Saturday, 8 March 2014

What is the current situation of Thailand ?

What we have experienced from the crisis ?
From this crisis, Thai people learnt the big lessons such as the dangers of the high leverage ratio, the lack of good governance and the weakening of financial institution policy. 
Nowadays, Thai economic system is developed, especially the financial discipline 
- The banking system is much more stable and transparent
The economy of Thailand is flexible. The inflation is low and the balance of trade overbalances every year. The foreign debt decreases continually.
- Thai government focuses on monetary policy. (the exchange rate, the interest rate and the cash inflow-outflow of country)
- Thai people change their mind set to be more conservative. They restructure their own organizations. (i.e. hold more cash)
The below video is talking about what Thai people have learnt from the Asian Financial Crisis.

However, there are some arguments that people act too conservative for the environment of Thailand which is booming (Li, 2013)

What is the current financial situation ?
Recently, Thai financial system is not stable due to the politics
The first reason is that this current government announced that the minimum of the labour cost is 300 baht ($10). Hence, the employers face the high expenses and they try to move their factories to the country that has low wages or increase the price of commodity. Thus, it can result in the inflation and the mild recession
The another reason is that there is a prolonged series of political protest in Bangkok. Following this, the investors avoid to invest in Thailand due to this stress situation. It impacted on the devaluation of Thai Baht.

However, we have to keep an eye on Asean Economic Community (AEC) that is a gathering of 16 countries for instance Thailand, Singapore, China, and Japan. They became a single market and then it could increase competition with other regions. The economy and financial system are likely to be more improvable. 

Wednesday, 5 March 2014

What is the solution ?

The settlement of this crisis was IMF

IMF or International Monetary Fund lent some money to the countries that incurred from the crisis in order to stabilize their currencies. However, Thai government had to sign the agreement to borrow the money.
Here is some detail about the contract
- Thailand had to open free trade. 
- Change the regulation about the percentage of stock that foreigners can hold and decrease the stock price.
- Transformation public enterprise to privatization. 
- The government's budget has to overbalance 1% of GDP.
- Increase tax. (i.e. Value added tax was increased from 7% to 10%)
- Restriction on the interest rate. ( increase the rate to protect the devaluation of Thai baht)

Some economists argued that this agreement let the foreign countries can take benefits from Thailand. Meanwhile, Thai people faced the high cost of living.

Saturday, 1 March 2014

In 1997

After the currency of Thailand was collapsed , the crisis spread abroad the Southeast Asia.
The most affected countries from the crisis are Thailand, Indonesia and South Korea. However some countries, such as Singapore and China, were less hit.

In this case, I will focus on Thailand.

On 2 July 1997, the exchange rate changed suddenly from 0.03846 USD/Baht to 0.017857 USD/Baht. It implied that the amount of foreign loans that Thai government, Thai corporation and Thai individual investors had to pay back were doubled. It led to the problem of bankruptcy. Lots of financial institutions closed down. The unemployment ratio increased and the GDP per capita and the purchasing power decreased.
All in all, the Thailand faced the depression of the economy, the recession was 1.4% in 1997 and continued to be 10.5% in 1998.

These table and graph illustrate that the exchange rate decreased over time.

The impact of the crisis

This picture can explain the cycle of the crisis. To begin with, there is a weak and unstable in the exchange rate. It leads to the weaken financial institution and people tended to doubt of the financial system. (Bank run) Following this, the government has to impose the higher interest rate. However, the manufacturing and industrial activities are still slowdown and the unemployment rate increase.