Lesson from baht crisis<\/p>\n
The fierce speculative attack on the Thai baht last week seems
\nto have ended in a bloodbath for speculators. Most analysts have
\nhailed the joint intervention by several Asian central banks to
\nrescue the baht as the first successful test of their repurchase
\nagreements signed in early 1995, soon after the Mexican financial
\ncrisis in late 1994. The agreements among central banks of 11
\nAsia-Pacific countries, including Bank Indonesia, provide
\nliquidity to one another in times of currency crises by selling
\ntheir holdings in U.S. government securities. Their joint
\nintervention, especially the monetary authorities of Malaysia and
\nSingapore, has conveyed a clear, strong warning to currency
\ntraders against excessive speculative raids on their currencies.<\/p>\n
The lingering question though is whether a new wave of such
\nattacks may surge and whether a coordinated defense by the
\ncentral banks in the region will again be effective in coping
\nwith such a currency crisis. A closer look into the nature and
\nunderlying reasons of the attacks on the Thai currency and the
\nevents preceding the run on the baht provide a good lesson for
\nIndonesia, which in many respects is encountering the same kind
\nof the economic ills Thailand is currently grappling with.<\/p>\n
A currency crisis is always related to the fundamentals of a
\ncountry's economy, notably the position of its balance of
\npayments. Likewise, the baht's travails should be blamed partly
\non the worsening fundamentals of the Thai economy. Its economic
\ngrowth has been predicted to decline to between 5 percent and 6
\npercent this year. Even though this amount is still fairly high,
\nit is much lower than the robust expansion of 9 percent it has
\nbeen enjoying over the past decade. Its export growth is
\nslackening and its current account deficit, albeit expected to
\ndecline from a large 8 percent of its gross domestic product last
\nyear to 6 percent this year, is still dangerously high. Moreover,
\nits financial sector suffers from huge amounts of problem loans
\nin the property sector and its foreign debts have reached US$90
\nbillion.<\/p>\n
Nonetheless, the condition of Thai economic fundamentals have
\nnot been so problematic as to warrant such excessively
\nspeculative raids on the baht, had it not been for the wild
\nrumors and conflicting remarks by Thai officials. Before the run
\non the baht, businesspeople were gripped by rumors about a
\npossible baht devaluation, which were set off by remarks from a
\nsenior economic official. Speculations about political discord in
\nthe cabinet and an imminent replacement of the finance minister,
\nAmnuay Viravan, further lent credence to the rumors. Amnuay's
\ncredibility was put into question.<\/p>\n
As the confusion and rumors surged at a time when the
\neconomic growth rate was declining and export expansion was
\nslackening, the panic they caused among businesspeople was much
\nworse than it should have been.<\/p>\n
Indonesia, which is also coping with a widening account
\ndeficit (4 percent of gross domestic product), foreign debts
\nexceeding $100 billion, slackening export growth, potentially
\nlarge amounts of bad credit in the weakening property sector,
\nneeds to be extra careful of the possibility of similar rumors,
\nespecially in the run-up to the general election next week and
\npresidential election next March. The most effective preventive
\nmeasures against such rumors would be better coordination among
\nministers with economic portfolios, strong consistency in policy
\ndirection and timely, credible announcements of key economic
\nindicators. Of no less importance, as the Thai experience shows,
\nis the valued cooperation of Thai domestic banks in helping the
\ncentral bank in cutting down short-term funds for speculators.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/lesson-from-baht-crisis-1447893297",
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