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.

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