Thread: Financial crisis to silent crisis: 24 years after the baht freefall

Thailand’s currency collapsed on July 2, 1997, as market speculation forced the country to abandon its fixed exchange rate and the central bank depleted its coffers to protect the baht.


The baht plummeted from Bt25 per US dollar to around Bt50 before eventually recovering to the Bt30-Bt32 level we see now.


The baht debacle came as a shock to many, as the Finance Ministry and Bank of Thailand had been insisting that the currency would never be devalued. On the back of these assurances, companies kept borrowing in US dollars while lending in baht because of the perceived interest-rate arbitrage.


“Many companies did not have a natural hedge because their revenue was in baht, but their interest costs and debts were in dollars. So, when the baht was devalued, their debt burden rose by more than 100 percent and turned from an asset to a liability, triggering bankruptcies,” said Kobsidthi Silpachai, chief of capital markets research at Kasikornbank.


Many finance companies that facilitated this so-called arbitrage for Thai firms also got caught with soaring non-performing loans, he said.


Meanwhile, customers also started panicking and withdrawing their deposits, which accelerated the demise of many small banks and private companies.


Once a rising star


Thailand had achieved high economic growth between 1962 and 1996, hitting double digits in some years. The high growth was largely driven by investment expansion, which was blamed for inflating the economic bubble in the run-up to 1997.


The baht’s collapse burst this bubble – but it also contributed to the expansion of the export market in later years. Before the 1997 crisis, Thailand had a current account deficit equivalent to 8 percent of its gross domestic product (GDP) as the country invested more than it saved.


Once the financial crisis was over, that current account deficit turned into a surplus which helped the baht rebound.


Yet, despite the rebound, Thailand’s economic growth has been slow since 1997 – averaging around 3-4 percent a year.


The country adopted a floating exchange rate regime to remain flexible in dealing with market volatility.


The baht has fluctuated from being overvalued to being undervalued against the US dollar but has been steadily overvalued since 2016, Kobsidthi added.


Lesson learned?


Thai businesses, meanwhile, should have learned from the 1997 crisis that there are no free lunches. The baht should reflect economic fundamentals, such as the level of inflation, the balance of payments, and economic growth rate, said Kobsidthi.


In recent years, however, the baht’s appreciation has had an adverse impact on exports.


“The rising value of the baht has not been reflected in the fundamentals of the Thai economy, which have been very weak since 1997,” said Teerana Bhongmakapat, former dean of Chulalongkorn University’s Faculty of Economics.


There are many factors contributing to the appreciation of the baht despite slower economic growth, and a weaker baht may not necessarily boost exports, said Teerana.


The biggest problem is a drop in investment relative to savings. Before the crisis, Thailand was a debtor country due to low savings, but relatively high investment. Now, Thailand has less investment but larger savings, much of which it exports abroad.

Before 1997, Thai businesses borrowed too much in foreign currency. But Thailand learned its lesson and is now careful about borrowing from overseas.


Private companies are also taking on less foreign debt or hedging sufficiently against their borrowing.


After the crisis, Thailand set up its National Credit Bureau, which now plays an important role in helping banks manage lending by making debtors’ credit ratings available to lenders.


Yet, against this backdrop, new problems have arisen. Public debt has now increased to nearly 60 percent of GDP.


“Populist policies and lack of continuous reforms have contributed to rising public debt. We introduced reforms in answer to the 1997 financial crisis but did not reform the economy to answer new challenges,” Teerana lamented.


He pointed out, for instance, that reporting of public debt in Thailand does not fully meet international standards, resulting in figures lower than the reality.


Under the current debt-reporting system, money owed by state enterprises is counted as public debt. But when the government sells off assets or reduces its holding in any state enterprise, the debt of that enterprise is no longer counted as public debt, Teerana pointed out.


Observers also point to a lack of reform in the public sector, which has ballooned and become more inefficient, resulting in higher consumption of public resources.


Regulatory burdens and bureaucracy have also piled costs on businesses and people. The Thai private sector has subsequently lost its competitiveness in the global market and our workforce is lacking skills, Teerana commented.


“We are in a silent crisis – a weakening economic structure,” he added.


Costly populist policies


Certain populist policies implemented after 1997, such as the universal healthcare scheme and village revolving fund implemented, did help narrow the inequality gap, said former finance minister Thirachai Phuvanatnaranubala.


