The baht is pegged to the dollar. The Central Bank therefore has less control of monetary policy, as keeping the currency stable requires buying and selling foreign exchange, which effects money supply. But the Bank is able to control inflation through interest rate regulation, credit, bonds, and capital controls. The Bangkok Stock Exchange begins operation on April 30, 1975, just as Saigon falls.
A series of devaluations are meant to help exports, but increasing state intervention and international imbalances weakens the financial sector. Responses include restructuring of monetary, exchange rate, and interest rate policies and fostering more competition among financial institutions.
The currency is kept stable within a range of values in a "managed float" until 1997. The Bank of Thailand is less politicized, but state banks lend money to connected borrowers. External debt of US$16 billion in 1990 rises to US$90.5 billion by 1997, leaving the economy exposed to the currency crash. Liberalization ends interest rate caps and relaxes capital controls, spurring foreign investment.
Trade deficits, debt, and a real estate bubble put pressure on the currency. Huge outflows from currency speculators and nervous investors overwhelm the Central Bank's ability to maintain the managed float. Massive foreign borrowing by firms confident of a stable baht balloon, and many firms and banks fail. The state takes over some banks for reorganization. The cap on foreign ownership is raised.
To stimulate the economy, Thaksin increases spending, credit, and public debt. The markets are initially skeptical, but the strong economic performance in 2002 earns Thailand improved credit ratings and allows it to reenter the international bond market. Repayments to the IMF are ahead of schedule, and the stock market is up, bucking world trends.
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