THAILAND IN THE 1990s: THE 1992 DEMONSTRATIONS, SHORT-LIVED LEADERS AND THE 1997 ASIAN FINANCIAL CRISIS

THAILAND IN THE 1990s

In February 1991, the government of Gen. Chatichai was ousted in a bloodless coup lead by Gen. Suchinda Kraprayoon, who assumed power as head of the National Peacekeeping Council. Gen. Suchinda refused to vacate the prime minister’s chair despite elections.

Joe Cummings wrote in the Lonely Planet guide for Thailand: “Although it was Thailand’s 19th attempted coup and one of 10 successful coups since 1932, it was only the second coup to overthrow a democratically elected civilian government. The NPKC abolished the 1978 constitution and dissolved the parliament, charging Chatichai’s civilian government with corruption and vote buying. Rights of public assembly were curtailed but the press was only closed down for one day. [Source: Joe Cummings, Lonely Planet guide for Thailand]

“Following the coup, the NPKC appointed a handpicked civilian prime minister, Anand Panyarachun, former ambassador to the USA, Germany, Canada and the UN, to dispel public fears that the junta was planning a return to 100 percent military rule. Anand claimed to be his own man, but like his predecessors – elected or not – he was allowed the freedom to make his own decisions only insofar as they didn’t affect the military. In spite of obvious constraints, many observers felt Anand’s temporary premiership and cabinet were the best Thailand has ever had, either before or since. [Ibid]

“In December 1991 Thailand’s national assembly passed a new constitution that guaranteed a NPKC-biased parliament – 270 appointed senators in the upper house stacked against 360 elected representatives. Under this constitution, regardless of who was chosen as the next prime minister or which political parties filled the lower house, the government would remain largely in the hands of the military. A general election in March 1992 ushered in a five-party coalition government with Narong Wongwan, whose Samakkhitham (Justice Unity) Party received the most votes, as premier. But amid US allegations that Narong was involved in Thailand’s drug trade, the military exercised its constitutional prerogative and replaced Narong with (surprise, surprise) General Suchinda in April 1992.

Pro-Democracy Protests in Thailand in May 1992

In May 1992, Cummings wrote, “several huge demonstrations demanding Suchinda’s resignation – led by the charismatic Bangkok governor, Chamlong Srimuang – rocked Bangkok and larger provincial capitals. Chamlong won the 1992 Magsaysay Award (a humanitarian service award issued by a foundation in the Philippines) for his role in galvanising the public to reject Suchinda.

Middle-class protesters called for reforms in the military dominated government and demanded the military government give back power to the prime minister. The protesters defied the government and clashed in the streets of Bangkok with soldiers, police and right-wing vigilante groups near Bangkok’s Democracy Monument. Soldiers open fire on the demonstrators. A group of right wing extremists called the “third hand” heightened the political violence by going around smashing up places and burning down the government lottery bureau.

At least 52 students and civilians were killed by the army and hundreds were injured in the 1992 “Bloody May” crackdown. Some say many hundreds were killed. The exact number will probably never be known because victims were quickly tossed into military vehicles and never seen again. The government thus far has refused to release a 600-page secret report on the incident.

The riots ended hours after soldiers opened fire when King Bhumibol invited the Prime Minister and the leader of the democracy movement to a meeting in his palace. The televised meeting showed Gen Suchinda, the prime minister, a former army general, prostrating himself and approaching the king by crawling on his knees. The king told political leaders "to desist from confrontation and to embrace conciliation." Afterwards the violence ended and Gen Suchinda resigned in disgrace, having been premier for less than six weeks. The crackdown made the military very unpopular and gave democracy a big push. .

Restoration of Democracy in Thailand

The pro-democracy movement, with strong support from the Thai middle class, pushed military back into their barracks, and led to elections. In March 1992, with a new constitution in force and new elections held, General Suchinda Kraprayoon, one of the February 1991 coup leaders, became prime minister and leader of a five-party coalition. When those parties withdrew their support, Suchinda resigned in May 1992, and Anand Panyarachun, a civilian who had served as acting prime minister between March 1991 and March 1992, was named prime minister. Anand embarked on new reform measures. He won praise for his fair and efficient administration but was forced to step down—as he was only a temporary fill in—to make way new elections.

