On the twentieth anniversary of the 1997 emerging market crisis, emerging market investment legend Mark Mobius shares some of the lessons he learned:
Thailand’s currency, the baht, had been pegged to the US dollar, but on July 2, 1997, the government shifted to a floating exchange-rate system, effectively devaluing it. With Thailand’s foreign exchange reserves drained from months of defending against currency speculation, economic peril ensued. The same currency speculators pounced, further exacerbating declines.
As an investor in 1997, it was a very difficult time. In the lead up to the crash, we’d heard from a number of Thai companies that were finding it cheaper to borrow in US dollars because the interest rate on US-dollar loans was so much lower than Thai-baht loans.