Question

When it became known in 1997 that the Thai government had insufficient foreign exchange reserves to maintain the exchange rate, how did currency speculators respond? What policy did the IMF suggest?

Answer 1

The speculators who saw Thailand crisis and slow growth termed it as a sign of unprofitability for their investments.

• During boom period , the economy was in a bubble but the perception had been so that it would be a long lasting economy which made an increase in consumption , mostly in test of imported commodities and luxuries.
• But soon after that Speculators started selling their domestic assets and claimed back their foreign assets.
• investors with productive investment opportunities could not get loans to run their business.
• It led to more downfall in the country's economic growth.
• In order to save some financial institutions, Thai govt started merging some financial institutions.

THAILAND AND IMF :

Thailand received $17.2 billion from the international Monetary Fund. It was the largest rescue plan since Mexico received from IMF in1995.

The IMF demanded an end to the political patronage system in Thailand and reforms to system that encouraged cronyism and corruption.

IMF made some set of rules for Thailand economy following which the baht stabilised, interest rates were lowered, some financial restructuring was done and services were increased because there were few imports.

There was no food shortage as Thailand used to be net food exporter.

Going with the line of IMF, Thailand bounced back much quicker compared to the countries affected by Asian financial crisis.