General elections were held in Thailand on March 22, 1992, the first after the National Peace Keeping Council overthrew the elected government of Chatichai Choonhavan in a coup on 23 February 1991. A total of 15 parties and 2,185 candidates contested the 360 seats, three more than previous election. The result was a victory for the Samakkee Dhamma, which won 79 seats, despite receiving fewer votes than the New Aspiration Party. A total of 19,216,466 votes were cast. Voter turnout was 59.2 percent. [Source: Wikipedia]

Results of the 1992 election (percent of popular vote, seats, +/- seats): 1) New Aspiration Party (22.4 percent, 72 seats, new); 2) Justice Unity Party (19.3 percent, 79 seats, new): 3) Thai Nation Party (16.4 percent, 74 seats, -13 seats); 4) Palang Dharma Party (11.5 percent , 41 seats, +35 seats); 5) Democrat Party (10.6 percent, 44 seats), -4 seats); 6) Social Action Party (8.1 percent , 31 seats, -23 seats); 7) Thai Citizen Party (5.1 percent, 7 seats, -24 seats); 8) Solidarity Party (3.0 percent, 6 seats, new): 9) Mass Party (1.0 percent), 1 seat, -4); 12) Thai People Party (0.4 percent, 1 seat, -16 seats). Before the 2001, general elections were based on multi-seat constituencies. Since then they have been one person one vote. [Ibid]

The Democratic Party formed a coalition even though it placed fifth in the popular vote and forth in seats won. Chuan Leekpai, head of the Democratic Party, served as prime minister from September 1992 to July 1995. The Chuan government made a number of democratic reforms, including enlarging the House of Representatives, reducing the size of the appointed Senate, lowering the voting age from 20 to 18 years of age, guaranteeing equality for women, and establishing an administrative court. On the economic front Chuan was accused of creating the situation that led to the economic crisis in 1997. Also See Return of Chuan Leekpai below.

Banharn Silpa-archa

In January 1995, the Thai Nation Party (Phak Chat Thai) won the largest number of seats in parliamentary elections, and its leader, Banharn Silapa-Archa, headed the new coalition government. In March 1996, Banharn appointed the members of the new Senate; unlike earlier Senates, most members were civilians instead of military officers.

Banharn Silpa-archa served as Prime Minister July 1995 until 1996. The son of Chinese immigrant parents, he made a fortune with his chemical and construction companies. One Thai scholar told Time, "He's paid his dues, risen through the system, taken his party away from its founders and himself to what he is today."

Banharn was old style political boss who was known as a "walking ATM" because of the way he handed out political favors. During his campaign large sums of money were distributed among regional and local party bosses, who in turn handed the money to voters. Bridges, schools, roads, hospitals, a garden, a park and even a temple were named after him and his wife Chaemasai for his ability to bring services to his constituents. Banharn was also known as the "Chinese hick" and "Little Big Man" (he was barley five feet tall, 1.5 meters).

Banharn was the head of the Chart Thai (Thai Nation) party, which won 92 of the 391 seats in the 1995 parliamentary elections. He became the Prime Minister after forging a coalition of six parties that gave him the necessary 216 seat majority. Most the Chart Thai's support was in the countryside. The party didn't win a single seat in Bangkok, home to 10 percent of the country's population. Less than 10 percent of the population wanted Banharn to be Prime Minister. Chuan Leekpai's party won 87 seats and was not part of Banharm's coalition.

In the 1995 campaign Banharn promised to pave every village road in four years and make school free for every child under 15. He told voters, "Banharn can do everything. I can give you everything except the moon and stars." Bur as time went on his "walking ATM" nickname became an epithet for his method of handling problems by simply throwing money at them. After becoming prime minster, Banaharn started taking English lessons.

