Reviews - What do customers think about Thailand's Boom and Bust?
Hot money, IMF Bank of Thailand bailout Jan 7, 2006
The IMF is like a credit union for countries. Each member makes a deposit of which 25% must be in the form of Gold or hard currency, this is called their quota. A member may receive a loan up too three times their quota amount. In an emergency the IMF could approve loans that exceed the 3X quota amount. The IMF central role is too provide policies and resources that give confidence to its members, make available emergency funds offsetting a financial panic, correct maladjustments in balance of payments between nations, and preventing destruction of national and international stability. IMF credibility is their contrarian's superiority providing advice and mandating policies forcing troubled countries too become more efficient and less corrupt. These governments would maintain their control over capital control. However, IMF can not control the inflow and outflow of foreign money. Fast growing countries like Thailand opened their financial systems to hot money. Hot money characteristics were a temptation that could turn into a panic because the money could be quickly be liquidated as a punishment for underperformance.
In the 90s, emerging markets trend was towards ending capital controls. Banks were acting strangely. Banks were increasing loans, at the same time as, the portfolio investors were retreating and selling out positions. 1992, the US Treasury Bond was below 6%. Investors were tempted by yield chasing seeking double digit yields in Malaysia. Japan was one of the strongest investor. Many of these investors borrowed low cost money from home markets and invested it into higher yield emerging market securities capturing 15 to 23% yields. This sets the stage for disaster in Thailand.
1997, Thailand central bank was armed with $38 billion in reserve dollars. The Thailand central bank believed $38 billion was more money than the speculator would be willing to bet against the baht. But through 1997, speculation increased against the baht as investors borrowed money to sell short on the currency betting that the currency would drop and they could buy back at cheaper levels. The Thailand central bank could defend the baht by raising interest rates increasing bond and bank deposit appeal. The second way to defend the Baht was to enter foreign currency exchanges and pump up the demand for the currency. The Bank of Thailand did a lot of buying because it was obligated to keeping the exchange of one dollar to 25 baht. Buying baht reduced the amount of Baht in circulation in the Thailand economy.
The Bank of Thailand was too clever by engaging in a currency swap. A swap involves a promise by participates too buy or sell a currency for another with a promise to trade the currencies back after a certain amount of time. The Bank of Thailand swap secretly amount to $23 billion. The Bank of Thailand reported that they had plenty of dollars for business. Problem solved! However, when the swap reversed the Thailand bank would be scarce of dollars to make payments on foreign loans come due. Most of the reserve dollars were committed for future transactions. The market continued selling short and the bank could not beat back the speculators. The Bank of Thailand had one more weapon, the Bank of Thailand order all 29 local and foreign banks to stop lending baht to foreigners. The baht would cease to flow outside of Thailand. Then suddenly Thai banks and corporations began selling baht in exchange for dollars to pay back short-term debts coming due. Foreign creditors were demanding immediate repayment of their loans when they came due. The Bank of Thailand could not cover the frantic baht selling and dollar buying, they did not have enough dollars in reserve.
The IMF demanded the Thai government create a budget surplus by increasing the value-added tax from 7 percent to 10 percent. The IMF insisted that Thailand devalue their currency and devaluation made increased exports and cheapened imports for foreign countries. The Thai economy did not need monetary tightening; the GDP dropped 10 percent and growth went to zero. Thailand was experiencing a recession. Unemployment rose to 6 percent. Thailand had banking system structural problems. Bank of Thailand had secretly loan $20 billion to ailing financial institutions attempting to stabilize these banks and prevent runs on deposits. The IMF insisted the Bank of Thailand stop the secret bailouts. IMF smartens up and supported a comprehensive guarantee on deposits and liability of financial institutions. Japan rescued Thailand with a $4 billion loan matching the IMF loan of $4 billion. The complete Thai bailout package totaling $17.2 billion.
More politics and culture than economics Aug 3, 2005
This book attempts to show the Thai economy both before and after the "blood baht" of 1997. The book did an adequate commentary on the build up of the social and political structure but did not deliver on the economic side too much. It also gave the consequences of the crash in much the same way. In short the book is good to read if you want to see how the general population lived both before and after crash. If you want an in-depth critical look at the Thai economy and the underlying reasons for the crash as well as the economic ramifications afterwards then this book is not for you.
Clear, Well Written, Insightful and Comprehensive Jan 17, 1999
This is the most interesting and easily read book I have ever come across dealing with issues of economic and political development. Thai politics and economics are complex and confusing. This book makes sense of the conflicting strains in Thailand and will enable even a novice to makes sense of of information from Thai newspapers. Fascinating for anyone interested in global economics or Thai culture.