The Asian Financial Crisis 10 Years On In The Land Of Smiles
Keywords: Zetland, finance, offshore investors, fiduciary services, investment management, corporate advisory, tax
It is the tenth anniversary of the Asian financial crisis and we consider, “will it happen again?” First we need to know what happened. The crash itself came fast and furious. But the lead up to it started around 3 years prior and was characterized by a period of exceptional growth and a feeling of economic omnipotence from within Thailand.
The scale of the crisis was not something anyone could foresee in the three years that preceded it. But there was a sense of incredulity as the number of cranes and construction sites in Bangkok grew and grew so that it was possible to count more than 30 of them from most downtown Bangkok office windows in 1995.
The root cause of the crisis was the now defunct Bangkok International Banking Facility (BIBF). Established in 1992, its original purpose was to promote Thailand and its banks as an offshore banking centre.
Few loans though were made overseas. However, Thai banks made foreign currency loans to Thai companies at rates far lower than what they could have achieved onshore. The baht was fixed to the dollar, so companies didn’t bother hedging their exposure to foreign currencies and as the loans were in foreign currencies, the Bank of Thailand was unable to use monetary control policies to regulate them.
Many loans were made without due diligence, on friendship and as a result of family connections or political support. The funds were squandered on projects of very poor quality with little chance of success. Banks also made local currency loans, taking advantage of a 300-400 basis point spread. Or funds lent were simply kept on deposit at rates as high as 12% in one of the many non-bank finance companies.
Between 1987 to 1993, bank loans in Thailand grew 26% per year and during the same period, the stock exchange of Thailand rose 400%.
In the three and a half years between its peak and the devaluation, the stock market declined 65%. It might well have slid further, were it not for abundant flow of money that was sloshing through the economy. But because banks had ready access to offshore funds, loans growth from 1994 to 1997 remained high at 25% per year.
Skyscrapers, financed by the borrowed money were shooting up everywhere, and much of the imports that were thought to be to investment turned out to be prestige items. To emphasise this, Thailand was the third-largest importer of Mercedes-Benz cars in the world (half of which, were actually registered as capital goods), during those three years.
In early 1996, a massive graft and corruption scandal at Bangkok Bank of Commerce broke out and was the first real indication of the problems ahead. The bank had lent out USD4bn to politicians and their related businesses and Thana One, a subsidiary of the largest non-bank finance company Finance One, proved unable to make good on a loan from an overseas lender. A run on deposits started at other non-bank finance companies and Moody’s downgraded the sovereign debt in 3Q.
The system might have remained liquid and refinancing might have occurred if the money had kept flowing in. But after BIBF loans had multiplied by well over 100% in 1994 and 1995, the authorities realized the level of capital misallocation that was taking place and the BIBF was closed in October 1996.
A serious structural problem also existed in Thailand. China’s steady growth and emergence as a leading nation, coupled with its currency devaluation in 1994 resulted in amazing growth in its manufacturing sector, which started to threaten Thailand. Higher prices and inflation were eroding Thailand’s export competitiveness, which had traditionally been the engine of GDP growth in Thailand. GDP had risen on average 23% per year since 1987 - 22% in 1994 and 25% in 1995. But in 1996, it suddenly fell 2%.
With this mixture of characteristics in place a number of financial institutions combined forces to take a multi-billion dollar position against the Thai baht, shorting it in May. The Bank of Thailand’s USD36bn in foreign reserves were almost entirely wiped out in the defense of the baht, and the currency moved from a fixed to managed float system by July 1997. The currency went from 25 to 55 against the USD by January 1998.
As the economy slowed, many of the companies with loans in a foreign currency could not maintain them. Debt-to-equity ratios for firms with foreign loans went from 280% to 420%. NPLs at the banks increased over 30%.
Thailand spent the next five years in an economic haze. From the devaluation, the stock market dropped another 80% in dollar terms, to its lowest point in September 1998. Since then it has moved up 340%, but is still 65% below the previous high.
Hedge funds had a lot to do with the troubles. The country had exposed itself to attack and when the attack came it was merciless. Had they not broken the currency peg, Thailand’s economy probably would have remained in the doldrums, along with Japan’s perhaps right up to now.
The Zetland Financial Group - www.zetland.biz - provides the offshore investor with fiduciary Services, investment management and corporate advisory services, offering personal service and professional advice with total confidentiality.
Previous Articles Highlighter:
Auto Loan Refinancing Benefits (1)
Those savings over the life of the loan total about $6,945. As you see, looking to renegotiate your auto finance is a key to saving money. Refinancing does not just save you money, but it can also be seen as the only way to assist you with your debt troubles.
