Capital Liberalization, the 1997 Crisis, and Consequences on Financial Sector: The Case of Thailand

Thailand has been one of the fastest growing economies in East Asia since the1980s. In the early 1990s, trade and capital account liberalization became a primary policy objective of the country. However, its liberalization experiences accompanied by economic instability and weak institutions reveal clearly the potential harmful effects and led the country to economic crisis in 1997.

The crisis has left painful consequences on Thai economy especially on financial sector. It has also triggered policy improvement in the development of the financial sectors, supervisory roles of the central bank, and the creation of new institutions. Banks and corporations have undergone the adjustment to the changing business landscapes and achieved some degree of recovery after the crisis. This paper aims to study the consequences of the 1997 crisis with the emphasis on the Thai financial sector. It will also attempt to draw some meaningful lessons from the crisis and address future challenges to the Thai financial sector.