25th Anniversary of the “Tom Yun Kung” crisis: Current economic situation may not repeat the past (Current Issue No.3330)

July 2, 2022 marks the 25th year after Thailand announced the floating of the Baht in 1997. The decision made at that time was an important turning point in Thailand’s exchange rate regime. Looking into 2022, the Baht is projected to soften in line with other Asian currencies 2022 due to the impact of the US dollar, particularly the US Federal Reserve’s aggressive monetary policy tightening. The softening Baht currently differs from that seen in 1997 because its depreciation then was due to the floating of the Thai currency to reflect its weak fundamentals at that time. Additionally, the Baht’s volatility in 2022 is almost consistent with the overall picture of other Asian currencies, suggesting the Bank of Thailand’s continuing efforts in maintaining the Baht’s stability amid uncertainties surrounding many factors.

Additionally, Thailand’s current international reserves are higher and more robust than in the past (approximately THB251 billion as of June 24, 2022) while the country’s external debt to GDP ratio fell to 38.2 percent as of the 2021 yearend. The relevant Thai authorities have steadily supervised speculations in the property market via a number of measures such as establishing the loan-to-value (LTV) rule. Such a picture reflects the lessons learned from the past and the implementation of guidelines to avoid past mistakes. However, the Thai economy is now experiencing new challenges, stemming primarily from the COVID-19 pandemic, Ukraine-Russia conflict that has resulted in skyrocketing oil prices, hikes in the US Fed funds rates, other immediate issues and structure-based challenges that must be closely monitored. Moreover, although the overall Thai banking sector is more robust than that seen in 1997, it continues to face challenges in maintaining profitability, coping with asset quality problem and accelerating debt restructuring for debtors over the long term.      

Such details show that problems in the Thai economy differ from those in 1997. Thailand has learned its lessons and revised measures and regulations to avoid past mistakes. However, an important challenge for Thailand now is to help the household and business sectors brace for immediate issues such as inflationary pressure, higher cost of living/operating costs and anticipated increases in domestic interest rates along with structure-based challenges including hefty debts, how to upgrade worker skills and a transition towards an aged society. Moreover, the government must accelerate its efforts in restructuring the economy in order to reduce hinderances to future economic and income growth.