How To Sell Your Own Home Using Internet Marketing Secrets Of The Pros! (2)
This did not discourage the Rosenbaums, however. Sherri and Steve and already sold one house using a creative real estate solution similar to those taught by Bill Effros ("How to Sell Your Home in 5 Days") and George Cappony ("Fast Action Home Sale").
What Everyone Should Know About Credit Inquiries (3)
The inquiries that are included in your score are those from your own applications for loans. When you apply for a credit card, an auto loan, or mortgage, you have given the lender permission to review your credit report.
Why Did Northern Rock Call In The Bank Of England ? (4)
Wages and material costs are set to rise in China and other far east manufacturers, and this imported inflation will bring to an end the period of consumer led growth in both the USA and UK.
Collector Car Insurance Protects Valued Investment (5)
They may also be required to be stored in an enclosed, secure facility to qualify for collector auto insurance. The value of the insurance is determined at the time the coverage begins and most policies offer no deductibles on collector car insurance, paying the full amount of the agreed value in the event of a total loss.
Points To Consider When Paying Your Auto Insurance Premiums (6)
These are factors that you will need to consider carefully when choosing your auto insurance policy. The amount of car insurance premium that you will have to pay also depends on the kind of car you own, or are thinking of buying.
Mallorca Property Developers Face Local Opposition (7)
Keywords: property, real estate, Majorca, Mallorca, Spain Holiday homes and investing in a property on the Spanish island of Majorca has been popular for several decades now, with many Europeans who have holidayed on the Spanish island deciding to buy a second home for holidays, a business, or for retirement.
Understanding Health Insurance For Texans Easier Than One Might Think (8)
Variety of coverage is often one of the best ways to evaluate a particular plan, with a good plan offering several types of coverage. Having a hospital expense portion of a health insurance plan would involve the provider paying room and board as well as incidental services costs.
The Best Credit Card Offers (9)
Interest rates. Credit card companies try to offer the lowest possible interest rate per payment due. Said interest rate may range from 1.2% up to 5%. 2.
Let Your Mouse Do The Walking, Applying Online For A Credit Card (10)
Some online companies can offer you discounts at certain commercial establishments. Check out cards that offer you cash back on gas spending, or that have rewards programs depending on the amount of purchases you have made.
Should I Use A Realtor If I Am In Foreclosure? (11)
An ideal situation would entail enough equity to cover the amount of any liens against the property and closing costs. To get started, look for a realtor who has experience in the business and who has a good track record for selling homes without the listed properties spending too many days on the market.
Is Real Estate Investing The Income Opportunity For You? (12)
Keywords: real estate investing, income opportunty, make money It seems that every time you turn your TV on there is some infomercial about creating your wealth in some real estate investing home study course.
Tips On Finding A Good Car Insurance (13)
Buying car insurance is one of the most important things you can do, make sure you know everything there is about the company you're going with and the policy you're buying.
Forex - Understanding The Difference Between Mini-account & Standard Account Forex Trading (14)
So, if you are controlling 100,000 units of currency (or you have placed a buy/sell forex trade of '1 lot')in the above case, each time the price changed by 1 pip - ie.
How To Save Money On Groceries (15)
You may have been loyal to one brand of laundry detergent over the years, but many soaps and detergents contain the same ingredients, and most detergents will get your clothes clean.
What Does The Maryland Real Estate Assistant Offer (16)
OTC reports produced by the virtual assistant OTC specialist can be used to show clients the prices that similar properties are fetching on the market, so that they can be assured that they are getting the best deal in buying or the best price in selling.
Michigan Real Estate Virtual Assistant's In Demand (17)
Top earners in the VA industry have taken to advertising their services online with business websites. This seems only natural and sensible as most of the work that a VA handles is done online and with computers anyway.
Maine Real Estate Virtual Assistants Travel And Enjoy Life (18)
Our Certified Real Estate Maine Virtual Assistants (VA) support real estate professionals nationwide with all of their marketing, technical, and, administrative needs. We specialize in Online Transaction Coordination and offer Virtual Assistant Coaching.
Proactive Use Of IRA Secrets Can Keep You Retired (19)
Be proactive with your retirement account. Lots of people want your money even more than you do but you are the one who worked for it. Don't wait until you retire to learn how to take care of your money.
Property In Portugal Now Is The Time To Invest (20)
The number of people who move to Portugal permanently is growing each year. This area between Lisbon and the Algarve is a good one to invest in. The rich cultural heritage of Portugal and in this area in specific makes it even more interesting to invest in property here.
