Thailand's Boom and Bust
The definitive account of the bubble and the baht devaluation that started the Asian crisis.
Summary
Pasuk and Baker, the standard authorities on modern Thai political economy, wrote this as an account of Thailand's rapid growth through the late 1980s and 1990s and of the 1997 financial crisis that ended it.
The growth analysis covers the shift from agriculture to export manufacturing, the role of Japanese investment after the 1985 Plaza Accord raised the yen and pushed production offshore, the growth of Bangkok as a metropolitan economy against a rural hinterland that gained far less, the emergence of a domestic business class and its entry into politics, and the property and stock market boom that accompanied the growth.
The crisis analysis identifies the specific mechanisms. The baht's peg to the dollar combined with liberalised capital accounts and the Bangkok International Banking Facility allowed Thai institutions and firms to borrow dollars cheaply and lend in baht, creating a currency and maturity mismatch across the whole financial system. The borrowed funds went substantially into property rather than into tradeable production. When exports slowed and the dollar strengthened, the peg became indefensible, and its collapse converted the mismatch into mass insolvency.
The authors write from a Thai perspective and are critical of both the domestic political economy that produced the borrowing and the IMF programme that followed, which they argue imposed contractionary conditions on a crisis that was not fiscal in origin. The book is a collection of essays and analysis rather than a single narrative, and the reference has not verified all its specific data.
Key takeaways 7
- Thailand's growth came from export manufacturing driven substantially by Japanese investment relocating after the yen appreciated in 1985.
- A dollar peg combined with liberalised capital accounts allowed the financial system to borrow in dollars and lend in baht, creating a currency mismatch across the entire economy.
- Borrowed foreign funds went largely into property rather than into tradeable production, which meant no foreign exchange earnings serviced the foreign debt.
- The Bangkok International Banking Facility, created to make Bangkok a financial centre, became the channel through which the mismatch was built.
- The peg's collapse converted a currency mismatch into mass insolvency instantaneously, because liabilities repriced while assets did not.
- Growth was concentrated in Bangkok and its industrial corridor while rural incomes gained far less, which shaped the subsequent politics.
- The IMF programme imposed fiscal contraction on a crisis whose origin was private sector foreign borrowing, which the authors argue deepened the collapse.
Who should read it
Investors with Southeast Asian exposure who want the mechanics of the 1997 crisis explained from inside the country it started in.
About Pasuk Phongpaichit
Emeritus professor of economics at Chulalongkorn University in Bangkok; writes on Thailand's economy, politics, corruption and inequality.
The Thailand books track one economy through a credit-fuelled boom, the 1997 devaluation and the political conflict that followed, measuring the informal economy and the business-political networks instead of assuming them away. Anyone underwriting Southeast Asian exposure finds here the local mechanics linking capital, patronage and policy.
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