The Domestic Effects of Tight Monetary Policy in the Wake of Thailand's Financial Crisis

Jonathan E. Leightner

Journal of the Asia Pacific Economy, 2002, vol. 7, issue 2, 242-266

Abstract: One of the most contentious and important questions remaining about Asia's financial crisis is whether or not the policies advocated by the IMF were excessively severe, causing an unnecessary degree of damage to the domestic economies of Indonesia, South Korea, and Thailand. In Thailand, the country examined in this paper, the conditions for the IMF loan of August 1997 included the Thai government allowing weak financial firms to fail and implementing tight monetary policies. By May of 1998, only thirty-five of Thailand's ninety-one finance/securities companies still operated and four of Thailand's fifteen banks had been taken over by the government. Thailand's remaining banks and finance companies lived under the threat of having their capital written off and management replaced. This paper uses data envelopment analysis (DEA) to find empirical evidence that the resulting reduction of credit affected all sectors of Thailand's economy. The strong and healthy sectors of Thailand's economy were hurt, along with the weak sectors.

Date: 2002
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DOI: 10.1080/13547860220134833

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