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Wednesday, 21 January, 1998, 07:57 GMT
Thailand: origin of the crisis
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It was the devaluation of the Thai baht in July which began a chain of currency devaluations across the Asian region last year.

Golden years

After a period of economic decline in the early 1980s, Thailand began a recovery after 1985 which peaked in 1988 with growth of 13.2% in GDP.

Growth came thanks to the diversity of the Thai economy, good macro-economic management and a political structure in which technocrats played a key role.

The appreciation of the yen over the period also opened the way for significant Japanese investment.

The seeds of despair

The crisis came about on July 2 1997 as speculators attacked the baht, believing it to be overvalued and vulnerable due to poor economic fundamentals in the country. The Thai economy had seen massive overspending in previous years with levels of debt skyrocketing.

Thailand's current account deficit grew markedly, meaning interest rates had to be kept high to protect the currency which was pegged to the US dollar.

Domestically, excessive consumer and business levels of spending and debt put pressure on a weak and poorly regulated financial sector. Banks were left increasingly exposed to a property market that was out of control and building far more than required.

Fundamental financial reform was increasingly called for to deal with rising foreign investment and borrowing but nothing was done until the crisis hit.

The government failed to act until it was too late, partly due to political disunity and factional fighting which prevented the formation of a coherent policy.

Thailand went through five finance ministers in 1996 and continued to change the key job through the crisis, undermining investors' confidence.

Economic reforms

The IMF approved a $17.2bn rescue deal for Thailand last year. In December, it released the second financial instalment to the country after Bangkok announced the closure of 56 corrupt and debt-ridden finance houses.

These closures and the tough IMF stance on reforming the economy have resulted in rising unemployment. Forecasts predict it will reach around 1.5 million in 1998.

As the Thai currency, the baht, hit record lows against the US dollar in January, the deputy Prime Minister, Supachai Panitchpakdi, called for a review of the IMF package.

He said because the crisis had spread throughout the whole region Thailand's economic problems should no longer be seen in isolation.

Mr Supachai said the effect of implementing the IMF's requirements had been more severe than expected, and that Thailand faced severe recession if it continued to carry out the IMF measures.

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