Thailand 1997 Case Analysis Essay Example

Thailand 1997 Case Analysis Essay Example Thailand 1997 Case Analysis Essay Thailand 1997 Case Analysis Essay Thailand, 1997 Case Write Up During the 1990s, Thailand experienced remarkable economic growth for a developing nation. This boom in economic growth came from heavy emphasis on international trade, particularly through foreign investment in the financial sector. Using low-wage labor to their advantage, large volumes of labor-intensive products were exported to high wage countries resulting a double-digit growth rate. This accounted for forty percent of GDP. However, their strategy backfired when, due to the economic development, labor costs increased. Lower cost labor went to Vietnam, India, and China, plus a labor shortage within Thailand was occurring. These social issues were paired with an abrupt slow in economic growth rate from 1995 to 1996. Thailand, which was known as one of the fastest growing economies of a developing nation, was beginning to face an economic slowdown primarily due to overspeculation and lack of regulatory procedure of the financial sector. Thailands currency, the baht, was pegged to a basket of currencies with the US dollars holding the most weight. A pegged currency provides security and stability that a floating currency does not. While a floating currency fluctuates day-to-day, hour-to-hour, a pegged currency is much more stable being fixed against another currency (or set of currencies) at a certain exchange rate. This stability in a currency is very attractive for foreign investors and a critical part of Thailands success in an export-led economic development. However, there was a cost to this stability, such as the US dollar appreciating, causing the Thai products to increase in price as well and lose ompetitive value. At time, continuing to peg the baht to a basket of currencies was the best option in order to sustain investor confidence from ambitious foreigners looking for high returns, as foreign direct investment was integral to Thailands success in economic growth. With loans from other Asian central banks to maintain high foreign reserves, it seemed as though the government would be able to support the baht on international markets. However, by 1996 financial institutions and commercial banks were facing insolvency. The property sector had become the argest borrowers in the economy, obtaining loaned money from finance companies via international investors. But, the vacancy rate for new housing was staggering, and finance companies and banks were ordered to reduce lending to protect against bad loans. The lack of proper supervision and regulation of financial institutions from the Bank of Thailand allowed for financial institutions and banks to reach such a state. Established guidelines for proper ethics for financial authorizes along with shrouded financial statements were nonexistent. Coupled with poor infrastructure, using foreign investments to fund the housing sector proved to be an unreliable direction for finance companies and banks to take. After five different governments in four years, rampant corruption within the government system, and a lack of development in infrastructure and regulatory procedures for finance companies and banks, I would not find Thailand a promising investment. As someone who is very avoidant of rtain situations, investment seems entirely too risky, especially it the government nce was on the verge of changing rein once more. Also, transparency of a bank is crucial for investors, so proper decisions can be made. With Thai banks and finances companies not publishing their financial information, that would be very unsettling, everything else considered. If I already had investment in Thailand, I would immediately liquidate it. Although the currency was sound, and the government had a surplus, I would not be confident in the system itself and therefore would pull my investment.