LCCNCMIC CkISIS IN 1nAILAND LCCNCMIC CkISIS IN 1nAILAND

resented by Group S Sect|on C

4mon chuqh nimonshu 6oh/out
konyoko 8osu Noveen lindo/
5houvik chokroborty venkoto Norsi keddy
1ha||and's economy pr|or to the cr|s|s
Ovet tbe petloJ 1987 1996
Average annual Cu growLh 94
CrowLh raLe of exporLs 143
lnflaLlon 47
lnvesLmenL Lo Cu raLlo 27 (1987) Lo 42 (1996)
Annual caplLal lnflows 87 of Cu
key varlables ln 1996
lnvesLmenL as proporLlon of Cu 422
Cross savlngs raLe 339
1rade as a proporLlon of Cu 349
8eal Cu growLh 33
Consumer lnflaLlon 38
Causes of econom|c boom |n 1ha||and
conomy of 1halland Large forelgn caplLal lnflows ln 1990s
lLs accommodaLlng economlc pollcles
nomlnal exchange raLe sLablllLy (2491 2339
bahL per dollar)
SLable prlce level (33 39)
Plgh lnLeresL raLe (1323)
PealLhy looklng condlLlons
Savlngs aL 333 of Cu
Cu growLh of 808 894 from 1991 93
8ecesslonary Lendencles ln Lhe uropean and !apanese
economles
An expert's op|n|on An expert's op|n|on
O LeL's hear Lo whaL aul krugman was Lrylng Lo say slnce
1994
O loo ecooomlc mltocle
O Asla's economlc growLh had been Lhe
resulL of qtowtb lo lopot (caplLal
lnvesLmenL)
O uL no growLh ln efflcleocy
O nly growLh ln totol foctot ptoJoctlvlty
could lead Lo long Lerm prosperlLy
4
Cap|ta| |nf|ows to 1ha||and
O Average caplLal lnflows exceeded 10 of Cu beLween
1990 96
O neL caplLal lnflows lncreased from 11bn$ (1987) Lo
219bn$ (1993)
0
5
10
15
20
25
1987 1988 1989 1990 1991 1992 1993 1994 1995
CapitaI infIows{ in biIIion$}
Capltal lntlows( ln
bllllon$)
Cap|ta| |nf|ows to 1ha||and
O CaplLal lnflows CurrenL accounL deflclL whlch led Lo
rapld lncrease ln reserves
O 1halland's forelgn exchange reserves lncreased as
uS$2343 bllllon uS$3048 bllllon uS$377 bllllon
(1993) (1994) (1996)
0
2
4
6
8
10
12
14
1990 1991 1992 1993 1994 1995 1996
CaplLal lnflows
(as of Cu)
CurrenL
accounL
deflclL (as of
Cu)
Cap|ta| |nf|ows to 1ha||and Change |n compos|t|on
O 1980's equal proporLlons of debL by publlc and prlvaLe secLor
O Slnce 1987 LoLally dlrecLed aL prlvaLe secLor
O 1987 92 Malnly borrowlngs of nonflnanclal prlvaLe secLor
O osL 1992 Malnly porLfollo lnvesLmenL and borrowlng by flnanclal
lnsLlLuLlons
O uaLa from Lhe lS shows LhaL as of !un 1997 66 of 1halland's
ouLsLandlng loans were shorL Lerm
1980 ~ 1986 1987 ~ 1992 1993 ~ 1996
%otal 5 7.8 10.1
Publlc 2.4 -0.3 0.4
Prlvate 2.6 8.1 9.7
DF| 0.7 2.1 0.8
PF| 0.1 0.7 2.1
Flnanclal
lnstltutlons
0.1 0.8 7.3
Otber prlvate 1.7 4.5 -0.5
Lxterna| Debt pos|t|on of 1ha||and
O xLernal debL Lo Cu raLlo 49 (1996)
O uebL Lo exporLs raLlo 123
O lourflfLh of Lhe debL held by prlvaLe secLor
O AlmosL half of Lhe debL owned by flnanclal lnsLlLuLlons
O Around 42 of Lhe debL was shorL Lerm
O 8aLlo of shorL Lerm debL Lo forelgn reserves 06(1990) 10 (1996)
nd 1983{biIIion
U5$}
nd 1996 {BiIIion
