Government Intervention

during the Asian Crisis

Crisis In Thailand
• until july 1997, thailand was one the world's fastest growing
economies

• High level of spending and low level of saving

• Thailand currency was linked to us dollar

Bank lending situation
• Large funds help to support country's growth.

• Thailand's banks had more funds than they need so they ended up
giving it to commerical developers.
Flow of funds Situation

• Large inflow of funds made thailand vulnerable.Because investors can

lose confidence and thailand banks lent those money to risky parties.

• Large inflow of funds put downward pressure on interest rate

Export Competition
• During the first half of 1997,
Pressure on the Thai Baht
• Baht experienced downward pressure in july 1997

• on july 2,1997 the baht was detached from the dollar.

• Thailand's central bank then attempted to maintain baht value by

intervention

• supply of baht exceeded us demand for baht.

• value declined more than 20% against the dollar.

Damage to Thailand
• Central bank spent $20 billion baht in the foreign exchange market as
part of direct intervention.

• Corporations in thailand borrowed funds form other countries

• Increase cost of borrowing

Rescue package for thailand
• On August 5,1997 IMF and other countries provided $16billion rescue
package

• Thailand agrred to reduce its budget deficit,prevent inflation from

rising above 9%,raise its value added tax from 7% to 10%