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The Collapse of the Thai Baht in 1997 & Korean Won Collapse

In: Business and Management

Submitted By hamim
Words 898
Pages 4
The following figure illustrates, the excessive capital inflows united to form a vicious cycle leading to increased instability:

Figure: Capital Inflows, Lending Increases, and Weaknesses

Boom In Real Estate

• Exports were the main factor for the economic growth of Thailand.
• Value of the exports grew by 16%per year compounded.
• Wealth created by exports fueled investment in residential and commercial property.
• Increased demand soared the value of real estate in Bangkok.

Heavy Borrowings

• Construction started in such a way which was never seen in Thailand before.
• Heavy borrowings from bank financed much of this construction.
• As the value of property continued to rise, the banks were happily lending to property companies.

Excess Of Supply

• By early 1997 the boom had produced the excess capacity in residential and commercial property.
• An estimated 365,000 apartments were unoccupied in Bangkok with another 100,000units scheduled to be completed till the end of 1997.
• This property market has been replaced by excess supply.

Deficit

• To build infrastructure Thailand was purchasing from America, Japan and Europe.
• Despite of strong export growth, imports grew faster.
• By 1995 Thailand was running a current account deficit equivalent to 8.1%

Breakdown of Financial Institutions
• SomprasongLand, a Thai property developer failed to make a $3.1 million interest payment on $80 million Eurobond loan.
• Country’s largest financial institution FINANCEONE was also on a brink of default.
• FINANCEONE borrowed in U.S dollars and lent in Thai baht at increased rates.

Finance One

• Thai property developers were not able to pay back the cash they had to FINANCEONE.
• This made it difficult for FINANCEONE to pay back its creditors.
• Its trading in the shares was

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