U5$}
%otal 11.2 90.5
Long term 9.5 (85.3) 52.9 (58.5)
Sbort term 1.6 (14.7) 37.6 (41.5)
Publlc 7.1 (63.8) 16.8 (18.6)
Prlvate 4.0 (36.2) 73.7 (81.4)
Flnanclal
lnstltutlons
(2.4) (21.5) (41.9) (46.3)
Lxchange rate po||cy of 1ha||and
1he exchange raLe was flxed Lo a baskeL of currencles
O 80 82 welghL for Lhe uS dollar
O 11 13 welghL for Lhe !apanese ?en
O 3 6 welghL for Lhe ueuLschemark
1hal bahL flucLuaLed beLween 2491 2372 per dollar
0
5
10
15
20
25
30
35
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
.ange rate {Bat per U5$}
xchange raLe
(ahL per uS$)
Causes of the f|nanc|a| cr|s|s
O Jeaknesses ln domesLlc macroeconomlc fundamenLals
O Jeakness ln Lhe flnanclal sysLem
O llnanclal llberallzaLlon and Lhe volaLlle lnLernaLlonal caplLal flows
O xchange raLe reglme
O verlnflaLed asseL prlces
Jeakness |n domest|c macroeconom|c fundamenta|s
O uootolooble cotteot ccooot Jeflclt
CurrenL accounL deflclL had worsened from 307 of Cu ln
1993 Lo 817 of Cu ln 1996 a flgure of 144 bllllon uS$
1hese deflclLs flnanced Lhrough shorLLerm forelgn caplLal
lnflows
keasons for current account def|c|t
O lall ln exporLs
ear ports{'000
niIIion bat}
.ange
1994 1180 21.3
1995 1381.7 23.6
1996 1378.9 -0.2
1he fall ln exporLs can be aLLrlbuLed Lo
A large lncrease ln real wage (19 lncrease yoy over 1991 1994)
1he real appreclaLlon of Lhe 1hal ahL
ahL appreclaLed agalnsL ?en by 18 ad[usLed for lnflaLlon
ahL rose by abouL 34 agalnsL Chlnese currency ln 1996
Cheaper Chlnese goods made lnroads lnLo 1hal markeLs
uecllne ln lmporL consumpLlon among 1halland's ma[or Lradlng
parLners
Ceneral slowdown ln Lhe world economy
(CrowLh ln world Lrade slowed from 92 ln 19943 Lo 36 ln 1996
lmporLs by advanced economles fell from 89 (1994) Lo 33 ln 1996)
Country 1995 { .ange
in U5$}
1996 { .ange
in U5$}
apan 17.5 3.4
Korea 28.2 7.3
USA 9.5 4.5
Cblna 15.3 -2.2
Jeakness |n the f|nanc|a| system Jeakness |n the f|nanc|a| system
O Absence of a regulaLory framework for buslnesses especlally
banks
O CorrupL relaLlonshlps beLween banks and companles
O asy access Lo funds led Lo lnvesLmenL ln dublous venLures
O ln Lhe words of 8oberL ChoLe lloooclol 1lme columnlsL
LaxlLy ln loan classlflcaLlon and provlslonlng pracLlces
ConnecLed Lendlng
oor quallLy of Lransparency and dlsclosure rules
no mlnlmum equlLy crlLerla
SLrucLural deflclencles leadlng Lo channellng of forelgn borrowlng
Lhrough Lhe sysLem for onlendlng Lo corporaLlons
4dverse 5e/ection 1endency of lendlng money Lo hlgh rlsk lnvesLors Lo
obLaln more proflLs
,oro/ notord lnsLlLuLlons lnvolved ln excesslve rlsky lendlng ln Lhe
expecLaLlon LhaL Lhey would be balled ouL lf Lhlngs goL bad
|nanc|a| ||bera||zat|on |n the 1990's |nanc|a| ||bera||zat|on |n the 1990's
O lull converLlblllLy of Lhe ahL Lhrough open caplLal accounL
O sLabllshmenL of ll ln 1993
