| Thai Economy
- Overview
In
1997/1998 the Thai economy was in a deep recession as
a result of the severe financial problem facing many Thai
firms, in particular banks and financial institutions.
In the early 90s Thailand
liberalized financial inflows; banks and other firms borrowed
in dollars and did not hedge their positions because there
was no perceived exchange rate risks.
These
funds financed a property boom that began to taper off
in the mid 90s. In addition, export growth - previously
a key driver of the Thai economy, collapsed resulting
in growing doubts that the bank of Thailand
could maintain the bahts peg to the greenback.
The
bank mounted an expensive defense of the exchange rate
that nearly depleted foreign exchange reserves then decided
to float the exchange rate triggering a sharp increase
in foreign liabilities that cash-strapped Thai firms were
already having trouble repaying.
In
August '97 the Thai Government, headed by Prime Minister
Chawalit, signed an agreement with the IMF for access
to a $14 billion facility to supplement foreign exchange
reserves and restore financial market stability.
Chawalit
resigned in November 97 under pressure for lacking a coherent
approach to managing the IMF program and the financial
crisis.
Democratic
Party leader Chuan Lee-Pai formed a seven party coalition
government and closely adhered to the IMF program tentatively
re-establishing financial stability by February 98.
An
economic turnaround requires re-scheduling the large short-term
foreign liabilities of Thai firms restoring high rates
of export growth to finance foreign liabilities and extensively
recapitalizing the banking system. Tourism
in Thailand continues
to be the country's leading foreign exchange earner. Agriculture
and the agro-industry is the dominant industry.
Thailand
for a long time has been one of the leading countries
for export. Until now most of the exports have been unprocessed
but the trend seems to be pointing in the direction of
higher valued processed foods.
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