Thai Currency's Wild Ride Echoes '97 Crisis ; Asian Markets Are Still Wary after Thailand Imposed, Then Reversed, Investment Restrictions Last Week

By Simon Montlake Correspondent of The Christian Science Monitor | The Christian Science Monitor, December 29, 2006 | Go to article overview

Thai Currency's Wild Ride Echoes '97 Crisis ; Asian Markets Are Still Wary after Thailand Imposed, Then Reversed, Investment Restrictions Last Week


Simon Montlake Correspondent of The Christian Science Monitor, The Christian Science Monitor


The last time global investors sat up and paid attention to the baht, Bill Clinton was in the White House and the Republicans were running Congress. The collapse of the Thai currency in July 1997 triggered a run on Asian markets that led to a biting recession in Asia and spread to Brazil and Russia.

Last week, the baht popped back on radar screens as Thailand's central bank imposed capital controls to keep foreign investors from betting on its currency. The result was a meltdown on Bangkok's stock exchange, which shed 15 percent on Dec. 19, and an uproar among shareholders that forced Thailand's military-backed government to partially reverse its decision to impose controls. The turmoil briefly roiled other Asian markets and revived uncomfortable memories of the 1997-98 financial crisis.

This time around, though, the battle for the Thai baht is not about propping it up, but keeping it down. Before Thailand introduced the capital controls, it had hit a nine-year high against the dollar on speculative buying, to the dismay of Thai exporters who fear being priced out of overseas markets. It has since fallen off, though not as rapidly as it rose.

The rationale behind Thailand's move has plenty of sympathizers in Washington: When China pegs its currency so low, how else can other Asian counties stay competitive? As the US dollar trends lower, it's an argument that is echoing across the region's export- led economies, which are increasingly measuring themselves against China's output.

"It's all relative: It doesn't matter so much if the dollar is weakening against us, if it also weakens against our trading partners and competitors," says Korn Chatikavanij, deputy secretary general of the Democrat Party and a former investment banker. "China, as the dominant economy in Asia, has an unrealistically weak currency."

Thailand isn't the only country grappling with currency appreciation: South Korea and Singapore have also seen their currencies' values rise sharply against the greenback this year. The upward trend reflects the overall buoyancy of Asian economies, unlike in 1997 when many were saddled with sky-high debts that ultimately triggered an outflow of foreign capital.

But while China continues to outperform the rest of Asia, its currency has barely moved. Despite continuous US pressure, Beijing has only allowed a modest 5 percent adjustment in the yuan since it relaxed a dollar peg in July 2005. US critics say this policy hurts American manufacturers, unfairly subsidizes Chinese exporters, and contributes to a yawning $200 billion-plus annual trade gap between the two countries. …

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