O Ma[orly ouLln" LransacLlons
orrowlng abroad and lendlng wlLhln proflLable due Lo dlff ln lnLeresL
raLes
O CredlL markeL scenarlo
1980's credlL expanslon balanced by lncrease ln money demand
1990's 8apld credlL growLh Lhrough forelgn llablllLles
lnflows resulL ln lncrease of domesLlc prlces
Coupled wlLh flxed exchange raLe lead Lo appreclaLlon of real exchange
raLe weakenlng exporL compeLlLlveness
anks become less careful abouL loans decllne ln quallLy of bank asseLs
Lxpans|onary money supp|y Lxpans|onary money supp|y
O 1994 1996 Money supply expanded by more Lhan 20
very hlgh conslderlng Cu growLh raLe of 9
O ank lendlng showed an lncrease of 283 yoy ln 1994 and
242 yoy ln 1993
O 1hal commerclal banks overleveraged
LoanLodeposlL raLlo 1242 (1994) 1303 (1993) 1316 (1996)
O Leverage raLlo of 1hal companles lncreased
1988 16
1996 24
Short 1erm fore|gn |nf|ows of funds Short 1erm fore|gn |nf|ows of funds
O Large of caplLal lnflows drlven by lendlng booms (lncreased
forelgn borrowlng)
Large proflLs due Lo lower cosL of borrowlng flxed exchange raLe
O lorelgn llablllLles of banks 6 (1992) 24 (1996)
O 1oLal 694 bllllon uS$ of forelgn borrowlng
!apan (377) Cermany (76) lrance (31) uS (4)
More Lhan 30 lendlng of u banks beLween 1993 97 were Lo Asla
O ShorL Lerm loans (7 10) of Cu beLween 1994 96
!une 1997 66 ouLsLandlng loans were shorL Lerm
O xlsLlng loans collaLerallzed wlLh sLock/properLy already falllng
O nonperformlng loans vlsvls LoLal loans lncreased
77 (1993) 13 (1996) 226 (1997)
Cver|nf|ated asset pr|ces Cver|nf|ated asset pr|ces
O Money supply growLh Loo qulck for Lhe economy Lo absorb
nomlnal money supply grew by 20 beLween 1994 and 1997
O xcess credlL used Lo fuel speculaLlve booms ln real esLaLe and
sLock markeLs
O SpeculaLlve 'bubble' economy ln Lhe 1990's
O ank of 1halland flgures
1oLal loans Lo properLy secLor
264 n ahL (1993) 767 n ahL (Mar 1996)
34 from commerclal banks and 46 from
flnance companles
O SLock markeL prlces rose by 173 and properLy prlces rose by
393
O 10 33 of bank loans were commlLLed Lo Lhe real esLaLe
secLor
cesslvely
Rlsky lenolng
|ncrease ln
prlces ot rlsky
assets
Sounoer
conoltlon ot
lntermeolarles
Lxchange rate keg|me Lxchange rate keg|me
O 1hal bahL pegged Lo a baskeL of currencles 80 82 welghL Lo
Lhe uS dollar hovered around 23 bahL per dollar
O 8everse effecL from 1993 AppreclaLlon of uollar agalnsL ?en
?en/$ 80 (1993) Lo 123 (Mld 1997)
AppreclaLlon of ahL belng a pegged currency
mergence of Chlna as a ma[or exporL hub due Lo depreclaLlon of renmlnbl
xporL prlces lncreased
Adverse effecL on neL exporLs as !apan was ma[or Lradlng parLner
arly 1990's: Depreclatlon ot oollar
agalnst most currencles, especlally Yen
8abt (a peggeo currency) oepreclateo
agalnst tblro-party currencles
|ncrease ln tbe competltlveness ot %bal
