During the second half of the 20th century Thailand underwent a rapid transformation from an agrarian to export-driven industrialized economy while sustaining rapid economic growth. What took Europe almost a century, the East Asian tigers (Hong Kong, Singapore, South Korea, and Taiwan) and the newly industrializing economies (Indonesia, Malaysia, and Thailand) accomplished in a matter of decades, which led many to believe in an East Asian miracle. However, in 1997 Thailand became the first country swept into an economic crisis that spread throughout the region within months. Why did Thailand unexpectedly fall into a rapid economic crisis and how has the crisis shaped the current political economy of the country? Although Thailand sustained high levels of growth for decades, international capital flight triggered an economic crisis that was exacerbated by domestic weaknesses as well as poor reform measures. Furthermore, the Asian Financial Crisis initially became a catalyst for political reform in Thailand, which eventually facilitated the rise of Thaksin Shinawatra.
During the rapid transformation from agrarian to an export driven industrialized economy, Thailand was within the top 20 countries with the highest change in GDP per Capita. The World Bank explained the rapid growth sustained over decades as “fundamentally sound development policy.” The “unusually good” macroeconomic management and stable performance “provided the frame work for private investment.” Combined with progressive education and agriculture as well as “effective but carefully limited government activism,” Thailand experienced a reduction of absolute poverty (from 59 percent in 1962 to 9.8 percent in 1994) and a dramatic improvement of basic social indicators such as life expectancy, education, and mortality rates.
Yet on July 2nd 1997, the central bank of Thailand decided to float its currency, the baht, after coming under attack by international financial speculators resulting in severe devaluation and a financial meltdown. By the end of August, the crisis spread to the Philippines, Malaysia, and Indonesia, which after floating their currencies, experienced sharp depreciations ensuing an economic collapse. Despite the International Monetary Fund's (IMF) attempts to restore confidence with currency standby agreements, the crisis spread to Singapore, Taiwan, and Hong Kong. These countries all managed to escape a financial meltdown, but not without significant currency depreciation. When the crisis forced South Korea, the eleventh largest economy in the world, to devalue the won, the IMF responded by creating substantial rescue programs for Thailand, Indonesia, and South Korea. However, the programs were unable to prevent the crisis from deepening. In a matter of months the Asian tigers were reduced to “whimpering kittens.”
Early responses to the crisis, fueled by Washington and even the IMF, were that the “dark underside to 'Asian values'” or Asian...