This chapter argues that the Bank of Thailand (BOT) made two egregious policy blunders. First were the futile and costly defense of the baht during late 1996 and the first half of 1997. Second was the bleeding of the Thai government's Financial Institutions Development Fund (FIDF) to prop up failing financial institutions, while neglecting to take actions to remedy the underlying structural problems in the financial and banking sector. Drawing on the Bank of Thailand's published materials, the chapter suggests that Thailand's long period of economic boom had lulled the technocrats into complacency. Unlike earlier financial crises in the developing world, where governments over-borrowed until they were forced to seek a bailout from the International Monetary Fund (IMF), or a multilateral debt rescheduling from externally-based creditors, the Thai crisis was rooted in the private sector.
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This introduction presents an overview of the key concepts discussed in the subsequent chapters of this book. The book presents the case studies of the individual countries: Thailand, Indonesia, South Korea and the People's Republic of China (PRC). It examines the factors behind the financial crisis and highlights the underlying similarities and the fundamental differences between the individual cases. The book provides a review of the competing perspectives on the new international financial architecture. It explains a number of fundamental issues and its implications for the emerging market economies. The book also presents a more nuanced picture of the International Monetary Fund's (IMF) policies and its socioeconomic impact. It assesses the IMF's efforts to reduce moral hazard. The book also examines the reasons behind Asia's remarkable economic recovery and the challenges that lie ahead.