RECENT CURRENCY CRISIS IN SOUTHEAST ASIA : A CASE STUDY OF THAILAND

Abstract

First we heard the good news: Southeast Asia's economic success had prompted the World Bank to label it a miracle. Annual GDP growth in the ASEAN-5 (Thailand, Indonesia, Malaysia, the Philippines and Singapore) averaged close to 8% over the last decade. The share of developing and emerging market economies of Asia in world exports has nearly doubled to almost one fifth of the total. This record growth and strong trade performance is unprecedented, a remarkable historical achievement. Then we heard the bad news: the currency crisis erupted in Thailand on July 2, 1997. Contagion to other economies in the region appeared relentless. The Thai baht fell by more than 50%, in value against the US dollar while the Philippine peso dropped almost 40%. The Indonesian rupiah, worst hit of all, plunged by 100% in value against the greenback. Even "stronger" economies like Singapore and Malaysia were not spared. I suppose it is only human nature to start finger-pointing whenever things go wrong. So far, nominees for the accused include - governments of the afflicted economies (for ignoring warning signals), the IMF (for the failure of the currency surveillance mechanism) and investors (for overreacting). But who should be found guilty? This thesis is an attempt to answer FAQs (Frequently Asked Questions) regarding the Southeast Asian currency crises. Are these crises merely offsprings of the previous ERM crisis and Peso crisis, or are they mutants'? Did the alarm bell really go off, or have we been deafened by the applause? Are the defendants guilty or not guilty? Is there an antidote for the poisoned economies? Will the discharged economies fully recover, or are there side effects? I hope I have said enough to kindle your interest in finding out more about the recent crises. Without further ado, I now lift the mysterious veil of the Southeast Asian crises.