The Governmental Response As Well As Its Effects Essay Example

repayment deadline was a concern despite the exponential growth of the Thai economy.

The absence of progressive transparency, political instability in Thailand, and the rise of globalization caused companies to be unable to repay international banks. This resulted in foreign investors becoming cautious and withdrawing their investments, ultimately leading to a slowdown in economic growth and a crash during the summer of 1997. As a result, it was up to the Thai government to rebuild the unstable economy amidst a recession (Macdonald 690).

Following the 1997 crisis in Thailand, government and financial officials were prompted to reassess the country's business practices. In order to avoid total collapse, Prime Minister Chawalit signed an agreement with the International Monetary Fund (IMF) that granted access to a $14 billion facility to restore stability in the financial market. However, this agreement came with a cost. Thailand forfeited control over its financial sectors in exchange for the loan provided by the IMF (Macdonald 697; Thailand 1).

Globalization has created an issue of inadequate regulation, which has been intensified by the intertwined relationship between government and business (Macdonald 697). The government's handling of the financial sector issue exemplifies this problem. Representatives from suspended finance companies, including Prime Minister Chavalit and the leader of the second largest party in the coalition, General Chatichai, lobbied for weaker financial guidelines. Reluctantly, the owners and top officials of the bankrupt companies followed both IMF and government-mandated audits and market valuations of their assets. The Thai government also recognized the problem and took steps to improve the financial sector.

On October 14, 1997, the first financial restructuring program was launched with the aim of isolating and halting the

weakest institutions while supporting the stronger ones. Following the resignation of Prime Minister Chavalit in December of that same year, the administration led by new Prime Minister Chuan Leekpai made further efforts to shut down 56 out of the 58 "weak" financial firms in question and took over two additional banks, totalling four of the fifteen Thai banks that have been repossessed since 1995. Share values of each bank fell drastically, reaching as little as 1/1000th of their previous worth (Leightner 247). This move marked a significant deviation from past practices, dismantling the informal network and driving Thailand towards possessing a more transparent western-style financial system overall.

Macdonald (698) stated that companies and banks became more careful and selective in approving loans because they were afraid of government takeover. To guarantee stability and prepare for future growth, the government collaborated with the IMF to enforce crackdowns. Several steps were taken to assist in the recovery process, including reducing the value-added tax from 10% to 7%, motivating a decrease in interest rates, and creating a budget deficit of 6% of GDP (previously 8%), intending to generate up to 500,000 jobs.

After the 1997 economic crisis, the Thai government implemented transparency reforms and monetary policy systems to revive its struggling economy (Overholt 1024). Despite public efforts, these attempts proved largely ineffective. By June of 1999, the government was projected to spend only 650 billion baht out of a planned 800 billion baht budget (Bowornwathana 90). The government's plan involved distributing funds to rural villages in an effort to revive the property sector. However, many of these funds were not used efficiently and the government failed to account for repayment

of the money.

Despite incomplete planning, certain systems indicated an improving economy. While growth was 0.9% in the first quarter of 1999, by the end of the year it averaged just under 3% (Bowornwathana 88). During this same year, it became increasingly evident that the country's enhanced recovery stemmed from more efficient utilization and allocation of funds within itself.

Although Thailand allocated a comparable proportion of its GDP to education as other Asian countries, a considerable amount of the funds was either wasted or misplaced. The implementation of a new constitution in 1999 means that all youngsters are now expected to complete twelve years of education instead of the previous requirement for nine years. Regrettably, there is no defined strategy on how this objective will be attained, and no legislation has been instituted to manage situations where pupils fail to meet the mandatory twelve-year educational standard. Consequently, non-compliance with the law carries no penalties (Overholt 1025).

The consequence of this phenomenon is a society that's become inverted, resulting in a less-educated future population. These undereducated individuals end up working for meager wages, instead of pursuing an education that could ultimately lead to revitalizing their country's economy. It's worth noting that while Thailand's issues won't be solved overnight and a complete societal shift would be required, the year 1999 marked some progress. There were improvements in healthcare, job creation, and initial steps taken towards economic revival (Bowornwathana 88). However, it's clear that Thailand's government still has much work to do in terms of reforms, systems, and corruption as a whole.

In the year 2000, Thailand was poised for growth of approximately 5% following the crash in 1997 (Montesano 176). One

significant difference between 1999 and 2000 was the increase in exports, similar to the early 90s. However, this time the IMF and government exercised greater control over exports. Even within the government, there were visible changes such as the introduction of the National Counter Corruption Commission (NCCC). Although it had existed for a short time prior to 2000, the NCCC made its first notable arrest of Sanan Kachonprasat, an interior cabinet member of Prime Minister Chuan Likphai's administration (Montesano 173).

The issue with misrepresenting assets as a loan during a required declaration of worth has been linked to much of the lead up to the 1997 crash. However, this problem was addressed by demonstrating the purpose and proper utilization of new institutions, which was a significant step forward for all involved parties. During the first two quarters, both exporting and daily business activities in the sector appeared to be running smoothly, and a minimally troubled banking industry was necessary for growth in the Thai economy. Nevertheless, by the fourth quarter, disputes between the Bank of Thailand and Finance Minister Tharin had escalated (Montesano 177). Although initially seeming like a promising strategy led by the financial sector to bolster growth in the economy, Tharin's approach ultimately hovered on the brink of catastrophe.

According to Montesano (177), the Thai Stock Market plummeted by over 40% and the baht hit its lowest point since the 1997 crash by the fourth quarter, causing instability that persisted through the middle of 2001. While there was some minor economic upturn by the end of the fourth quarter, Thailand still had a long recovery road ahead after the crash. The main issue

in achieving complete economic recovery goes beyond economy itself. The major hurdle to overcome is political corruption and systems set in place long ago, while successfully implementing economic reforms.

The root of numerous issues in Thai politics and economy is political instability, as stated by Samudavanija (342). It is arduous to implement change when the governance or administration is based on authoritarianism and corruption, regardless of its label as a democracy or dictatorship. Breaking down a regime of corrupt elites while dealing with an economic crisis proves to be an even more challenging task. Despite this, the Thai economy has shown signs of improvement after the crash, with partial implementation of reforms by the IMF and reduced opportunity for corruption within, as highlighted by Macdonald (698).

Despite facing challenges such as uneven income distribution, the Thai people are making strides towards recovery. This positive development is a result of both domestic and foreign pressure, prompting necessary economic and political reforms to combat corruption. Recent years have seen the implementation of measures like electoral and political reform that have contributed to the overall recovery effort. Although the Thai economy has the necessary tools to fully recover, proper leadership, international assistance, and collective effort from the Thai population will be crucial in achieving this goal. It may not occur immediately, but it is achievable under the right conditions.