Newer Articles Highlighter:
Commercial Real Estate: A Way To Live Your Dreams (1)
That is because investing is a way to make your hours represent many more dollars than they would if you simply relied on the income from a job. Look at it like this - if you make a nice salary, say $50 per hour, you are limited by the number of hours in the year it is physically possible to work.
Choosing A Life Settlement Broker (2)
A life insurance settlement also means disclosing your personal and medical information to your broker. Be sure to read and understand the broker's privacy policy to best protect your interests.
Lowering Your Monthly Mortgage Payments (3)
Down Payment: The down payment is how much cash you will put down up front. The rest of the price is how much you will finance with the lender.
"Want More For Your Property?" (4)
They also greatly benefited, by working out favorable repayment terms on the seller take-back loan that fit their repayment budget and timetable. The sellers benefited by selling the house more quickly and by receiving the asking price, which is more than they might have received in a traditional transaction.
Pros And Cons Of Beach Real Estate (5)
However, there's a dark side to the beauty and fun of beachfront property. The very thing that makes this type of property so appealing also provides opportunity for great storms to ravage the area.
Brass Balls Real Estate Investing (6)
And when there's too much supply, prices tend to fall. If the number of foreclosure filings is rising, it is a sure signal of prices headed down Foreclosure sales are another indicator.
Start A Small Business & Save For Retirement! (7)
How much do I have saved or will I get as a lump sum when I retire? People with higher incomes now have a better ability to take the leap into a new business.
Is It Time To Eliminate The US Cent-Penny? (8)
If the US government intends to keep the penny, the most critical issue facing congress and the Mint is to change the alloy to another metal that is cheaper than the current one.
When Do You Need A Real Estate Agent? (9)
A real estate agent knows how to keep a poker face or how to disguise what he or she is truly thinking, how to gage interest and how to get the buyer to accept terms that are better for the seller.
New Orleans Real Estate After Katrina (10)
Tammany and St. Bernard, Tangipahoa, Jefferson and Plaquemines Parishes. Good Living Just Outside New Orleans Proper Several neighboring Parishes named for Saints James, John, Charles, Tammany and Bernard, are collectively known as "The Saints" and offer delightful small town living within easy commuting distance of the city for sporting events, shopping, dining, sight-seeing or working.
Scouting Out The Ideal Tenant (11)
For instance, one can rent it out and earn a decent income from it without making too much effort. A good rental plan can stand one in good stead during periods of financial crisis.
Costa Blanca, Still The Expats Choice (12)
This does not mean however that there has or will be a crash. It simply means that a period of realignment is needed as property prices stabilise and remain static for a period.
Home Improvements 'Can Boost Property Values And Save Consumers Money' (13)
Consequently, taking the time to find the best homeowner loan could be a wise option for those looking to boost the value of their property via renovation work. In research carried out by Halifax earlier this year, a quarter of homeowners undertaking such projects over the past year have done so with the specific purpose of increasing their accommodation's worth.
Britain Needs 'Better Education On Borrowing' (14)
Mr Tapp claimed: "I think actually if people were better educated as to the risks and people were able to manage their money more carefully than they do now then that would go a long way to helping people stay more in control and I think that would be more effective than further regulation." In addition, he asserted that the government needs to do more to implement personal finance, which may include areas such as budgeting and getting a low-cost loan, into the education system to help young people adopt a more responsible attitude towards borrowing as they get older.
Foreclosure Investment: A Few Quick Tips (15)
The opportunities to invest in foreclosed properties develop when property owners fail to complete a series of monthly payments, forcing the bank to reclaim the home. The house will then be put up for sale at a bank auction where investors can bid on the property.
Holiday Homes Can Help Fund Retirement (16)
This in itself can provide investors with thousands of pounds every year to put towards their retirement. British residents buying property abroad is not unusual and the value of property in developed economies has increased by 30 trillion dollars over the last five years.
Increase In House Prices Provide Good Investments (17)
It also seems as though the UK is one of the best places for investment opportunities in property as house price growth outperformed Australia, Canada and the US over recent years.
What Is Credit Counseling? (18)
Depending on where you live, finding credit counseling is fairly easy. If you live in a metropolitan area your chances of finding a reliable and knowledgeable credit counselor are better than if you live in a rural area.
Brits Face 'Nightmare' In Budgeting Telecoms Costs (19)
Last month, a Citizens Advice representative claimed that the ability to set up - and stick to - a budget was crucial for improving the nation's capacity to manage their money more effectively.
How To Get The Most From Your Credit Card Skymiles (20)
That is why in recent years there are so many companies willing to invest in the creation of rewards cards, since it harvests huge profits from the customers. Customers can tap into the secrets of coming off financially successful as well.
Permalink to The Asian Financial Crisis 10 Years On In The Land Of Smiles