Sunday is the 20th anniversary of the start of the 1997 Asian financial crisis, when it became clear that the region's "tiger" economies had been snagged by the tail. That day was marked by a battle between Thailand's monetary authorities and speculators. In the end, the Bank of Thailand ran out of reserves with which to buy the baht; the currency would go on to lose more than half its value.


Tarrin Nimmanahaeminda
The flu spread, and a handful of once-roaring economies would remain in a funk for years to come.

In a recent interview with the Nikkei Asian Review, Tarrin Nimmanahaeminda, who became Thailand's finance minister four months after the crisis hit, spoke about the cause of the economic debacle and how he navigated the nation out of it.

The interview was edited for clarity.

Q: What was the situation like in Thailand's financial market when the currency crisis hit?

A: Before 1997, troubles were already brewing at some finance companies, and later on because of the contagion effect domestically, it also crept into the banking sector. Essentially we had a systemic problem in terms of depositors' loss of confidence in the financial system. That was the beginning.

At the same time, there was really a big mistake in monetary policy. The monetary authority, together with the government, for no real reason, was very firm in trying to maintain the baht's exchange rate [which for years had been mostly hovering just above 25 to the dollar]. It is difficult to identify the reason. We lost reserves worth $40 billion in eight to nine months. By mid-1997, when all the facts and figures were known publicly ... there was a huge loss of confidence in our economy.

Q: How did the sharp decrease in foreign reserves affect the country?

A: When you have a huge loss of nearly 100% of your foreign reserves, you have to be able to let the public understand what happened. I explained this to the public in a very simple way: "First of all, there would be no oil in Thailand because we need U.S. dollars to buy oil. Secondly, there would be no way to buy necessary machinery not produced in Thailand. Thirdly, there would be no fertilizer for the agricultural sector. Fourthly, there would be no modern medicine for the public. Finally, there would be no foreign-sourced domestic assembly industries due to the loss of ability to import."

Another factor -- the loss of confidence in foreign trade -- was hidden in the financial factor. In Indonesia, the central bank and the government had to guarantee private banks' lines of credit from foreign correspondent banks in order to open letters of credit. We were very mindful that this problem cannot and should not happen in Thailand because it would make things worse. We had no reserves left. We could only borrow from the IMF [International Monetary Fund].

Interview: It was 20 years ago that the Thai central bank panicked- Nikkei Asian Review