7 Historical Events Analysis (10 Points) Read the article below, then answer the following questions. The article comes from the period leading up to the 1997-1998 Asian financial crisis, which started in Thailand but then spread worldwide. THE ECONOMIST MAY 17TH 1997 - keeps getting worse. The government had The scorching hot morning of Monday May predicted that Thailand's GDP would grow 12th might have been the start of a better- by 6% this year. That now seems very op- than-usual week for Thailand's embattled timistic. Exports, whose growth had led financial authorities. The steady climb of a decade-long boom, have failed to expand America's dollar against the Japanese yen since the start of 1996. The inefficiency of had gone into reverse. That should have Thailand's labor-intensive industries, com- eased pressure on the Thai currency, the bined with the overvalued baht, has been baht, which is linked to a dollar-dominated bad for business. The drive to become an basket of currencies. Its strength has for exporter of more advanced goods received months made it subject to sporadic attack, a blow this month when Texas Instruments as the Thai economy has weakened. But pulled out of a highly publicized electron- by Thursday, the central bank had spent ics joint venture because of Thailand's eco- nearly $10 billion defending the baht's peg. nomic difficulties. It had raised interest rates for offshore bor- Due to the slowing economy, the gov- rowers to more than 1,300% to deter specu- ernment is heading for its first budget lators. Devaluation, which the government deficit in more than ten years. The size had resisted almost as a matter of national of the projected shortfall ($770 million) is pride, was looking inevitable. And, as the not enormous. But the very fact of a deficit stock market index fell to its lowest level adds to the sense of drift. Hapless efforts to for eight years, Thailand's dismal economic rescue the floundering financial and prop- spiral took yet another turn downward. erty sectors only reinforce that feeling. As The government's own actions con- much as 400 billion baht of property loans tributed mightily to the baht's travails. A have gone bad, leaving banks and finance senior economic advisor had been quoted companies in serious trouble. Rescue plans as suggesting a devaluation might be nec- are moving slowly. essary. This deviation from official pol- Devaluation will make their life even icy was swiftly denied. But it fueled ru- harder. Many banks have borrowed in dol- mors of an imminent ditching of the finance lars to make high-interest baht loans or fi- minister, Amnuay Viravan, and a shift in nance baht costs. Of Thailand's foreign policy. The impression of confusion was debt of about $90 billion, some $70 bil- heightened by an emergency meeting on lion is owed by the private sector, much May 11th which saw the prime minister, of it by financial institutions. While the Chavalit Yongchaiyudh, announce that he value of the bank's assets keeps shrinking was going to take personal charge of the as the property market collapses, the value economy. Meanwhile, the economic news of their foreign liabilities continues to rise