Thailand

The Asian financial crisis started in Thailand in the summer of 1997, when the Thai currency, the baht, came under a series of increasingly serious speculative attacks and the markets lost confidence in the economy. Shortly thereafter, the IMF’s Executive Board

Source: Bullard 1999 Source: Bullard 1999

approved a loan of $4 billion as part of a much larger $17.2 billion bailout package, which included contributions from the World Bank, the Asia Development Bank and individual countries.

The bailout package initially focused on financial sector restructuring, the identification and closure of unviable financial institutions, intervention in the weakest banks, and the recapitalization of the banking system. To provide for the costs of financial restructuring, and improvement in the current account position, the program imposed harsh fiscal measures, including expenditure reduction, to bring the public sector deficit to a surplus of 1 percent of GDP in 1997/98. On the revenue side, the value-added tax rate was raised from 7 percent to 10 percent. In addition, the program provided structural initiatives to deepen the role of the private sector in the economy and reinforce its outward orientation, including civil service reform, privatization, and initiatives to attract foreign capital.

The severe contractionary nature of the IMF’s economic program led to a deep recession, and as a result, the program was modified several times to adjust fiscal policy targets and allow the government to run a budget deficit. This was done partly to finance higher social spending and strengthen social safety nets.

Environmental sustainability was thoroughly ignored in the response to Thailand’s financial crisis. Budget cuts, even in light of the loosening of the fiscal targets, have had serious ramifications across the board for environmental programs. In 1999—two years after IMF intervention— the Science, Technology, Energy and Environment budget had been reduced by 40 percent. Since the crisis, Thailand’s pollution control budget has plummeted 80 percent from 1997 levels. It is now only 25 percent of the industrial promotion budget. Budget expenditures have also declined for conservation programs. Prior to the economic crisis, the Thai government spent one baht on marine conservation for every three baht it spent on aquaculture promotion. This ratio has been reduced to one baht for every five since the crisis.

The priorities of the bailout have significantly decreased the chances of pursuing sustainable development in Thailand. Shortly before the onset of the economic crisis, the Thai government implemented the progressive 8th Economic and Social Development Plan, which emphasized sustainable development and moved away from the previous "growth at all costs" model of development. However, after signing its $17.2 billion IMF-led bailout, growth and development have once again become the absolutes of Thai government policy, at the expense of natural resource and environmental protection.

The devaluation of the Thai baht was envisioned as a key means of boosting international competitiveness; the repercussions of this have had a profound impact...