The 1997 Asian Crisis Begins in Thailand

In the mid-1990s Thailand was one of the world's fastest-growing economies, and foreign capital flowed in to finance property, stock market and corporate borrowing. Much of it was short-term and in dollars, borrowed cheaply because the baht was pegged to a basket dominated by the dollar, at about 25 baht per dollar. When export growth slowed, property prices fell and finance companies ran into trouble, speculators bet against the baht.

The Bank of Thailand spent much of its reserves defending the peg, and on July 2, 1997, it gave up and floated the currency. The baht plunged, eventually falling to more than 50 per dollar by early 1998, doubling the local cost of dollar debts. Firms and finance companies collapsed, and Thailand sought IMF help in August. Analysts point to several causes: excessive short-term foreign borrowing, weak bank supervision, a property bubble and a fixed exchange rate that encouraged unhedged dollar debts.