In the 1970s, Southeast Asian countries took advantage of the cost advantage to undertake some American manufacturing transfer projects. The pull of foreign investment has stimulated the rapid development of local economy, the biggest beneficiary of which is Thailand. No one thought that in the mid-1990s, a financial crisis swept through several Asian economies, and Thailand became a disaster area at that time.
When it comes to the devaluation of the Thai baht, many people are accustomed to regard Soros as the culprit. Is that true? Can a fund challenge a country’s currency security? In my opinion, Soros is just a porter of wealth, and more importantly, such care is provided by fate. Today, we will explain the history of that year through several dimensions. This step is a cause and effect of Soros’s going to harvest wealth from the beginning.
1、 The rise of Southeast Asia: the miracle of Thailand
From the 1980s to the early 1990s, Thailand’s economy experienced a growth headwind. From the perspective of GDP, they maintain an average annual growth of more than 8%, and their manufacturing exports in the economic structure increase by 30%. Apart from the data structure, Thailand’s economic growth during this period is almost driven by exports. We know from the customs data that during that period, the proportion of Thailand’s manufacturing exports in total exports increased from 36% to 81%, the proportion of manufacturing in GDP increased from 22% to 29%, and the proportion of Thailand’s more traditional export projects in agriculture gradually decreased from 21 to 11.
Thailand’s economy benefits from the transfer of backward production capacity in the United States. Generally speaking, the product design is in the United States, and its OEM is in Southeast Asia. The purpose is to develop the cheap labor and resources in Southeast Asia, to activate the local economy, and to improve the competitiveness of American enterprises in the international market because of the reduction of production costs. At that time, Thailand was a bit like mainland China after 2000, and the typical company was Foxconn in Taiwan. To put it bluntly, it is a mode of labor-intensive industries to create foreign exchange and then promote domestic economic growth.
In order to keep the hard won manufacturing industry, Southeast Asian countries have set a lower dollar exchange rate to consolidate their advantages. During the period of rapid economic development in Southeast Asia, in order to alleviate domestic economic conflicts, the US dollar adopted a relatively loose monetary policy. The continuous depreciation of the US dollar indirectly improved the export competitiveness of these economies. Time into 1996, the Americans completed the harvest of two economies (Japan, the Soviet Union), the domestic economy rebounded strongly. The monetary policy of the Federal Reserve began to tighten, which led to the passive interest rate increase of Southeast Asian countries anchoring the US dollar policy. Thailand is a model of Southeast Asia, so it is also a country with deep injury.
We opened Thailand’s export data and found that since 1996, Thailand’s export growth rate has declined significantly (the impact of exchange rate appreciation), and gradually changed from a trade surplus country to a trade deficit country. The trade deficit is generally transmitted to the fiscal deficit. Unfortunately, Thailand abides by this general rule.
There is a fatal defect in labor-intensive industries, that is, there will not be too much wealth sharing among the participants in the production process. In a popular sense, workers receive limited remuneration.
At the end of 1996, there was a potential crisis in Thailand’s economy, which was mainly manifested in the lack of national financial strength and the limited accumulation of private wealth. The economy is known as the troika, that is, investment, consumption and trade. Thailand is facing the state of state investment, grain free private consumption and rice free. At this time, if you want to get rid of the potential difficulties, it is a good choice to attract more foreign investment.
2、 After driving out tigers and wolves, we found that Thailand is a real sheep
In order to stimulate the economy and attract foreign investment, the Thai government has put forward the policy of real gold and silver, which aims to stimulate the domestic economy that may be in trouble. Now, there are mainly highlights in the summary of policies. First, accelerate the opening of capital market and second, commit to high interest rate returns. Once the relevant policies were released, they attracted international capitalism instantly, but it was more speculative institutions that smelled the bloody money.
