The Collapse of the Thai Bhat
One of the main similarities between the collapse of the Thai Baht and the collapse of the Korean Won was that they both occurred in the year 1997. This period was a time of great economic crisis, not only for the two countries but also for most of Asia itself. Thailand and Korea emerged as examples of Asia's great economies in the mid 1980's and 1990's. But the main reason for the collapse of the two countries' currencies was the fact that there was heavy borrowing from banks and foreign investors, which put these Asian companies in debt.For example, from 1990 to 1996 in Thailand, there was an investment boom in commercial and residential property, industrial assets and infrastructure. This led to a great demand in property and this created the real estate in Bangkok to soar. There were many apartments and office buildings going up all over the city. Since the property was so expensive, many property developers had to borrow money from banks. But as long as the value of property rose, the banks were happy to hand out loans to the property companies. Nevertheless, in 1997 the property boom had rocketed so far out of proportion, there was
But one cannot put the blame on the foreign investors. Many of Thailand's organizations were still purchasing capital equipment from the US, Japan and Europe from loans. The Won later plunged to about W1500 = $1, and it was estimated that South Korean firms suffered foreign exchange losses of more than $15 billion in 1997. The reason for the fall of the Won was that the foreign investors did not think that the Korean firms could pay off their debt and would file for bankruptcy. 1 percent of its gross domestic product. Many foreign investors became aware of the high borrowing rate in Korea and began to pull their money out of the Korean stock market on speculation that the Koran companies would not be able to pay off their debts. Two smaller chaebol companies filed for bankruptcy after the selling on Won accelerated in mid-1997. Currency depreciation would raise borrowing costs, depress corporate earnings, and increase the risk of bankruptcy. If there is someone at fault, it should be the firms at large because borrowing money, especially overseas, always has a great risk. The Korean Won collapsed in 1997 for some of the same reasons of the fall of the Baht. The two cases were similar to the extent that both of the currencies fell due to the high rate of borrowing and a decrease in confidence by foreign investors. This put Thailand at a deficit of 8. After Somprasong Land Company could not pay an interest on an $80 billion loan, thing started to fall apart. This led to the collapse of the Baht from 25Bt per dollar to 55Bt per dollar.
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