BEIJING – On July 2, 1997, the Thai baht collapsed. After waves of speculative attacks, the government had run out of foreign currency and become unable to support its exchange-rate peg to the US dollar. So, it floated the baht, which went into freefall. A wave of financial and non-financial Thai corporates that had borrowed heavily in dollars filed for bankruptcy. The Asian financial crisis had begun.
Unable to service their foreign debt, Thailand, Indonesia, and South Korea turned to the International Monetary Fund for support. But the IMF’s rescue packages were too little, too late, and came with excessively harsh conditions. East Asia, it increasingly appeared, would be better off saving itself.
The region certainly had resources. Though some countries, like Thailand, were running current-account deficits, East Asia as a whole ran an external surplus. So, in September 1997, Japan proposed pooling the region’s foreign-exchange reserves and using them to rescue ailing countries. The “Asian Monetary Fund” that would be established to manage this facility would, it was promised, move faster and impose less stringent conditions than the IMF. But the US and the IMF objected to the initiative, and the AMF was stillborn.
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