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Thailand's back-on-track economy memorizes crisis 10 years ago |
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15:05, July 02, 2007 |
On Thailand's The Nation newspaper Monday, a huge pictorial gravestone carving with the title of "Haunting Memories of 1997" took up the whole front page.
The names of Bangkok Bank of Commerce, Bangkok Metropolitan Bank, First Bangkok City Bank, Laem Thong Bank and several scores of other financial institutes, were written under the following title as the victims of the financial crisis which shocked the Thai economy and the whole world on July 2, 1997.
"After the baht collapsed on July 2, 1997, the financial systemwent into a tailspin. It created shock waves, leading to the worsteconomic crisis in this country. Fifty-six finance companies went under, dragging along six banks. The country was effectively bankrupt and required an International Monetary Fund bailout," read the epitaph.
Through a decade of painful struggle, Thai economy now seems more healthy, although there is still a little room for a new financial crisis. Anyway, local financial leaders are confident that the whole economy system is now more adamant, more steady andmore insusceptible.
Ten years after its debacle in mismanaging the baht, from a century-long peg to a forced flotation that brought on the infamous and contagious economic crisis in 1997, the Bank of Thailand (BoT) has come full circle. Legal efforts after the 1997 crisis to free the central bank from political interference by amending the Bank of Thailand Act have come to naught.
For the past ten years, the central bank has tried to restore its lost prestige and credibility by codifying its legal independence from the finance ministry. Because BoT governors in the past were answerable to the finance minister, as long as the finance ministry was headed by a like-minded technocrat as opposedto an elected politician, the central bank governor's functional autonomy was assured, even if legal independence was not stipulated.
Recent BoT interest rate cuts in response to blatant governmentpreferences to boost growth are an indication that the central bank's macro-policy autonomy and management has been reversed backto its pre-1997 position.
The new governor of the BoT said recently that the economic reform in several sectors and the more stabilized Thai currency will leave a little room for a financial crisis which battered Thailand a decade ago from occurring again
She said although a new economic crisis such as that of a decade ago, which resulted from speculation and attacks on the baht, still has possibilities to happen, but it will be very slim because of improvements in the economic structure.
Financial institutions have focused more on quality rather thanon collateral before extending credit, as they had learned a lesson from the 1997 financial crisis that the value of land placed as collateral could itself retreat, she said.
Also, financial institutions are now concentrating more on business survival of projects seeking loans, she said, adding thatthere are small chances of a foreign exchange crisis from occurring now.
"The financial crisis in 1997 erupted because the baht was thenfixed (against the U.S. dollar) which was not realistic and did not represent the true picture of our economic fundamental," said the BoT chief. "Now that the currency exchange system is changed to the float system and the value is changed according to the market mechanism, the BoT only intervenes when the baht is too strong."
However, after last year's military coup, speculations on another financial crisis reappeared as a number of potential and existing investors have reportedly curtailed investment on concerns that Thailand's economy is becoming something of a bubble.
But the prime minister Surayud Chulanont believed that Thailandwon't repeat the financial crisis of a decade ago since the country now has high foreign-currency reserves and strong economicfundamentals.
The country's foreign-exchange reserves, which include assets and gold stocks, amounted to 72.2 billion U.S. dollars as of June 22. Meanwhile, The central bank reported the nation posted a current account surplus of 246 million U.S. dollars in May, compared with a revised 125 million U.S. dollars deficit in April,due to a surge in exports.
During Surayud's weekly national TV speech Saturday, he reiterated his forecast that the economy may grow as much as 4.5 percent this year after it expanded 4.3 percent in the first quarter, "which was quite satisfactory."
"Exports will continue to be the main driver of our economy this year," he said. "The stability of the baht currency plus economic expansion and increased investment proves that our economy would not retreat or become like a bubble. The country's economy remains strong," he added.
Source: Xinhua
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