eports
Lxchange kate reg|me Lxchange kate reg|me Currency specu|at|on Currency specu|at|on
O lnvesLor reallzaLlon of large deflclL whlch would be dlfflculL Lo
fund wlLh sLrengLhenlng currency
O lorelgn reserves of uS$ 377 bllllon vlsvls forelgn debL of
uS$ 903 bllllon
O lorelgn lnvesLors losL confldence and wlLhdrew funds
volaLlllLy of lnLernaLlonal flnanclal markeLs
CaplLal flows ln emerglng markeLs sub[ecL Lo flucLuaLlons ln uS lnLeresL
raLes
uS lnLeresL raLes (govL bonds)
1981 43
1986 2
1993 1
1996 18
caplLal ouLflow 83 (1997 98)
Lxchange kate reg|me Lxchange kate reg|me Currency specu|at|on Currency specu|at|on
O As 1halland faced deflclL cenLral bank used lLs forelgn
reserves Lo ln[ecL dollars lnLo Lhe sysLem and defend Lhe value
of Lhe ahL
O JlLhln a monLh (early 1997) forelgn reserves were depleLed
by 90
O uevaluaLlon of ahL was lmmlnenL
O SpeculaLlve aLLack on Lhe ahL on May 14 13 1997
O 1halland was forced Lo swlLch lLs exchange raLe reglme
O !uly 2 1997 lnLroducLlon of floaLlng exchange raLe reglme
ahL devaluaLes Lo 2880 agalnsL dollar (13 20)
Jarn|ng s|gns before the cr|s|s Jarn|ng s|gns before the cr|s|s
O ConLracLlon ln Lhe real esLaLe secLor
y 1997 commerclal vacancy raLe lncreased Lo 13
O SLagnaLlon ln growLh of exporLs
O Jeakness of domesLlc consumpLlon
Ceneral consumpLlon expendlLure rose by 62 ln 1996
O Slugglshness ln growLh of lmporLs
303 (1994) 176 (1993) 23 (1996)
O lall ln sLock markeL lndlces
S1 closlng lndex 13601 (1994) 12808 (1993) 8316 (1996)
O leb 3 1997 5omptoooq mlssed repaymenL of lLs forelgn debL
O May 23 1997 Collapse of lloooce Ooe 1halland's largesL
flnance company
1|me||ne of the cr|s|s 1|me||ne of the cr|s|s
ear ;ent
ay, 1997 Forelgn speculators attack tbe 8abt. %ballano
spenos 90 ot lts tore reserves to prevent
any oevaluatlon
uly 2, 1997 %ballano cbanges lts ecbange rate system
trom tleo to manageo tloat
Aug 11, 1997 %ballano recelves US$ 17 bllllon asslstance
trom tbe |F subject to austerlty, restructurlng
ano regulatlon clauses
Dec 8, 1997 56 lnsolvent tlnance companles closeo
Dec 31, 1997 %be S% lnoe oecllnes trom 787 ln an to 337
ln Dec. %bal economy turns lnto recesslon
1997 1998 %ballano crlsls spreaos to otber countrles
lncluolng |noonesla, Korea, alaysla ano
Pblllpplnes (Soutb Aslan crlsls)
Impacts of the cr|s|s Impacts of the cr|s|s
O cooomlc lmpoct
Plghly depreclaLed ahL
because of Lhe lack of
confldence ln Lhe economy
(lowesL value 33 ahL/uS$ !an 98)
Plgh debL burden due Lo hlgh
dependence on forelgn caplLal
and depreclaLed currency
0
5
10
15
20
25
30
35
40
45
50
1
9
9
5
1
9
9
6
1
9
9
7
1
9
9
8
1
9
9
9
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
.ange rate {Bat/U5$}
cbange rate
(8abt/US$)
0
10
20
30
40
50
60
70
80
90
100
ternaI debt {biIIion U5$}
ternal oebt
(bllllon US$)
