Thailand's Crisis
Follow-up on the IMF programme, bank restructuring and who paid for it.
Summary
This is Pasuk and Baker's fuller treatment of the 1997 Thai financial crisis and its aftermath, published three years after the collapse when the consequences were visible.
The analysis covers the build-up in detail: the capital account liberalisation of the early 1990s, the offshore borrowing channel, the finance company sector that intermediated much of it, the property overbuilding, and the political arrangements that prevented supervisory action against institutions connected to powerful families. The authors are specific about the domestic politics, arguing that the financial system's regulation was captured by the interests it was meant to supervise and that the central bank's defence of the peg, which exhausted reserves through forward commitments, was made without political authorisation being tested.
The aftermath material is what distinguishes this from the earlier book. They cover the IMF programme and its conditions, the closure of finance companies, the forced sale of Thai banks and assets to foreign buyers at distressed prices, the collapse in employment and the return of urban workers to rural households, the social consequences, and the political reaction that produced the 1997 constitution and eventually the rise of Thaksin Shinawatra.
Their argument about the crisis's distributional consequences, that the losses were socialised while the assets were sold cheaply to foreign purchasers, became a central theme in Thai politics for the following decade.
The reference has not verified the specific figures. The book is written from a critical Thai nationalist perspective which readers should recognise, and it is one of the better country-level accounts of an emerging market crisis and its political consequences.
Key takeaways 7
- Financial supervision in Thailand was captured by the interests it was meant to regulate, which prevented action against connected institutions until the system failed.
- The central bank exhausted its reserves defending the peg through forward foreign exchange commitments that were not publicly disclosed.
- The IMF programme's conditions closed finance companies and imposed fiscal contraction, which the authors argue deepened rather than shortened the collapse.
- Distressed Thai assets were sold to foreign purchasers at prices that reflected the crisis rather than the assets, which became a lasting political grievance.
- Losses in the financial system were absorbed by the public while the gains from the preceding boom had accrued privately.
- Urban workers returning to rural households absorbed much of the employment shock, which is a social buffer that industrial economies do not have.
- The crisis produced a political reaction that reshaped Thai politics for a decade and enabled the rise of a populist opposition to the Bangkok establishment.
Who should read it
Investors and analysts studying emerging market crises who want the domestic political and distributional consequences alongside the financial mechanics.
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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