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Thailand Financial Crisis

วิกฤติการณ์เศรษฐกิจไทย. Thailand Financial Crisis. What’s Thai Crisis?. December 1997, Thai Financial Panic Thai stock market crashed – Recession The crisis spread quickly to other countries and became “Asian Crisis”. Recession of the stock market. Before the Crisis (the early 1990s).

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Thailand Financial Crisis

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  1. วิกฤติการณ์เศรษฐกิจไทยวิกฤติการณ์เศรษฐกิจไทย Thailand Financial Crisis

  2. What’s Thai Crisis? • December 1997, Thai Financial Panic • Thai stock market crashed – Recession • The crisis spread quickly to other countries and became “Asian Crisis”

  3. Recession of the stock market

  4. Before the Crisis(the early 1990s) • Large capital inflow from abroad due to its economic policy • Financial center of Southeast Asia • Bangkok International Banking Facility (BIBF) • Growth rate of GDP and Export

  5. Macroeconomic Indicators Before crisis

  6. Beginning of the Crisis • Chronic high current account deficit & Inflated property and stock market value • Rumors about: • Thai currency devaluation & looming problems in the financial sector (Dec. 1996) • A change in the exchange rate system (Feb.1997)

  7. Problems with the Macro Economic policy • Peg currency policy • Adverse to be a free financial market • Little control over the Baht currency • Implicitly guaranteed the Baht currency value • People borrow money from abroad (short-term) and invest in Thai market through “BIBF” • Government had to keep Investor’s confidence high

  8. Capitol flows trend

  9. Effects of Economic policy on Financial Institutions • Money Supply beyond Demand • Could not compete • Decreased creditworthiness • Invested in real estate and construction • Real Estate price bubble

  10. Market Creditworthiness

  11. Weak Political Regime • No strict policy to control financial institutions • Lack of information and transparency to assesses investor’s risk

  12. Attack of Foreign Speculators • In May 1997, foreign speculators attack the baht. • Thailand spent 90% of foreign reserves to defend

  13. Recovery Policies • Peg policy reevaluated • Peg Policy Abandoned (July 2, 1997) • Assistance from IMF • US$17.2 billion (Aug 20. 1997) • Policy package

  14. Macroeconomic Indicators After crisis

  15. The Aftermath • In July 2003, Thailand paid $1.5B to the IMF which paid off its loan 2 years early. • At the moment, real GDP growth reached a strong 6.7%, lead by domestic consumption and exports. (5% in 2006) • Investment growth is recovering, mostly in Real Estate Property development. • The current account changed from a deficit to a sizeable surplus.

  16. Micro View • Failure of the financial sector • Greedy investor in the real estate sector (Bubble Economy) • Aftermath effect

  17. Failure of the financial sectors • Financial system in Thailand • 95 % of financial market is provided by bank and financial institution • Only 5% of capital market • Mistaken of corporate policy of financial sector • Short term loan from foreign and borrow to the high risk business sector • Loosen policy and connection policy drive to non standard controlling

  18. Loans details

  19. Greedy investor in the real estate sector • Most investor invest in the real estate sector and even agriculture, which is the main real sector of Thailand, switch to invest in the real sector

  20. Business sector growth Source : Bank of Thailand 2006

  21. Greedy investor in the real estate sector • New property development is sharply rising up compared to household growth causing supply over demand Source: Bank of Thailand 2005

  22. Greedy investor in the real estate sector • Property prices are risen up dramatically. Invested money is injected to the real estate causing the bubble economy Source: Bank of Thailand2005

  23. Aftermath effect • High NPL due to the collapse of Bath and the economic recession

  24. Aftermath effect • Financial sector go bankruptcy and take over by foreigner (Financial restructuring)

  25. Aftermath effect • Real estate sector NPL still become high and can’t be reduced much until now (NPL detail graph)

  26. Aftermath effect • Stock market collapse due to the diminishing of the property market

  27. Suggestion • Government • Strong monitory system, and adequate supervision due to the premature of the Thai market during the financial liberalization • Lending money policy • Speculative action monitoring • Loan discipline • Macroeconomic management • Dynamic policy against the rapid change of the market • Fixed exchange rate policy • Short term loan restriction policy • Monetary policy

  28. Suggestion • Financial sector • Standardize loan policy • Reserve enough fund against the loan money • Credit and Loan investigation

  29. Q & A Q & A

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