However, populist programs introduced later, like the rice subsidy schemes, were not financially feasible, he said.


Under these schemes, governments offered subsidies and welfare to citizens without raising taxes to fund them.


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 1997 crisis.


However, new challenges have emerged.


Post-1997, Thailand is no longer a favored investment destination in the region. Foreign investors now choose Vietnam and Indonesia, said Pipat Luengnaruemitchai, a chief economist at Kiatnakin Phatra Securities.


Many factors are to blame for this, including an aging society, high cost of labor, shortage of unskilled labor and red tape. Thailand’s development has come to a point where it cannot move forward at a fast pace.


“We are now trapped in the middle-income country slot,” said Pipat.


The already weak economy is now being further weighed down by the COVID-19 crisis.


“The outbreak has proved that Thailand depends far too much on tourism, accounting for 20 percent of GDP. So, we need to diversify our economy,” Korbsidthi added.


By Thai PBS World’s Business Desk

Financial crisis to silent crisis: 24 years after the baht's freefall | Thai PBS World : The latest Thai news in English, News Headlines, World News and News Broadcasts in both Thai and English. We bring Thailand to the world

Post-1997, Thailand is no longer a favored investment destination in the region.

Post 2004 dumbo- ie the military coup. Foreign investment into Thailand was booming in the early 2000's. I suspect the article is just another vacuous yellow-tinged attempt to rewrite history.

Originally Posted by sabang

Post 2004 dumbo- ie the military coup. Foreign investment into Thailand was booming in the early 2000's.

How much did it drop in 2004? In 2005?

So if they are comparing the 1997 collapse to the present does that mean they don't have any foreign currency left.

though in December 2020 they supposedly had an all time high of currency reserves.

Originally Posted by hallelujah

70 baht to the pound in 2005...

Indeed, even in 2007, when I bought my house here it was 71.

It's been awhile but I remember when I first arrived here for work it was 38 to 40 baht to USD. It was a huge upside as COL here was so much cheaper and I was under a companies umbrella.

I am enjoying it being at 32 again.

The baht did not appreciate after 2008, it's just that the bankster crash killed western economies and devalued their currencies practically overnight and did not stabilise until the new paradigm was established in which the averages range around: $= 30-32(ish), £ = 50 and the Euro =38-40 (ish). Brexit of course scuppered £ and it has yet to exceed the 38-44 baht range.

Covid has diminished tourism but that is not a seismic event of any permanent in an economy that relies on a healthy export of a manufacturing sector contributing to its industrial output accounting for over 43% of GDP. In comparative terms th economy is relatively healthy in that pre-Covid its debt to GDP averaged ratio was around a mere 42% with current account surpluses averaging over the past 18 years or so of 6.8% of GDP.

Don't expect any radical devaluation of the baht this decade.

Realistically, with inflation kicking into the US economy and strengthening of the $ then there may well be some volatility in the region as $ borrowing costs increase but Thailand is not as exposed to the wall of QE that flooded into SE Asia.

The £ might gt back to 46 baht but that's its natural ceiling given the stupidity of Brexit and its affect on growth hampered by a trading loss of £50 billions annually with the EU and the crippling effect of the end of free movement to the labour supply.

There was a blip in 2012/13 when Yingluck opened th sluice gates of investment by using tax rebates to stimulate demand and the rice pledge that bolstered the baht artificially but as we know that died with her overthrow.

Originally Posted by Seekingasylum

There was a blip in 2012/13 when Yingluck opened th sluice gates of investment by using tax rebates to stimulate demand and the rice pledge that bolstered the baht artificially but as we know that died with her overthrow.

Not mentioning how her brother had earned his billions by the Baht management...

How much did it drop in 2004? In 2005?

Typo- the coup was in 2006. Thailand has only gone downhill from there, it is now a sick man of SE Asia- ironic, because in 2005 it was the best performing economy along with Singapore. I would not invest the steam off my piss there, with an inept military dictatorship that kicked out the only two governments elected in the history of Thailand by an absolute majority. Within a year of the 2006 coup, the villa that I rented for 75,000 bht to well paid expats I was scratching to get 45,000 bht for. Cnuts.

Sabang, think many think same, still breaks my heart when i change money 13 years later.

Gone from living like a king to being a survivor

Originally Posted by Chico

still breaks my heart when i change money 13 years later.