Banharn was ousted in 1996 by a parliamentary no-confidence vote. Before she was pulled off screen during a live television interview, Banharn’s daughter said, "There are troubles plaguing Dad, and I want my father to retire from politics as soon as possible. I myself am also fed up with..."

Chavalit Yongchaiyudh

The failure of Banharn’s coalition led to new elections and a new six-party coalition government in November 1996 led by General Chavalit Yongchaiyudh, head of the Phak Khwam Wang Mai (New Aspiration Party). Chavalit became the prime minister of Thailand in November, 1996 after an election that was described as one of the dirtiest ever. Some said he bought for the election with $1 billion donated by, in some cases, drug traffickers, oil smugglers, illegal loggers and casino developers.

Chavalit’s New Aspiration Party (NAP) was part of unworkable 16-party coalition. He lasted only 11 months. During that short time he presided over Thailand during the Asian economic crisis in 1997-98.

Chavalit made key economic portfolio appointments to his cabinet, but he failed to implement the austere fiscal policies needed to revive a weak economy. In mid-1997 a major financial crisis ensued, the baht—Thailand’s currency—was devalued, the Central Bank governor resigned, and widespread protests took place. The government announced austerity measures, and the International Monetary Fund (IMF) intervened, but the economy continued to deteriorate.

Asian Financial Crisis in 1997-98

Between June 1997 and January 1998 a financial crisis engulfed some of the fast-growing countries economies of Asia—Thailand, Malaysia, Singapore, Indonesia, Hong Kong, and South Korea—and sent their economies crashing like a shower of meteors. Starting with Thailand, the currency, stock markets and per capita incomes of these countries plummeted one by one. Before the crisis ended 1.1 million Thais fell below the poverty line, and the perplexed and humiliated leader of South Korea left office before his term was up. In Indonesia the rupiah plunged by 86 per cent against the US dollar and 19 million people fell below the poverty line. President Suharto was forced to step down in May 1998, and Jakarta exploded in violence, leaving about 1,200 people dead and 5,000 buildings burnt.

Charles W.L.Hill of the University of Washington wrote: “Over the previous decade the Southeast Asian states of Thailand, Malaysia, Singapore, Indonesia, Hong Kong, and South Korea, had registered some of the most impressive economic growth rates in the world. Their economies had expanded by 6 percent to 9 percent per year. This Asian miracle, however, appeared to come to an abrupt end in late 1997. When the dust started to settle in January 1998 the stock markets in many of these states had lost over 70 percent of their value, their currencies had depreciated against the US dollar by a similar amount, and the once proud leaders of these nations had been forced to go cap in hand to the International Monetary Fund (IMF) to beg for a massive financial assistance.

Janet L. Yellen wrote in Global Economic Viewpoint,“The Asian financial meltdown spread from country to country, there was deep concern about how big the impact would be on the global economy. The markets certainly were jittery. In October 1997, the Dow Jones Industrial Average plunged over 500 points. For the five Asian nations most associated with the crisis — Thailand, South Korea, Indonesia, the Philippines and Malaysia — the toll in both human and economic terms was enormous. In 1998, these countries saw their economies shrink by an average of 7.7 percent and many millions of their people lost their jobs. More broadly, there was concern that the crisis had revealed new sources of risk in the international financial system. [Source: Janet L. Yellen, Global Economic Viewpoint, February 27, 2007]

Book: Asia’s Boom, Bust and Beyond by Mark Clifford and Pete Engardio (Prentice Hall Press, 2000)

Background Behind the Asian Financial Crisis in 1997-98

Charles W.L. Hill of the University of Washington wrote: “The seeds of the 1997-98 Asian financial crisis were sown during the previous decade when these countries were experiencing unprecedented economic growth. Although there were and remain important differences between the individual countries, a number of elements were common too most. Exports had long been the engine of economic growth in these countries. A combination of inexpensive and relatively well educated labor, export oriented economies, falling barriers to international trade, and in some cases such as Malaysia, heavy inward investment by foreign companies, had combined during the previous quarter of a century to transform many Asian states into export powerhouses. Over the 1990-1996 period, for example, the value of exports from Malaysia had grown by 18 percent per year, Thai exports had grown by 16 percent per year, Singapore’s by 15 percent per year, Hong Kong’s by 14 percent per year, and those of South Korea and Indonesia by 12 percent per year. The nature of these exports had also shifted in recent years from basic materials and products such as textiles to complex and increasingly high technology products, such as automobiles, semi-conductors, and consumer electronics.

