This has rendered a current. . . (BOP) account deficit of dangerous proportions: 8.3% in 1995, 7.9% last year and estimated at 7.5% this year even before the devaluation" (Ciminero, 1997). Na Thalang concurs in this analysis:
The currency peg system opened the floodgates to foreign capital. Thai borrowers were spoiled by the belief that the ever-lasting fixed currency regime would protect them from foreign exchange risks. Instead of using the foreign savings to finance export-oriented industries, the borrowers recklessly spent the money to speculate in the property and stock markets. They forgot that eventually the external debts must be repaid by net export earnings (Na Thalang, 1997, 16).
Triangle Leg 2: Thailand's Free Capital Movement
A 1997 White Paper published by the Bangkok Bank and authored by Watsaya Limthammahisorn traces the free capital movement as beginning in 1991 when the Bank of Thailand began a series of measures to free up movement of capital accounts to attract more foreign funds into the country and to bolster the capital market: "It hoped that it would still have an independent monetary policy. Liberalizing the financial services and capital accounts must also be accompanied by prudent supervision of the banking and financial system" (Limthammahisorn, 1997). Na Thalang and others point out the Thai central bank failed to adequately and properly regulate the banking and financial system, "which set the stage for the bubble economy and the rise in problem loans that would become unsustainable when exports or the economy are to slow down" (Na Thalang, 199714). Capital inflow also places a big constraint on the BOT to manage an independent monetary policy (Limsamarnphun, 1997, 4).
Although the BOT attempted to curb inflation by keeping interest rates high since 1994, "it could not prevent foreign capital from flooding the Thai market to arbitrage for interest rate differentials" (Na Thalang, 1997, ...
Thailand's Economic Downfall. (2000, January 01). In LotsofEssays.com. Retrieved 11:31, October 31, 2014, from http://www.collegetermpapers.com/viewpaper/1303625880.html