| Thai Financial Crisis 1997 | |||
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The financial crisis in Thailand has unfolded after many years of outstanding economic performance. The causes of the Thai financial crisis were created by several factors such as the burst of bubble economy, the financial liberalisation policy, the fixed exchange rate, the high domestic interest rate policy, the ignorance of control and investigation in financial institutions, the structural and managerial erosion of finance and securities, the economic recession, and the political limitation and decision making process. These factor details are as follows. First, the bubble economy has begun in the real estate market after 1985 and in the stock market after 1987. This cause leads to the financial instituted problems because the asset pricing is greater than its productivity. Hence, the financial institutions can lend to the asset owners more than the productivity. When the bubble economy burst, the borrowers cannot pay their borrowing back. As a result, the financial institutions faced non-performance loan (NPL) problem. Moreover, Thai purchasing power degenerated and led to the decline of national income. Second, the Bank of Thailand started the financial liberalisation policy in 1990 which is an appropriate period. This is because Thai economy has stability and high growth rate. From this reason the policy seem to be correct. Afterwards, the Bank of Thailand accelerated to use the Bangkok international Banking facilities (BIBF) policy in 1993, but ignored the sequencing; therefore, the decision and the management mechanism loose, and the lack of tools policy. The financial crisis appeared not only cannot solved the problems but also duplicate the situation even worse. Third, the Bank of Thailand proceeded the fixed exchange rate system and the financial liberalisation policy which cannot be carry out together, but the Bank of Thailand needed to make a certainty for international businesses and remained low inflation rate. Eventually, the problems happened with Thai international reserve because of these two policies. Forth, the high domestic interest rate policy has been used because the Bank of Thailand needed to accumulate the international reserve to get rid of the excess demand for dollars in the foreign exchange market by attracted international investors transfer foreign capital to Thailand. Most of the capital mobility at that time has been invested in the security market and the real estate market. Afterwards, there is oversupply in real estate market which has an asymmetric information problem. Fifth, the basic idea of financial institutions cannot be bankrupt led to the ignored control and investigation of the financial institutions. This idea seemed to be promoting the stability of financial institutions, but there are a lot of risk-lover executive which still produce instability problems in the basic step. Sixth, the structural and managerial erosion of financial and securities due to the Thai economy has been growth since 1987, the finance and securities expanded according to economic system and the bubble economy situation. At that period, there are a lot of new branch of finance and securities. This is a cause of lack and inexperience of executive management. Therefore, the adverse selection problems appear by the risk-lover of new executive management. Seventh, the economic recession has started since 1996 which duplicate the financial crisis. In addition, the economic recession decreased the payable of borrowers due to the reduction of revenue and profit. Moreover, the economic recession affected the value of asset which used for the guarantee credit. Furthermore, the economic recession made the international financial institutions reduced the confidence about the loan payable of Thai economic system. Eight, some economic stable problems such as inflation and unemployment are the political agenda because people who are in trouble may act as complainant force to solve the problem, but some problems such as the trade the balance deficit, the current account deficit, and the international balance of payment deficit are not the political agenda because nobody suffers from these problems. Therefore, there is not any complainant force to solving the problems. At that moment, the political leaders try to gain economic rent from the policy decision process. So, the political limitation and decision making process are among the most important influence factors. Thai financial crisis in 1996 is the most severe in Thai economy after the Second World War. These factors have been disclosed and are able to categorise into three groups as follows. The first group is the macroeconomic mismanagement which is the cause of the bubble economy growth, using of the financial liberalisation by unchanging the controlling and investigation of financial institutions, organising the tools policy for any new situation, the fixed exchange rate system, and the high domestic interest rate policy. These are not only worse for economic prosperity but also repeating the economic recessions. The second group is the structural and managerial of finance and securities. On the one hand, the structure of staff comprises of risk-lover investors. On the other hand, the financial management which is not rigid in risk analysis of project, the less of strict in revising credit and reducing value of asset that use for guarantee credit, and concealing of non performance loan (NPL). The third group is the basic philosophy and the control and invested mechanisms of the financial institutions, the idea of the financial institutions cannot bankrupt, the unchanged mechanism of ruling the controlling and investigation of the financial institutions beneath the new financial liberalisation, the less of development and improve efficiency of investigation, and the ignorance of using authority to solve the problems when a few financial institutions obtained the problems of instability. |
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| Author: Mr Aphisit Aphiphunya |
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