Janet L. Yellen wrote in Global Economic Viewpoint: “The financial crisis in Asia was in many ways very different from others. For example, earlier in the 1990s, both Mexico and Argentina suffered financial crises, largely stemming from their unsustainably high budget deficits and soaring inflation. By contrast, in most of the affected Asian countries, during the years leading up to the crisis, growth in economic activity was strong, inflation was relatively tame, investment was robust, and, with their budgets in surplus, their fiscal houses appeared to be in order. [Source: Janet L. Yellen, Global Economic Viewpoint, February 27, 2007]

“Indeed, these countries had enjoyed extraordinarily fast growth for decades. As their success grew, the international community encouraged them to open their economies to foreign capital and to liberalize their financial sectors, and there was movement in that direction beginning in the late 1980s. With freer capital markets and fewer distortions in the financial sector, foreign capital flooded in, typically as short-term loans to banks; by 1996, capital inflows had grown to $93 billion. In 1997, it all came to a “sudden stop” in East Asia. Foreign investors not only stopped flooding these countries with capital, but, in fact, reversed course and pulled capital out, in a dramatic way, as $93 billion of inflows became over $12 billion of outflows.” [Ibid]

Reasons for the Asian Financial Crisis in 1997-98

Reasons for the Asian Financial Crisis in 1997-98: included: 1) stiff competition from China on the cheap labor front especially after the Chinese currency was devalued in 1994. 2) Crony relationships between banks, politicians and business. 3) Over optimistic, greedy, wasteful, arrogant policies.

In 1994, China devalued the yuan against the dollar by 33 percent, making Chinese labor considerably cheaper than Southeast Asian labor and making Chinese products considerable cheaper than those in Asia. In 1994 and 1995, the dollar strengthened against the yen and countries that had pegged their currency the dollar began to suffer as companies in search of cheap labor began look to China instead of Southeast Asia. The devaluation of the Chinese currency and the increase in value of the dollar also caused exports in United States to plummet. The cost of imports started to outstrip revenue brought in by exports and "the current accounts deficit rose unhealthy levels." In the case of Thailand overseas debts rose to 43 percent of GNP.

In the 1990s capital markets in Asia were liberalized while supervision of the banks and other financial institutions was woefully inadequate. Many short term loans from abroad found their way into real estate ventures and other speculative endeavors. If the currencies had been floated, their values would have shrunk gradually instead of collapsing.

The giant hedge fund Long-Term Capital Management was blamed for suddenly pulling large amounts of money out of Asia. It and George Soros and was singled out by Malaysian Prime Minister Mahathir bin Mohammed for blame.

“Hot money,” which moves easily across borders and can be quickly withdrawn if investors get spooked, was also blamed. Foreign investors invested heavily to take advantage of construction and industrial booms but got spooked when they saw a glut of factories, shopping malls and luxury apartments. The money quickly evaporated, leaving property valued a fraction of what it was, banks hold billion in bad load and hundreds of thousand of people out of work.

