1 January 1997

Asian financial crisis

The Asian financial crisis, known as the Tom Yum Kung Crisis, was triggered in Thailand in 1997, sending shock waves to Southeast Asian peers and many more countries in Asia.

The root causes of the debacle were myriad. The financial crisis in Thailand was a private sector failure expressing itself partly in increasing current account problems but mainly in careless lending/borrowing and the accumulation of non-performing loans in the financial sector.

For years, Thailand had pegged its currency to the greenback at a rate of around 25 baht to the dollar. In 1996, however, Thailand’s current account deficit skyrocketed, and many began to view the baht as overvalued compared with the dollar. The widening deficit eventually caught the attention of speculative investors, and in 1997 they attacked the nation's currency, carrying out an aggressive bout of baht selling.

On July 2, the government decided to drop the currency peg and introduced a floating exchange rate system. The baht immediately plunged against the dollar, accruing massive debts on account of many business operators. Over the ensuing six months, waves of investor selling hit other currencies in the region, sending them into a downward spiral. The Asian currency crisis had arrived.

1 January 1997

Asian financial crisis

The Asian financial crisis, known as the Tom Yum Kung Crisis, was triggered in Thailand in 1997, sending shock waves to Southeast Asian peers and many more countries in Asia.

The root causes of the debacle were myriad. The financial crisis in Thailand was a private sector failure expressing itself partly in increasing current account problems but mainly in careless lending/borrowing and the accumulation of non-performing loans in the financial sector.

For years, Thailand had pegged its currency to the greenback at a rate of around 25 baht to the dollar. In 1996, however, Thailand’s current account deficit skyrocketed, and many began to view the baht as overvalued compared with the dollar. The widening deficit eventually caught the attention of speculative investors, and in 1997 they attacked the nation's currency, carrying out an aggressive bout of baht selling.

On July 2, the government decided to drop the currency peg and introduced a floating exchange rate system. The baht immediately plunged against the dollar, accruing massive debts on account of many business operators. Over the ensuing six months, waves of investor selling hit other currencies in the region, sending them into a downward spiral. The Asian currency crisis had arrived.