Thailand: The Asian Financial Crisis and Social Changes

Abstract

In Thailand, the 1997 financial crisis has resulted in adverse impacts on economic and social systems more seriously than anyone could anticipate. This crisis originated from problems in many sectors: finance, real production, government and management. Since financial liberalization of the early 1990s,¹ foreign capital has been attracted to the country by high profit margins in stocks, high interest rates, and a relatively lower risk in Southeast Asia, due to the US dollar-pegged currency (Lauridsen 1998). With cheaper interest rates for off-shore loans and a perceived fixed exchange rate, the Thai private sector continued to borrow. This increased the burden of foreign debt. Without effective management and supervision, the increasing capital inflows mostly came in the form of short-term loans and went into speculative (such as real estate and stock market) rather than productive sectors. Excessive private investment, particularly in risky and non-tradable sectors, and property price inflation soon led to a bubble economy. The increased overconsumption and the high investment–savings gap in the economy caused the balance-of-payment deficit to blow out.