Economic Crisis and Thai Economic Security

On July 2, 1997, Thailand experienced an economic shock that impacted a number of distant countries. As Gerald Fry put it, "The decision by the Thai government to float the Thai baht caused a freefall in the value of the currency and the stock market," creating a situation in which the baht lost about half its value in a short period of time and in which Thai foreign exchange reserves (with the baht tied or pegged to the U.S. dollar) rapidly disappeared. The crisis spread to other Asian countries (e.g., South Korea, Indonesia, Malaysia, and the Philippines), and then further spread to Brazil, Turkey and Russia.

Accompanying the economic crisis were deep concerns regarding Thailand's continued economic security and its vulnerability to further economic malfunctions. The purpose of this essay is to examine the crisis of the 1990s, its causes and effects, and the relationship between economic and national security. As Walden Bello, Shea Cunningham and Li Kheng Poh have suggested, the crisis left Thailand essentially bankrupt, saddled with a massive foreign debt of US$89 billion, and therefore vulnerable to other socio-political effects.

Fry also noted that when national economies collapse, national security is invariably impacted.

Between 1990 and 1993 Thailand "opened up its capital account, removing most restrictions on the inflow and outflow of money. The funds immediately poured in." The economy quickly became distorted with

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. At the same time, with enormous inflows of capital continuing, the country reduced its controls on foreign exchange and capital flows and experienced strong pressures from deregulation and liberalization from the World Bank, the International Monetary Fund, and foreign financial institutions such as U.S. banks. All of these factors, in the view of Chris Leahy, combined in 1997 to create a situation in which as the value of the dollar rose, the value of the baht declined. Nevertheless, multiple factors created the crisis and exacerbated its effects. Fry identified these causes as: 1) the liberalization of Thai markets in the late 1980s; 2) heavy borrowing abroad by the private sector in Thailand and investment in the local economy; 3) a staggering foreign debt despite the stability of the baht; 4) investment activities that did not generate foreign exchange and which included speculation and nonperforming loans; and 5) capital liberalization rendering the Thai economy increasingly vulnerable to external influences and factors. Impact of the Crisis on Economic and National Security There were any number of ill effects resulting from the Thai economic crisis and the devaluation of the baht in 1997. Among these was a bu

Category: Economics - E