The real idea of Thailand’s economic stimulus policy is to attract foreign investment in the real economy, but these funds see the risk-free arbitrage brought by high interest rates. (the existence of interest margin will give hot money speculation space) a large number of hot money swarmed into Thailand, their purpose is very clear, open financial market short-term speculation is a happy world for hot money. These funds have respectively entered the stock market, foreign exchange and other fields that are easy to gain short-term speculative profits.
At this time, the Thai government was pleased with its pragmatic policy, and the rapid inflow of capital figures showed that the policy worked very fast. But they don’t know. These funds are secretly burying mines. The goal is to cut meat with a sharp knife. Among these speculative funds, there is an organization called quantum fund, whose leader is Soros. When the layout is completed, he has been waiting for the general attack.
In early March 1997, the Bank of Thailand announced that a small number of domestic financial institutions had problems in asset quality and cash flow, to guard against systemic financial risks.
The release of this news, for Soros, is no doubt that the hunter found the horse’s feet of prey. As for the beasts that are good at hunting, once they have a chance to take advantage of it, a quick attack is fatal. Soros immediately issued an order to fight, sell all chips, and short the Thai baht!
The Thai baht began to depreciate sharply under the siege of many funds. Feeling the huge pressure, the Thai government decided to intervene in the exchange rate in panic, put out the national foreign exchange reserves, and put the whole country’s efforts against the shorting of speculative funds. The Bank of Thailand and Singapore formed an alliance to mobilize US $12 billion to buy Thai baht. In addition, by administrative order, domestic financial institutions are prohibited from transferring chips to overseas institutions, and the interest rate of baht is increased.
The Thai government’s three board ax began to achieve great success, withstanding the short-term pressure to force a truce of speculative funds for a month. But a month later, the short fund led by Soros turned around and quickly exhausted Thailand’s foreign exchange reserves with a strong advantage. The Thai government, which has no ammunition, can only accept the fate of the devaluation of the baht.
When it’s over, Thais find that their policy of attracting foreign investment has turned into a complete sheep killing campaign. Unfortunately, Thailand is the poor sheep.
3、 Impact of devaluation of Thai Baht
The devaluation speed of the baht is like a waterfall, which is as spectacular as three thousand feet down the river. Thailand’s financial markets are in turmoil, and companies that have created Thailand’s manufacturing boom have gone bust in the process. Thai people lost a lot in this economic disaster. They found that if they want to keep the value of Thai baht, they can either change it into a strong dollar, or quickly change paper money into commodities to avoid losses.
In this context, Thai banks have encountered a run tide, indirectly forcing the Thai banking industry to collapse. The whole Thai economy has fallen into a depression. No one would have thought that just two years ago, it was a picture of good economic development momentum and prosperity. Thailand seems to have encountered a hurricane in its territory, leaving a mess after the storm!
After the international hot money ransacked Thailand, it took the rich spoils and aimed at the next prey. Most countries in Southeast Asia were ransacked by them, and the Indonesian rupiah, Philippine Peso, Myanmar dollar and Malay dollar in this period were not spared. After a short period of sharp rise, stock markets in various countries have plunged. The factory collapse, bank bankruptcy, price rise and currency devaluation of the real economy were the hot words during that period.
Since July 1997, the international hot money has almost swept Southeast Asia. As a direct result, the currencies of all countries have depreciated significantly. The financial markets of these economies have suffered a serious shock. The direct economic losses of these countries have reached 100 billion US dollars. Since then, they have entered the trend of economic recession.
Most of the $100 billion lost in the Asian financial crisis was divided up by hot money!
Today, when we look back on the financial crisis 20 years ago, we are filled with emotion. Is Soros capable? The rational answer should not be, first of all, its own economic structure, and second, the dollar policy that cannot be controlled. When these factors resonate, once government leaders are full of self rescue thinking, their decisions may backfire. Thailand is a living example!
Soros can not launch a large-scale plunder of wealth. He is just a mature hunter. Once he finds the prey, it will kill him!