Janadas Devan wrote in The Strait Times: “In the five crisis countries — Indonesia, Malaysia, the Philippines, South Korea and Thailand — foreign borrowing in 1995-1996 reached an annual rate of US$43 billion, with two-thirds having maturity dates of less than a year.According to the International Monetary Fund (IMF), short-term loans to Thailand soared to an astonishing 7-10 per cent of GDP in the three years preceding 1997, while foreign direct investment languished at 1 per cent of GDP.When the crisis hit, these short-term funds disappeared as rapidly as they had materialised. [Janadas Devan, The Strait Times, July 3, 2007]

Janet L. Yellen wrote in Global Economic Viewpoint: There are several views on what happened. The first view is that this was a classic “liquidity” crisis — much like a banking panic, where depositors’ fears about insolvency, well-grounded or not, become a self-fulfilling prophecy as their withdrawals en masse bring the bank to ruin. The second view focuses more on the vulnerabilities that existed in these nations’ economic fundamentals, which threatened to lead to solvency difficulties. One such vulnerability was the pursuit of risky lending practices by financial intermediaries. In part this was due to problems with the quality of supervision and regulation of the financial sector. But the problem also lay with the long tradition of so-called “relationship lending.” Rather than basing lending decisions on sound information about the fundamental economic value of specific investment projects, banks and other financial intermediaries based them on personal, business or governmental connections. As a result, bank loan portfolios became particularly risky. And these risks became grim realities when economic conditions slowed in these countries in early 1997. [Source: Janet L. Yellen, Global Economic Viewpoint, February 27, 2007]

“In spite of the risky lending practices that prevailed before the crisis, foreign investors poured money into these countries at record rates. Their willingness to do so appears to have stemmed in part from a perception that the governments of these nations stood ready to intervene to forestall bank failures. This led to another vulnerability — explicitly or implicitly pegged exchange-rate regimes, which are subject to speculative attacks if the markets perceive that the true value of the currency is misaligned with its pegged value. One explanation for the attacks that drove currency values down in Asia is tied to concerns about possible big government bailouts of the strained banking sector. If foreign investors expected that the bailouts would lead to high fiscal deficits, that expectation, in turn, would raise concerns that the governments might force their central banks to monetize their deficits, resulting in higher inflation and depressed currency values.” [Ibid]

Asian Financial Crisis in 1997-98 and Thailand

In February and March 1997, the Thailand government took out $23 billion in forward contracts (80 percent of which were purchased by speculators) to defend the baht and pay for imports. In May, economist in Thailand realized the forward contracts were undermining the baht and they suddenly canceled them. The speculators responded to these moves by flooding the market with orders to sell baht. The Thai government raised interest rates and tried other tactics to defend the baht but these measures only delayed the inevitable by a few months.

On July 2 1997, the Thai economy melted down after the shock floating of the baht, a move that sent the currency spiraling downward by 30 percent as currency speculators attacked. As one currency speculator late told Time magazine, "We were like wolves on the ridge line looking down on a herd of elk. By culling the weak and infirm, we help maintain the herd." There was talk of a military coup.

The baht went from 25 to the dollar to 50 to the dollar before stabilizing at around 40 to the dollar. The Thai government spent $10 billion of its $38 billion foreign reserves futilely trying to save the Thai currency with the belief the currency would rebound and the loses would be recouped. But the currency didn't recoup and the Thai government needed foreign currency to make $50 billion import and loan payments, which ate into reserves further.

By the end of 1997, the Thai stock market had declined by 41 percent, the currency had depreciated by 56 percent, and percent, Thailand's 15 banks and 91 finance institutions, many holding large non-performing real estate loans, teetered on the edge of solvency. There were worries that the Thai government would default. In the meantime speculators collected on their forward contracts in dollars, not devalued baht, and walk away with an estimated $3 billion in profits.

The effect of the crisis was worse in the cities and on big business. The countryside and mom and pop businesses were relatively untouched. Poor people survived on rice they grew themselves, mangos and mango leaves picked from trees, and fish paste made from fish they caught in the river.

Causes of Asian Financial Crisis in 1997-98 in Thailand

Before the crisis there was a massive borrowing in dollars. Asian banks owed more in dollars than they held in reserves. Most of the debt was short term and financed a spending binge. Money was foolishly invested speculative real estate. Thailand was filled with excess phone lines, petrochemical plants and cement factories. More than $1 billion was spent on the Muang Thing residential and commercial development project.

