Table of Contents

A New Financial Market Structure for East Asia

A New Financial Market Structure for East Asia

Edited by Yung Chul Park, Takatoshi Ito and Yunjong Wang

This book contends that the East Asian financial constitution lacks an appropriate infrastructure, resulting in inefficient allocation of high savings and an over-inflated short-term debt market. It goes on to point out that despite high savings, East Asia’s dependency on financial centers outside the region is also relatively high, and that there is no strong region-wide network to connect various financial centers in East Asia.

Chapter 12: The Thai Financial Sector in Transition: Can the Bond Market Prevent a Future Currency Crisis?

Bhanupong Nidhiprabha

Subjects: asian studies, asian economics, economics and finance, asian economics, financial economics and regulation

Extract

12. The Thai financial sector in transition: Can the bond market prevent a future currency crisis? Bhanupong Nidhiprabha 1. INTRODUCTION The Thai government wished to establish Bangkok as a regional financial center by creating the Bangkok International Banking Facilities (BIBFs) in 1993. It was a prelude to the financial crisis in 1997. The huge inflows of foreign capital and the unsustainable fixed exchange rate reduced the effectiveness of Thailand’s monetary policy. Loans extended by BIBFs grew from B200 billion in 1993 to 1.9 trillion in 1997. At the end of 1999, the amount declined to just B550 billion. The precarious borrowing foretold a financial distress that would come when foreign lenders changed their perception about Thailand’s financial risk. There has been a suggestion that short-term flows may not be as desirable as long-term flows. As such, some kinds of capital controls are required to fend off volatile short-term capital. Some commentators on the financial crisis argued that the lack of developed capital markets is the original sin committed by the crisis-hit countries. Heavy reliance on bank loans, instead of equity and corporate bonds, lead to the problem of credit crunch, which was aggravated by the attempt to defend the exchange rate by employing a tight monetary policy. With the emergence of the domestic bond market, the financial stress on the banking sector can be reduced because the credit risk can be diversified into other non-bank financial sectors. The structure of business financing has been gradually changing, as...

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