The untold story of the world’s most resilient currency

The author is Chairman of Rockefeller International

In February 1998, 25 years ago this month, I was in Bangkok, ground zero of the Asian financial crisis. The implosion of the Thai baht had triggered a serial collapse of currencies and markets, with protesters taking to the streets across the region and chaos spreading. As world leaders struggled to slow global contagion, Thailand and its neighbors were mired in depression.

Thailand’s economy shrank nearly 20 percent as shares fell more than 60 percent and the baht lost more than half its value against the dollar. Prices in Bangkok felt incredibly cheap. I didn’t dare to buy Thai stocks with so much uncertainty. But I left with lots of shopping bags and two golf sets, one for a gift.

While this year’s drama has made history, the epilogue comes as a surprise. Thailand has slipped off the global radar since early 1998, but the baht has shown unusual resilience, holding up its value against the dollar better than any other emerging market currency and better than all but the Swiss franc in the developed world.

By contrast, in Indonesia, where the 1998 crisis toppled dictator Suharto, the rupiah is trading at nearly 15,500 per dollar versus 2,400 before the crisis. The baht is trading at 33 to the dollar, not much lower than 26 before the crisis.

Yet Thailand hardly feels expensive: a foreign visitor can find a 5-star hotel room for under $200 a night, a fine dinner in Phuket for $30. Despite the strong baht, Thailand is competitive globally. The epicenter of the crisis became an anchor of stability and a lesson for other emerging economies.

After 1998, many emerging societies became financially conservative, particularly those in Southeast Asia that were hardest hit. Indonesian banks have gone from opaque dens of nepotism to models of good management. The Philippines and Malaysia tried to contain their deficits. But no country in the region has become more economically orthodox than Thailand, avoiding the excesses that can alienate outsiders and fuel currencies.

Southeast Asia was on the upswing in 2000. Since then, Thailand’s government deficit has averaged 1 percent of gross domestic product, less than half the emerging-market average. Its central bank was similarly cautious, keeping interest rates relatively high and the broad money supply growing 7 percent a year, the third lowest among major emerging markets.

The ultimate reward for orthodoxy is low inflation. Thai inflation averages just over 2 percent, the same as in the US, a rare achievement for an emerging market. Among other emerging economies, only China, Taiwan and Saudi Arabia have lower inflation than Thailand since 1998.

Before the crisis, Thailand pegged the baht to the dollar, allowing it to borrow heavily abroad and run huge current account deficits. As foreigners lost confidence in Thailand, the government was forced to drop the peg and let the baht float freely. Its crash followed, but the baht recouped its losses to become one of the least volatile currencies.

Steady foreign income helped. Thailand remains one of the most open emerging markets. Trade has grown from 80 percent of GDP in 1998 to over 110 percent today. The balance of payments deficits that predicted the crash gave way to surpluses as Thailand built on its strengths in tourism and manufacturing, which generate a quarter of GDP.

During the crisis, I drove out of Bangkok on a new four-lane highway to see the factories that tower on the green, pagoda-studded hills of the east coast. This heavenly manufacturing base is evolving, lately from cars to parts for electric vehicles, for example, and is attracting heavy foreign investment.

Meanwhile, tourist hotspots around Phuket and Koh Samui are expanding alongside new forays into medical and wellness services. Since the crisis, tourism’s share of GDP has more than doubled to 12 percent, making it an unusually large source of foreign exchange. Most countries with such a large tourism sector are tiny islands.

Thailand also has its flaws, including higher household debt and a faster aging population than most of its peers. Despite this, per capita income has more than doubled from $3,000 before the crisis to almost $8,000.

In addition, Thailand has achieved financial stability despite constant political upheavals, including four new constitutions over the past 25 years. By overcoming challenges the Swiss franc had never faced, the Thai baht has sealed its unlikely claim to be the world’s most resilient currency – and a case study in the benefits of economic orthodoxy.