Impacts of the cr|s|s Impacts of the cr|s|s
O cooomlc lmpoct
llnanclal lnsLlLuLlon crlsls
Collapse of lnsolvenL flnanclal lnsLlLuLlons
LlquldlLy crunch
Plgh proporLlon of non performlng loans
226 (1997) 36 (!un 1998) 46 (cL 1998) 47 (Sep 1999) 381
(leb 2000)
lncrease ln lnLeresL raLes (average 13 ln 1996 Lo 26 ln uec 1997)
8eal per caplLa Cu conLracLed by 03 ln 1997 and 99 ln 1998
Annual raLe of lnflaLlon lncreased from average 47 (199096) Lo 81
SLock MarkeL crlsls
S1 lndex down by almosL 70
Impacts of the cr|s|s Impacts of the cr|s|s
O cooomlc lmpoct
Lher macroeconomlc varlables
12 mllllon workers losL Lhelr [obs
33 of Lhose lald off were women
underemploymenL lncreased Lo 137 ln 1998
negaLlve wage growLh of 14 (1997) and 74 (1998)
Ma[or [ob losses ln manufacLurlng flnanclal and real esLaLe secLors
1996 1997 1998 1999
Real GDP growtb () 5.9 -1.4 -10.3 4.4
GDP(8n$) 182 151 112 133
Unemployment () 3.5 4.2 7.3 6.2
port(8n $) 56 56 54.5 58.5
|mport (8llllon $) 70.4 63.3 42.4 49.9
CA balance (8n $) (14.4) (7.3) 2.1 8.6
ko|e of IM ko|e of IM
O llnanclal supporL uS$ 172 bllllon
lMl uS$ 4 bllllon
Jorld bank and Au uS$ 27 bllllon
AAC counLrles uS$ 103 bllllon
O lMl's condlLlons abouL macroeconomlc pollcles
SeLLlng LargeLs for permlsslble budgeL deflclLs LlghLenlng moneLary pollcy
llcol lollcy (Almed aL freelng up resource for flnanclal resLrucLurlng)
LlghLened Lo llmlL need for forelgn caplLal
8educLlon ln budgeL deflclL Lhrough cuLs ln soclal spendlng
llscal LargeLlng of conLracLlon by 2 of Cu Lhrough reduclng
lnfrasLrucLure spendlng removlng govL subsldles and vA1 exempLlons
Mooetoty pollcy
Plgh lnLeresL raLe pollcy
1hls almed Lo sLablllze Lhe exchange raLe sLop furLher caplLal
ouLflows and Lurnaround forex reserves
ko|e of IM ko|e of IM
O lMl's condlLlons abouL macroeconomlc pollcles
lloooclol kettoctotloq
8emoval of monopolles Lrade barrlers and non LransparenL
corporaLe pracLlces
Closure of unvlable flnanclal lnsLlLuLlons (36 closed down)
8ecaplLallzaLlon of under caplLallzed flnanclal lnsLlLuLlons
lssuance of ahL 300 bllllon ln bonds Lo help llnanclal lnsLlLuLlon
uevelopmenL lund
SLrlngenL rules and regulaLlons on banklng sysLem
CorporaLe debL resLrucLurlng
lorelgn parLlclpaLlon ln domesLlc flnanclal sysLems
1hls pollcy almed Lo sLrengLhen Lhe banklng sysLem by plugglng
posslble loopholes and faclllLaLlng new credlL by hurLlng as leasL
people as posslble
Cr|t|c|sms about the ro|e of IM Cr|t|c|sms about the ro|e of IM
O Plgh lnLeresL raLes lncreased Lhe credlL crunch ln Lhe economy
nlqbet lotetet tote locteoeJ tbe ptomleJ tote of tetoto bot tbey wlll
olo cteote floooclol ttolo leoJloq to booktoptcle ooJ locteoloq tbe
expectotloo of Jefoolt o teolt tbe expecteJ tetoto to leoJloq to tbe
coootty moy octoolly foll wltb tlloq lotetet tote
Ioepb 5tlqlltz