By 1996, unsold properties around Bangkok began to accumulate and investors worried about defaults began taking their money out of Thailand. As of August 1997, there were 350,000 vacant housing units in Bangkok and many unfinished offices and empty hotels. Many businesses were "sunset industries" in which companies churned out the same products year after year with less profit instead of reinvesting in more modern equipment. Thailand tried to enter the memory chip business against powerful competitors like South Korea and Taiwan. It was hit hard when the price of these chips crashed.

Individuals also amassed debt. People earning $350 a month were charging many time that amount with easy-to-get credit cards and amassing huge debts buying expensive clothes and pure-bred puppies. Interest rates had been higher in Thailand than in the U.S. Because the baht was tied to the dollar many Thais borrowed as many dollars as they could, exchanged them from baht and profited the difference. This worked fine until the baht collapse.

The Thai government wasn’t much help. There were three different administrations between 1993 and 1996. None of them wanted to be the one to rain on Thailand’s parade and take measures to reign in Thailand’s bubble. The Prime Minster in the mid 1990s, Banharn Silpa-archa, was known as the "walking ATM." He emptied the government treasury of $39 billion to prop up the economy and keep companies and banks in business even though they had accumulated massive debts.

The disgraced Thai financier Pin Chakkaphak told the Independent, “In Thailand, the regulations for financial executives and stock trading is very loose. In the old school of Thai cronysim, inside information is everything.... Thailand is a country of pure traders, not builders or people who plan. The attitude was ‘I have a piece of land, I want to be a rich man. If I can get a bank loan I will build a high rise on this land. And the banks were stupid enough to give out the money... Thai corporations were the worst abusers of borrowing funds, and kept putting up more buildings and dealing with nor transparency.”

Businessmen skimmed profits. As they became richer they became more corrupt and skimmed more money. Lack of strong financial institutions and regulatory agencies didn’t help matters. One farmer from the Chiang Mai area told Time, "We should have known better than to put a bunch of monkeys in a cage full of bananas.” Singapore patriarch Lee Kuan Yew said, "Many Thai leaders in the government and opposition have personal interest in the fate of finance companies and banks, hence a natural reluctance to disciple them. So warning signs were ignored and remedies postponed."

Results of Asian Financial Crisis in 1997-98 in Thailand

The Asian Financial Crisis in 1997-98 produced the worst economic slump in Thailand since World War II. The financial sector was left holding $31 billion in bad debts, unemployment increased by 23 percent to 1.3 million people, stocks fell to their lowest levels in recent memory, banks collapsed, construction stopped, offices buildings were empty, hotels lacked guests. There were suicides. Metal health hotlines were opened.

One financial analyst told Time that among foreign investors Thailand went from being the "flavor-of-the-month" to the "stink-of-the-month." In 1998, the economy shrunk by 10.5 percent, 46 percent of all loans were non-performing, and unemployment rose to 8.5 percent (2 million workers). The economy shrunk by 2 percent in 1999 and unemployment rose to 9.5 percent (3 million workers). Large auctions were held for repossessed cars and houses picked up after foreclosures.

Many of Thailand’s biggest corporations went bankrupt. The biggest corporate debt defaulter, Thai Petrocical Industry (TPI), had massed $3.75 billion in debts. The Australian accountant who handled creditors claims on the company traveled around in a bullet-proof Mercedes accompanied by gun-toting bodyguards. One nosy Australian auditor who delved too deeply into the accounts of a trouble bank was gunned on a busy highway in Bangkok. The net worth of the rich Lamsams and Sophoinpaniches families shrunk by 60 percent.

Suicides and Affects of the Asian Financial Crisis on Ordinary Thais

During the "Thai Help Thai" campaign people turned in gold and dollars as part of an effort to get the country out of economic trouble. People hoarded food; mothers told their children to have a big breakfast s there would be less likely be snacks available during the day; hospitals desperate for cash offered discounts on Caesareans births and open heart surgery.

