s, there had been little accountability among the country's politicians, soldiers and bureaucrats. But there had been no serious problems for the better part of 50 years as the economy grew steadily at over 7% a year. But with that economic growth came an expanding middle class that began to resent the rickety coalitions, the coups and the corruption.

In 1992, a military strongman's attempt to suppress student demonstrations and install himself as prime minister triggered off a campaign for political reform. A new constitution was drafted in 1997, just as Thailand's economy collapsed.

The baht lost half its value; half the country's loans turned non performing and output plummeted. Following the Asian currency crisis¹, governments changed at frequent intervals. The parliamentary election in January 2001, resulted in a landslide victory for Thaksin Shinawatra's Thai Rak Thai (TRT) party²...

Excerpts >>

1] In July 1997, Thailand devalued its currency, triggering the turmoil that roiled global capital markets for more than a year. Commodity prices plunged, hammering resource-based currencies like the Canadian, Australian and New Zealand dollars. Bond yields in emerging nations soared, while equity markets tanked. In August 1998 Russia defaulted on its debt, spurring a massive capital flight towards liquid, low-risk assets. Not until the Federal Reserve reduced interest rates in the fall of 1998 did the global turmoil subside.

2] Thaksin Shinawatra and his Thai Rak Thai (TRT) party had swept the Thai elections winning the biggest parliamentary majority ever in the history of Thai politics. Thaksin was not a new player in Thailand's political arena. He was once deputy prime minister and had changed parties before he established his own Thai Rak Thai party. He advocated the establishment of a corruption free government and promised to focus on improving the people's welfare.

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