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Financial Crises In Thailand

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Title: Financial Crises In Thailand Author: Sevak Paramazian Last modified by: Ramon Castillo Created Date: 3/3/2010 8:24:57 AM Document presentation format – PowerPoint PPT presentation

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Title: Financial Crises In Thailand


1
Financial Crises In Thailand
  • Presented by
  • Paramazyan, Savak
  • Miu, Paul

2
Outline
  • Introduction
  • Overview
  • Causes of Thai Financial Crises
  • Impacts of the Crises
  • Recovery Strategies
  • Present Situation
  • Conclusion

3
Introduction
4
Introduction Kingdom of Thailand
A unified Thai kingdom was established in the
mid-14th century. Known as Siam until 1939,
Thailand is the only Southeast Asian country
never to have been taken over by a European power.
five horizontal bands of red, white, blue, white,
and red
5
Thailand
  • Current President Chai Chidchob
  • Area
  • total 513,120 sq km
  • land 510,890 sq km
  • water 2,230 sq km
  • Population
  • 66 million

6
Thailand
  • GDP
  • 539.7 billion
  • GDP - real growth rate
  • -2.8 (2009 est.)
  • GDP - composition by sector
  • Agriculture 12.3
  • Industriel 44
  • Services 43.7
  • Labor force
  • 38.24 million
  • Labor force - by occupation
  • Agriculture 42.4
  • Industriel 19.7
  • Services 37.9
  • Unemployment rate
  • 1.6
  • Inflation rate (consumer prices)
  • -0.9

7
Thai Financial Crises Overview
8
Thai Financial Crises Overview
May, 1997 Foreign speculators attack the baht. Thailand spends 90 of foreign reserves to defend the baht against speculative attack.
July 2, 1997 Thailand changes its exchange rate system from fixed exchange rate to managed-floated. At the same time, the Thai government also requests "technical assistance" from the IMF.
Aug. 5, 1997 Thailand receives a 17 billion loan from the IMF and agrees to adopt tough economic measures in return.
9
Thai Financial Crises Overview
Dec. 8, 1997 56 insolvent finance companies and one commercial bank are closed. The remaining financial institutions suffer from financial panic.
Dec 31, 1997 The index of Thailands stock market (The SET), ultimately declines from 787 in January 1997 to a low of 337 in December of that year. Thai economy turns into recession.
1997-1998 Thai crisis spreads quickly from Thailand to other countries in the region including Malaysia, Indonesia, Philippines , South Korea and Japan.
10
Thai Financial Crises Causes of Thai Financial
Crises
11
Thai Financial Crises Causes
  • Since early 1990s, Thai economy had attracted
    massive volumes of capital inflow from aboard due
    to
  • Its accommodating economic policies
  • Healthy-looking conditions
  • The recession of European Economy
  • The stagflation of Japanese economy

12
Thai Financial Crises Causes
  • The obvious causes that are broadly discussed
  • Weaknesses in domestic macro-economic
    fundamentals
  • Weakness in the Financial System
  • Financial liberalization and the volatile
    international capital flows
  • Speculative Attacks and the Floatation of Baht
  • Unstable political and social institutions

13
Thai Financial Crises Impacts of the Crises
14
Thai Financial Crises Impacts
  • Highly depreciated baht because the lack of
    confidence in Thai economy

15
Thai Financial Crises Impacts
  • Massive increase in external debt burden due to
    high dependency on foreign capital and deeply
    depreciated baht.

16
Thai Financial Crises Impacts
Stock Market crisis Portfolio investment drawn
out, stock market crash Economic recessions
1996 1997 1998 1999
Real GDP Growth 5.9 -1.4 -10.3 4.4
GDP (bln) 182 151 112 123
Per capita GDP 6741 6580 5817 6094
Unemployment 3.5 3.2 7.3 6.2
Export 56.0 58.4 54.5 58.5
Import 72.2 63.3 42.4 49.9
Current Acct. Balance -6.2 -4.9 2.1 8.6
17
Thai Financial Crises Impacts In other Asian
countries
The Asian Crisis
  • Depreciation of exchange rates
  • Financial institution crises
  • Stock markets collapses
  • Economic recessions
  • Political instabilities

18
Thai Financial Crises Why Thai financial crisis
becomes Asian Crisis
  • International investors lack of confidence as
    they think that similar problems (chronic current
    account deficit and weak financial system) will
    also occur in other countries such as Malaysia,
    Indonesia, Philippines and South Korea.
  • For other countries with better financial
    structure such as Japan, Hong Kong and Singapore,
    they suffer because of contagious effects.

