Where the Asian Crisis Began: The Baht Float

How Thailand's fixed exchange rate, foreign borrowing and property bubble led to the baht's collapse on 2 July 1997, triggering the Asian financial crisis.

The Asian financial crisis began in Thailand.

The setup

The baht was pegged at around 25 to the dollar.
Thai banks and finance companies borrowed cheaply in dollars.
Money flowed into property and stocks, creating bubbles.
Thailand ran large current account deficits.

Speculative attacks

Investors bet the peg couldn’t last.
The central bank spent most of its reserves defending the baht.

The float

On 2 July 1997, Thailand floated the baht.
It lost around half its value.
Dollar debts became unpayable.

Contagion

The crisis spread to Indonesia, South Korea, Malaysia and the Philippines.

Aftermath

Thailand received an IMF package of about 17 billion dollars.
Many finance companies were closed.
The economy shrank about 10 percent in 1998.

Lessons

Pegs, short-term foreign debt and bubbles are a dangerous mix.

The unfinished towers

After 1997, half-built office towers stood abandoned in Bangkok as developers went bankrupt.

Thinking the Asian crisis started in Korea

It began with Thailand's baht float on 2 July 1997.

Key takeaways

The baht was pegged, and banks borrowed in dollars.
Thailand floated the baht on 2 July 1997.
The crisis spread across Asia.
The economy shrank about 10 percent in 1998.