Middle class families than had been planning to send their children abroad to school or buy a beach houses were suddenly broke; yuppies canceled their wedding plans; cars were repossessed at stop lights. Car and motorcycle sales plummeted 30 percent. In 1997, the sales of Mercedes dropped 45 percent. In 1999, only 2,500 were sold. The sale of wine dropped 22 percent.

Worker showed up at the their jobs to find factory doors padlocked shut. Construction workers weren't paid for work they had already done. Many were owed back wages for weeks or months. Increased poverty in the countryside caused rural people to flee to the cities. Burmese laborers hid from police in half-constructed buildings. Some laid off workers turned to prostitution to earn money to help make ends meet. Demonstrators in Bangkok carried signs that read: “Poor people pay off the debt while the evil capitalists sell off the country.”

After the Asian Financial Crisis in 1997-98, the suicide rate in Thailand doubled. Many of the suicide victims were yuppies. Stress levels were particularly high among real estate developers. According to a survey in December 1997, 17 percent of the Bangkok resident's said they contemplated suicide. In another survey 5.8 percent of the people in the real estate business and 2.3 percent of the people in the finance sector seriously contemplated suicide. One health official told AFP, “Many Thais who killed themselves have been facing economic pressure for some time and the flotation of the baht was the last straw."

Some Thais turned to religion for solace. Buddhist monks reported that temple visits tripled. Buddhist leaders led nationwide chants at the Temple of the Emerald Buddha in Bangkok to dispel bad karma and promote positive energy. There was also a an increase in demand for psychological counseling and mental relaxation classes.

The New York Times described one family with a young boy who died because it could no longer afford his medicine. The son had a lung disease that could be treated with medicine that cost $50 a month and was paid for with the help of relatives who worked at construction jobs in Bangkok. After the crisis the cost of the medicine shot up to $120 a month (because of the depreciation of the baht) and relatives lost their job and could no longer help pay for the medicine. [Source: New York Times, June 8, 1998]

Thailand’s IMF Bailout

Thailand received $17.2 billion from the International Monetary Fund (IMF). It was the largest rescue plan since Mexico received $40 billion from the IMF in 1995. The IMF demanded an end to the political patronage system in Thailand and reforms to system that encouraged cronyism and corruption.

Followed IMF rules, the baht stabilized, interest rates were lowered, some financial restructuring was done and services were increased because there were few imports. Thailand was net food exporter, and didn't have to worry about food shortages. Thailand and South Korea followed IMF advise and rebounded much quicker after the Asian financial crisis than countries like Indonesia that did not quickly follow the advice. Thailand paid back its IMF loan two years ahead of schedule.

Asian Financial Crisis Spreads from Thailand to Southeast Asia

The economies of Southeast Asia are closely tied. The melt down in Thailand set off a chain reaction throughout the region. After the currency crashed it in Thailand, it also crashed in Malaysia, the Philippines and Indonesia.

Investors took a look around Southeast Asia and saw Thailand-like problems in Malaysia, the Philippines and Indonesia and pulled out their money, and the stock markets and currencies plummeted there as well.

Charles W.L.Hill of the University of Washington wrote: “Following the devaluation of the Thai baht, wave after wave of speculation hit other Asian currencies. One after another in a period of weeks the Malaysian ringgit, Indonesian rupiah and the Singapore dollar were all marked sharply lower. With its foreign exchange reserves down to $28 billion, Malaysia let its currency, the ringgit, float on July 14th, 1997. Prior to the devaluation, the ringgit was trading at $1=2.525 ringgit. Six months later it had declined to $1=4.15 ringgit. Singapore followed on July 17th, and the Singapore dollar (S$) quickly dropped in value from $1=S$1.495 prior to the devaluation to $1=S$2.68 a few days later. Next up was Indonesia, whose currency, the Rupiah, was allowed to float on August 14th. For Indonesia, this was the beginning of a precipitous decline in the value of its currency, which was to fall from $1=2,4000 Rupiah in August 1997 to $1=10,000 on January 6th, 1998, a loss of 75 percent.