19
Thai Financial Crises Impacts In other Asian
countries
20
Thai Financial Crises Recovery Strategies
21
Thai Financial Crises Recovery
  • IMF Assistance to Thailand During the Crises
  • Financial Support
  • IMF support USD 4 Billion
  • Bilateral and Multilateral Support
  • USD 13.2 Billion
  • Total USD 17.2 Billion

22
Thai Financial Crises Recovery IMF INTERVENSION
  • adopt new exchange rate policy to be managed
    float
  • implement the contractionary monetary policies
  • Increase domestic interest rate
  • This aimed to
  • stabilize the exchange rate
  • high rate of rollover the short-term foreign debt

23
Thai Financial Crises Recovery IMF INTERVENSION
  • Stop further capital outflows as well as regain
    the market confidence during the shock
  • turn around the foreign reserve position
  • Financial Sector Restructuring
  • This policy aimed to strengthen the banking
    system by closing possible loopholes on
    facilitating new credits by hurting as least
    people as possible

24
Thai Financial Crises Recovery
  • Results
  • Tight Fiscal Policies
  • no fiscal stimulus on social safety net
  • arguments on privatization
  • time and administrative lag on fiscal policies
  • Tight Monetary Policies
  • unable to stop capital outflows due to lack of
    confidence
  • should aim more to control domestic

25
Thai Financial Crises Present
26
Thai Financial Crises Present
After 1999 The rapid spread of the Asian crisis
and chronic recession bringing a larger than
expected depreciation of the Baht, a sharp
economic downturn and adverse regional economic
developmentswarranted revisions to the Thai
program. The revisions were undertaken through a
series of program reviews conducted in close
consultation with the Thai authorities.
27
Thai Financial Crises Present
  • Current Situation
  • In July 2003, Thailand repaid its final US1.51bn
    batch of outstanding debts from US17.2bn IMF
    bailout package. The repayment came two years
    ahead of schedule.
  • Real GDP growth reached a strong 6.7 in 2003,
    leaded by domestic consumption and export.
  • Expansionary economic policy, coupled with the
    expected upturn in the global economy, are
    expected to drive growth higher in 2004 to an
    average of 7.7.

28
Thai Financial Crises CURRENT GDP
29
Thai Financial Crises Present
  • Current Situation
  • The economy is slowed down to a still respectable
    4.9 in 2005, owing to some upward movement in
    interest rates and rising concern about the
    governments off-budge liabilities.
  • Household consumption is currently at an all-time
    high as a results of high levels of consumer
    confidence.
  • Investment growth is recovering, primarily in the
    form of property development.
  • Export growth will rise, but import growth is
    expected to grow at a faster pace.

30
Thai Financial Crises Conclusion
31
Thai Financial Crises Conclusion
With a well-developed infrastructure, a
free-enterprise economy, generally pro-investment
policies, and strong export industries, Thailand
enjoyed solid growth from 2000 to 2008 -
averaging more than 4 per year - as it recovered
from the Asian financial crisis of 1997-98. Thai
exports - mostly machinery and electronic
components, agricultural commodities, and jewelry
- continue to drive the economy, accounting for
as much as three-quarters of GDP. The global
financial crisis of 2008-09 severely cut
Thailand's exports, with most sectors
experiencing double-digit drops. In 2009, the
economy contracted about 2.8. The Thai
government is focusing on financing domestic
infrastructure projects and stimulus programs to
revive the economy, as external trade is still
recovering and persistent internal political
tension and investment disputes threaten to
damage the investment climate
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