The Thai baht was introduced in 1897 by the ruling King at the time, King Chulalongkorn. For the time period between World War II and 1980, the Baht was fixed to the US Dollar at an exchange rate of 1$ = 20 baht. It proceeded to slowly decrease in value, and was again pegged to an exchange rate of 25:1 from 1985 until July 2, 1997 when the Asian financial crisis took its toll on Thailand.
The Asian financial crisis, also known as the Asian currency crisis, started in July 1997 in Thailand, and affected currencies, stock markets, and other asset prices of several Asian countries, many part of the East Asian Tigers. Triggered by events in Latin America, Western investors lost confidence in securities in East Asia and began to pull money out, creating a snowball effect. Thailand, namely, was one of the nations most profoundly affected by the crisis.
Following the crisis, it was decided that the baht be placed on a floating exchange rate which halved its value, to its lowest rate of 56:1 in January 1998. It stabilized again at a rate of about 40:1, which it has managed to stay at since then.
| Moody's Rating |
| Baa1 |
| S&P Rating |
| BBB+ |
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Political Structure
The king's power under the constitution is limited. Outside of the constitution, however, the king is the anointed protector of Thai Buddhism and a symbol of national identity and unity. The present monarch is given a great deal of popular respect and moral authority, which he has been put to good use in situations involving political crises. The head of government is the Prime Minister, who is appointed by the king from among members of the lower house of parliament, typically the leader of the party that has the capability of organizing a majority coalition government.
The bicameral Thai parliament is the National Assembly which consists of a House of Representatives of 500 seats and a Senate of 200 seats. Members of both houses are elected by popular vote elections. Members of House of Representatives serve four-year terms and Senators serve six-year terms. The highest judicial body is the Supreme Court. Judges of the Supreme Court are appointed by the king. Thailand is an active member of the regional Association of Southeast Asian Nations. The ruling party in Thailand is the Democratic party.
Prominent Figures
The head of state, or king, in Thailand is King Bhumibol Adulyadej or King Rama IX who has been King of Thailand since 1946. He is the world's longest-serving head of state. Interim Prime Minister Surayut Chulanon.
Unique Characteristics
Interest Rate Hikes:
In 2005, Thailand's inflation rate reached a six-year high of 3.7 percent when the government of Thailand raised the price of diesel fuel by approximately 20% due to the surging prices of oil. The Central Bank of Thailand decided to take action as it raised its interest rates by a quarter-point to the highest interest rate since December of 2001.
Asian Financial Crisis:
In July 1997, Thailand had to devalue the baht about 20% against the US dollar, as a result of intense pressure in the foreign exchange market. Currency speculators and Thai residents alike were trying to sell the baht and buy the US dollar, causing and worsening capital flight out of the country. The Thai government was running out of its foreign reserves and losing market confidence in maintaining the currency value and financial stability. In the process, interest rates increased substantially as the outflow of short-term capital intensified. The previously inflated stock and real estate markets went on to collapse and led to Thailand's worst recession in the postwar period with sharply rising unemployment and business failures. The decision to devalue the baht affected other neighboring countries in the Southeast Asian region. The devaluation of the baht lowered the prices of Thai exports, pressuring other currencies to do the same. Indonesia's rupiah was particularly vulnerable, as it had to be devalued by about 90% over the period of just a few months. In similar nature to Thailand, interest rates were rising sharply, as capital flight from Indonesia was accelerating. The subsequent turmoil in the financial markets and the economy as a whole in Indonesia has been even more severe than that in Thailand, due to a complete collapse in both the financial and political system in that country. In consequence, former President Suharto had to resign as a first step towards the restoration of market confidence in the Indonesian government.
Key Economic Factors
Gross Domestic Product: The Gross Domestic Product (GDP) is the measure of total production and consumption of goods and services in Thailand providing a strong gauge of economic activity and productivity growth. It is important to look for changes in real GDP growth in the nations primary industries: household consumption, government expenditures, business investment, and export levels.
Foreign Trade: The balance of trade is this difference between exports and imports of foreign trade in goods and services. This is important because the size of the imbalance gives insight into the state of Thai exports. A general weakness in Thailand's overall economy can be signified by weak imports. Also, when there are changes in the trade balance with specific countries, this has direct affects on foreign exchange and foreign policy with those countries.
Monetary Policy: The Bank of Thailand's Monetary Policy Committee (MPC) meets to determine the appropriate level of the 14-day repurchase rate, its target variable. Its main goals are to maintain price stability and keep inflation between 0 and 3.5% per year. The repurchase rate also helps financial institutions determine where short-term interest rates should be. This all can affect buying and saving behavior of businesses and consumers, which has an impact on economic growth.
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