This week marks the tenth anniversary of the Asian Financial Crisis. It was ten years ago that Thailand floated the baht, triggering a series of events that saw other currencies and markets plunge in value, throwing the region into economic chaos.
As part of CNBC.com’s review of the Asian Financial Crisis, this week’s A Fund Affair features the Templeton Thailand Fund. Why this particular fund? Templeton, for better or for worse, launched its Thail fund on 20 June 1997, just two weeks before the crisis hit. But before we go into the fund’s details, let’s take a look at what happened ten years past.
By the start of 1996, the Thai economy was already experiencing a slowdown. The crisis erupted in the summer of 1997. A number of domestic and external shocks had revealed in the preceding months, weaknesses in the Thai economy that, until then, had been hidden by the rapid pace of economic growth.
Thailand, like the rest of the region, been experiencing strong growth – averaging almost 10% annually from 1987 to 1995. The establishment of the Bangkok International Banking Facility in 1993 attracted large amounts of capital inflows, much of which was in the form of short-term debt.
The Bank of Thailand would allow local banks to borrow funds offshore at prevailing international interest rates. These banks would turnaround and lend these funds locally at double the interest. This fueled reckless investments and unwarranted increases in asset valuation.