Macroeconomics Case Study

THE 1997 DEVALUATION OF THE THAI BAHT AND AFTER

OR

Abstract:
The abundant natural resources and the agricultural advantage were the major factors that supported Thailand's economy before the 1970s. Later, as the demand for agricultural products decreased, Thailand started developing an export-oriented manufacturing sector. International trade with the United States and Japan increased. In 1984, Thailand's currency, baht was pegged to a basket of currencies and 80% of the basket was dollar denominated. During 1996-1997, increase in foreign investment and borrowing, appreciation of the US dollar, and speculation in the currency market led to overvaluation of the baht. In July 1997, Thailand floated the baht, which resulted in a 15% devaluation. This affected the trade and investment sectors of the country. The devaluation helped Thailand to improve its trade with Japan, the US, the European Union and the Association of Southeast Asian Nations (ASEAN).

Pedagogical Objectives:

To discuss the reasons that led to the devaluation of the baht and the relation between the exchange rate and foreign trade of Thailand.

Keywords : Devaluation of the Thai baht, Thailand's economy, Bank of Thailand, Current account deficit, Basket of currencies, Monetary targeting regime, Association of Southeast Asian Nations (ASEAN), Monetary Policy Case Study, Speculation in the currency market, Foreign investment, Foreign currency reserves, Memorandum of economic policies, Non-performing loans, Bailout package, Southeast Asian financial crisis, International Monetary Fund