A Big Currency Lesson For All Nations

The 1997-98 Asian financial crisis pushed Thailand off the global radar. Still, the Thai baht would achieve long-running stability, proving strong against the U.S. dollar. 

Also known as the IMF crisis, the Asian financial crisis began in Thailand and quickly spread to neighboring economies. It started as a currency crisis when Bangkok unpegged the Thai baht from the dollar, setting off a series of currency devaluations and massive flights of capital. As world leaders raced to slow the contagion, Thailand and its neighbors sank into a terrible financial depression.

In the first six months, the Thai economy contracted by over 19%, and the baht lost over 50% of its value against the dollar. Then, a historic global crash followed when the Asian crisis spread to Russia and Brazil. However, the Thai baht would soon recover losses and become one of today's least volatile currencies. Before the Asian financial crisis, Thailand borrowed heavily and ran up huge deficits, but it turned financially conservative afterward. Since the early 2000s, the baht has held its value against the dollar better than other emerging world currencies and better than all but the Swiss franc in the developed world.

Currently, Thailand’s currency trades at 33 bahts to the dollar. Not much lower than the 26 bahts before the crisis. Whereas, in Indonesia, where the 1998 crisis toppled the dictator Suharto, the rupiah trades at around Rp15,500 to the dollar, down from Rp2,400 before the crisis. Thailand, the epicenter of the problem, has become an anchor of stability and a lesson to emerging and developed nations.

Thailand’s central bank has kept interest rates high, resulting in an inflation rate of a little over 2%, a rare feat for an emerging economy. Its per capita income rose to $8,273 from $3,000 before the crisis, and the government deficit averages 1% of the GDP, less than half the average for emerging economies. By overcoming political upheaval to achieve financial stability, some analysts believe Thailand is an excellent example of the upsides of economic conservatism.

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