THE COLLAPSE OF THE

THAI BAHT 1997

PRESENTED BY:
AWAIS AHMED
VICKY PANDITA
VIDIT SINGH RAI
ASHVANI KUMAR
 EAST ASIAN MIRACLE
• Thailand was one of the Asia’s most dynamic
tiger economies.
• Achieved an annual average growth rate of
8.4% during 1985-1995.
• Maintained annual inflation rate at 5%.
• While the growth rate of U.S was 1.3% and
inflation rate was 3.2%
 BOOM IN REAL-ESTATE
• Exports was the main factor for the economic
growth of Thailand.
• Value of the exports grew by 16% per year
compounded.
• Wealth created by exports fueled investment
in residential and commercial property.
• Increased demand soared the value of real
estate in Bangkok.
 HEAVY BORROWINGS
• Construction started in such a way which was
never seen in Thailand before.
• Heavy borrowings from bank financed much
of this construction.
• As the value of property continued to rise, the
banks were happily lending to property
companies.
 EXCESS OF SUPPLY
• By early 1997 the boom had produced the
excess capacity in residential and commercial
property.
• An estimated 365,000 apartments were
unoccupied in Bangkok with another 100,000
units scheduled to be completed till the end of
1997
• This property market has been replaced by
excess supply.
 DEFICIT
• To build infrastructure Thailand was
purchasing from America, Japan and Europe.
• Despite of strong export growth, imports grew
faster.
• By 1995 Thailand was running a current
account deficit equivalent to 8.1%.
BREAK DOWN OF FINANCIAL INSTITUTIONS

• Somprasong Land , a Thai property developer

failed to make a $3.1 million interest payment
on $80 billion Eurobond loan.
• Country’s largest financial institution
FINANCE ONE was also on a brink of default.
• FINANCE ONE borrowed in U.S dollars and lent
in Thai baht at increased rates.
 FINANCE ONE
• Thai property developers were not able to pay
back the cash they had to FINANCE ONE.
• This made it difficult for FINANCE ONE to pay
back its creditors.
• Its trading in the shares was suspended and was
acquired by a small Thai bank.
• When the trading of FINANCE ONE resumed the
value of shares fell 70% in a single day.
• Finally it was bankrupt.
 DEVALUATION OF BAHT
• For last 13 years the Thai BAHT had been
pegged to U.S dollar at an exchange rate of
$1= bt25.
• Now this peg had become increasingly difficult
to defend.
• Speculators started selling BAHT short to
profit from a future decline in the value of
BAHT against the dollar.
 ATTEMPT TO DEFEND
• Thai govt. used its foreign exchange to purchase BAHT.
• Spend $5 billion to defend the BAHT which reduced its
foreign exchange reserves to a two year low of $33
billion.
• Allowed the BAHT to float freely against the dollar.
• BAHT immediately lost 18% of its value. Now it was 1$
= 55bt.
• This made more bankruptcies and further pushed
down the battered THAI stock market.