Thailand Financial Crisis

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Factors of Thailand financial crisis The financial crisis in Thailand are caused by some factors. These factors can be scaled down to four main factors. It is the weakness in domestic macro-economic fundamentals, weakness in thefinancial system, speculation attacks and the floation of Baht, and political institution and the crisis. As we all know, before the crisis started, Thailand had had persistent current account deficit ranging from -5.08 to -8.10 of GDP lowest among the other nations for most of the time. For information current account deficit is a condition when a country's total imports of goods, services and transfers is greater than the country's total export of goods, services and transfers. So, this mean that at that time, Thailand is one of the strong economic nation if compared to the other nations. The main reason of current account deficit is the real appreciation of Thailand Baht and a large increase in real wage. Pomerleano (1998) argue this was not surprising as Thailand was the country with the shakiest macro-economic fundamentals toward the end of 1996. Among the manifestations of weakness were large external deficits, increasing short-term foreign indebtedness and the fragile conditions of banks due to an accumulation of bad loans. The second factors is weakness in the financial system. As we can see, structure of the financial system in Thailand is the financial system act as intermediaries for channeling foreign capital into its domestic economy. Thailand implies the asymmetric information where the information is not equally available to everyone. Asymmetric information results because efficient information search inevitably stops short of compete information. Some people obtain more benefits from information than others, are willing to incur higher search costs, and thus end up knowing more. Or they incur lower information

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