But surely you would have done basic fact finding about the exchange rate at the time, and realised that a burger flipper would only be able to act the playboy for so long, no?

I mean, it would be ridiculous to still be nursing a grudge about it after 13 years.

Originally Posted by cyrille

But surely you would have done basic fact finding about the exchange rate at the time, and realised that a burger flipper would only be able to act the playboy for so long, no?

I mean, it would be ridiculous to still be nursing a grudge about it after 13 years.

Says the tefler

You may find i have other interests, by the way how's the CCTV monitoring going

Originally Posted by Chico

You may find i have other interests

Almonds that aren't almonds...drug rehabilitation centre that is still empty scrubland...website owner too penniless to pay people working on it...

Aye, you're a regular entrepreneur.

when i cam it was 39 THb to the quid. withing 18 months it peaked about 93.

CCTV man, do try and keep your posts on topic, and not post your usual diatribe in the top part of the forum


Mod need a clean up?

Originally Posted by cyrille

Almonds that aren't almonds...drug rehabilitation centre that is still empty scrubland...website owner too penniless to pay people working on it...

Aye, you're a regular entrepreneur.

Who still hasnt gotten back into Thailand, even though he bet his bottom dollar it would "have to be open for Christmas".

Originally Posted by sabang

Typo- the coup was in 2006. Thailand has only gone downhill from there, it is now a sick man of SE Asia- ironic, because in 2005 it was the best performing economy along with Singapore. I would not invest the steam off my piss there, with an inept military dictatorship that kicked out the only two governments elected in the history of Thailand by an absolute majority. Within a year of the 2006 coup, the villa that I rented for 75,000 bht to well paid expats I was scratching to get 45,000 bht for. Cnuts.

What utter twaddle you spout spambag.

The World Bank has a differing perspective than the one gleaned through your prism of dementia.

In 2005 GDP was $189 billions.

In 2006 GDP was $221.7 billions.

In 2007 GDP was $262 billions.

In 2008 GDP was $281 billions.

In 2010 GDP was $341 billions

In 2015 GDP was $401 billions

In 2019 GDP was $544 billions

Do you spot the trend, you oaf.

Rents, commerce and general fun stuff in Bangkok for those dependent on expat centric revenues fell off the cliff from 2008 onwards because of that small matter of the western banking system facing a cataclysmic meltdown affecting most folk in the West.

God, why are TD lumpen dross so stoooopid.

Vagina you are for once spot on with your observation, though how peculiar now Thailand's covid ghost is around 6k officially, though no doubt around treble that on its daily numbers, though now opening.......

Not long Vagina and I'm back unless they lockdown.......

and may i add many persons where of the same conclusion as I. but yes got it completely wrong those damn govt officials.....

Originally Posted by aging one

Who still hasnt gotten back into Thailand, even though he bet his bottom dollar it would "have to be open for Christmas".

Originally Posted by Chico

Sabang, think many think same, still breaks my heart when i change money 13 years later.

Gone from living like a king to being a survivor

But, but, but, weren't you earning 350,000 Euro per year in Norway or whatever lie you told?

Originally Posted by Seekingasylum

In 2005 GDP was $189 billions.

In 2006 GDP was $221.7 billions.

In 2007 GDP was $262 billions.

In 2008 GDP was $281 billions.

In 2010 GDP was $341 billions

In 2015 GDP was $401 billions

In 2019 GDP was $544 billions

Do you spot the trend, you oaf.

erm, have those numbers been adjusted for real terms?

Originally Posted by Seekingasylum

God, why are TD lumpen dross so stoooopid.

¯\_(ツ)_/¯

Originally Posted by hallelujah

70 baht to the pound in 2005...

Was around the time I moved here.

There were lots of old fellas coming here to retire at 65 yrs old on 1000 quid state pensions. 70k per month and everything was cheap as chips. Not a bad deal at the time.


They must be utterly foked by now if they're still breathing, sitting in front of a 7-11 eating a 14 baht tub of Mama nooden.

Given that the annual basic single chap's State Pension Allowance in 2005 was £4266, equivalent to £82 per week, I rather think you are talking out of your arse.

Probably.

Originally Posted by TheRealKW

But, but, but, weren't you earning 350,000 Euro per year in Norway or whatever lie you told?

Willy, if you have no idea,what currency Norway uses,best to not try and be smart,you silly sausage.