Product details

During the early 1990s, Mexican imports were more than their exports. To fill this gap in foreign trade, the Mexican government introduced short-term dollar indexed bonds. The increase in the public debt led to the Mexican crisis and later to devaluation of the Mexican peso. The economists had predicted the Mexican crisis, much before it took place. Similarly, the International Monetary Fund (IMF) authorities had predicted the Southeast Asian crisis, which began in Thailand in 1997. In 1996, Thailand had accumulated a current account deficit of 7.9% of its gross domestic product (GDP). In the years 1995-1996, the capital inflow into the Southeast Asian nations increased in the form of foreign portfolio investments. The Southeast Asian banks raised their interest rates, which witnessed a shift in the market conditions. Speculation in the currency market and economic instability led to the devaluation of the Thai baht. This resulted in a contagion effect on other Asian countries, as they devalued their respective currencies and changed their exchange rate policies. This case helps to discuss the reasons that led to the Southeast Asian crisis and how it spread from Thailand to the other Southeast Asian countries. The case also helps to compare the Mexican crisis, which led to devaluations in South America, with the Thai economic crisis, which led to devaluations in the Southeast Asian nations.