With the exception of Singapore, whose economy is probably the most stable in the region, these devaluations were driven by similar factors to those that underlay the earlier devaluation of the Thai baht. A combination of excess investment, high borrowings, much of it in dollar denominated debt, and a deteriorating balance of payments position. The leaders of these countries, however, were not always quick to acknowledge the home grown nature of their problems. [Ibid]

1997 Constitution and Political Fall Out of Asian Financial Crisis

A new 1997 Constitution that was enacted after the Asian Financial Crisis was drawn by representatives from all parts of Thailand. Thailand’s 16th since 1932 and the first to be decreed by a civilian government, it featured strong guarantees for individual rights but also, it would turn out, loopholes that enabled these rights to be undermined and one-party rule established.

The new radical “people constitution” was adopted in October 1997 in the turbulent months that followed the onset of the Asian economic crisis. Regarded as a blueprint for a new open society, it was intended to address problems such as corruption, make government more transparent, codify democratic reforms and spell out basic freedoms and human rights entitled to all. Among other things the constitution created an electoral commission whose aim was to stamp out widespread campaign abuses. It also instituted tough laws to combat corruption and established nonpartisan elections for the Senate

The Thai middle class played a pivotal role in the adoption of that constitution, which for example stated that only university graduates were eligible to run in general elections. Joe Cummings wrote in the Lonely Planet guide for Thailand: The rátthàthamanun pràchaachon (people’s constitution) put new mechanisms in place to monitor the conduct of elected officials and political candidates and to protect civil rights, achieving many of the aims of the pro-democracy movement. [Source: Joe Cummings, Lonely Planet guide for Thailand]

Return of Chuan Leekpai

Despite the new constitution promulgated in October 1997, confidence in Chavalit continued to slide, and elections in November returned Chuan Leekpai to the prime ministership as head of a seven-party coalition. This transfer of power without military intervention, from one elected leader to another, represented a major breakthrough in the development of democratic processes in Thailand. The baht continued to devalue, however, and social unrest recurred. By the summer of 1998, the economy had become more stable, although investigations into banking practices continued to uncover mismanagement and irregularities. With assistance from the IMF, Thailand gradually regained macroeconomic stability.

Chuan Leekpai was Thailand's longest serving prime minister. He served twice: from September 1992 to July 1995 and from November 1997 to January 2001. He was the head of the Democratic Party and first ruled Thailand after the military was ousted after bloody demonstration in 1992.

The son of a school teacher and street vendor of Chinese descent, Chuan was born in Trang Province in southern Thailand. He worked his way through school, graduated from Thammasat University and was elected to the lower house in 1969. He became a vice justice minister in 1975 at the age of 36 and served as a minister in a number of different areas, including agriculture and commerce.

Chuan became prime minister again in November 1997 and remained in office until January 2001. He led a six party coalition that controlled 233 of 380 seats in the lower house. He was credited with pulling Thailand out of the Asian economic crisis by following the terms laid out by the IMF.

Chuan was regarded as honest but uncharismatic. He followed the letter and the spirit of the 1997 Constitution without abusing his power. He shied away from making tough decisions and had difficulty getting his Cabinet to work together as a team. Many felt he was manipulated by bankers and foreign investors and didn’t pay enough attention to ordinary working people.

Chuan tried to reconstruct the economy but was accused of favoring big business, paving the way for a huge loss by the Democratic Party in the 2001 elections. As of 2007 Leepkpai served as the chief advisor of Democratic Party, the oldest political party in Japan .

Image Sources:

Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, Lonely Planet Guides, Library of Congress, Tourist Authority of Thailand, Thailand Foreign Office, The Government Public Relations Department, CIA World Factbook, Compton’s Encyclopedia, The Guardian, National Geographic, Smithsonian magazine, The New Yorker, Time, Newsweek, Reuters, AP, AFP, Wall Street Journal, The Atlantic Monthly, The Economist, Global Viewpoint (Christian Science Monitor), Foreign Policy, Wikipedia, BBC, CNN, NBC News, Fox News and various books and other publications.

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© 2008 Jeffrey Hays

Last updated May 2014

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