O Parsh naLure of Lhe LlghL moneLary and flscal pollcles wlLh apparenL
dlsregard for soclal and pollLlcal consequences
O unwllllngness Lo lmpose conLrols on caplLal flows
O lmposlLlon of full guaranLees for forelgn credlLors
O lmposlLlon of relaLlvely rapld sLrucLural reform measures such as
sLrlngenL flnanclal sLandards and corporaLe resLrucLurlng
prlvaLlzaLlon of sLaLe owned enLerprlses and asseL sales aL whaL
many regarded as flre sale" prlces
1ha||and's return to norma|cy 1ha||and's return to norma|cy
O !uly 2003 8epaymenL of flnal uS$13 bllllon of ouLsLandlng debL Lo lMl
O 8eal Cu growLh reached a healLhy 67 ln 2003
O lorex reserves of uS$ 33 bllllon
O lnflaLlon (Cl) aL 18
O unemploymenL raLe aL 22
O AppreclaLlon of Lhe ahL(393/uS$ end 2003)
O CenLral bank announced loflotloo totqetloq ln May 2000
2003 Growt o;er 2002
Pvt. Consumptlon (8llllon 8abt) 1878.7 6.3
Gross tleo lnvestment (8llllon babt) 718.5 11.7
ports (8llllon babt) 2228.5 6.5
|mports (bllllon babt) 1728.3 7.3
CA balance (8llllon babt) 500.2 0.5
GDP (bllllon babt) 3457.4 6.7
Lessons from the cr|s|s Lessons from the cr|s|s
O volJooce of oet loflotloo tbot cteote o bobble lo tbe ecooomy
O 1lmloq of floooclol llbetollzotloo
O Moooqemeot of fotelqo lovetmeot Ooootlty v Ooollty
O keJoce JepeoJeoce oo fotelqo loflow
O 5ttlct teqolotloo oo book ooJ floooclol lotltotloo
O Mototlty ooJ cotteocy mlmotcb of fotelqo looo locteoeJ
voloetoblllty
O lmpottooce of ttooq floooclol ytem
O lMl tooJotJ pollcle moy oot be opptoptlote fot evety
ecooomlc ctll
1ha||and 1ha||and 1he present at a g|ance 1he present at a g|ance
2010
Pvt. Consumptlon (8llllon $) 143.34 (2009)
Gross tleo lnvestment (8llllon $) 64.36 (2009)
ports (8llllon $) 191.3
|mports (bllllon $) 169.4
CA balance (US$ bllllon) 21.86
GDP (US$ 8llllon, PPP) 584.768
GDP growtb 7.6
Per caplta GDP (ln PPP terms, ln US$) 8,700
Unemployment rate 1.2
CP| 3.3
Gross eternal oebt (bllllon $) 82.5
Fore reserves (8llllon $) 176.1
cbange rate (babt/US$) 31.3
keferences keferences
O hLLp//wlllmanncom/gerald/econ429/Lhalpdf
O wwwworldmarkeLsch/downloads/hlsLory/1997Lhalflnanclalcrlslspdf
O Iootool of tbe uN lo ceotte unlverslLy of new ngland
O 1be loo cooomlc ctll 8esearch aper (leb 1999) conomlc ollcy and SLaLlsLlcs
SecLlon Pouse of Commons llbrary
O 1bollooJ lloooclol ctll ooJ Mooetoty lollcy by karol
!ansen(hLLp//unpan1unorg/lnLradoc/groups/publlc/documenLs/apclLy/unpan002187
pdf)
O cooomlc ctll ooJ kecovety lo 1bollooJ 1be kole of tbe lMl 1halland
uevelopmenL 8esearch lnsLlLuLe (1u8l) wwwLdrlorLh/reporLs/publlshed/m30pdf
O 1be Mytb of lo Mltocle aul krugman lorelgn Affalrs nov/uec 1994 vol73 lss 6
pg 62 17 pgs
O hLLp//wwwunescaporg/drpad/publlcaLlon/proLecLlng20marglnallzed20groups/ch
1pdf
O 1he ClA world lacLbook
O 1he Jorld ank daLabase hLLp//daLaworldbankorg
O wwwwlklpedlacom