The root cause of the Tom Yum Kung crisis in 1997 lies in excessive borrowing by the private sector. A series of policy mistakes by the BOT multiplied the effect of the Tom Yum Kung crisis. The most important point to be made about the Tom Yum Kung crisis is that it is based entirely on excessive borrowing from the private sector rather than the public debt. Most firms that are listed on the Stock Exchange of Thailand borrowed heavily to meet their need for capital. Their debt dependence grew heavily. As for listed non-financial companies, the average debt/equity ration rose from 1.58 to 1.98 between 1994 and 1996, and their interest payments divided by liability fell from 14.2% to 10.7%, which made them highly vulnerable. The corporate debt problem play an important role in foreign component. After the opening of the Bangkok International Banking Facility (BIBF), foreign corporate debt grew particularly rapidly during the 1884 and 1995. Financial institutions are more readily to provide loans when land or real estate is used as a collateral. Normally, the amount of loans provided would be less than the value of the collateral. But when land and estate prices were rising rapidly as during the boom years of 1988-1995, the investment in land and real estate pay off. But this was used to float more debt. People use this increased debt to buy more land, which drove prices even up further, and is the beginning of the real estate bubble because there was the building up of a debt pyramid. A slow down in the growth of land prices would bring upon the burst of real estate bubble. Due to the Gulf War in 1991, Thai economy was already slowing down. Demand for real estate tend to be quick and rapid, but building construction was occurring at a rapid pace and it was a matter of time there would be excess supply of housing. It is consider hazardous for Thailand to borrow from short-term deposits and to invest in long term assets, because when the time...
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