Painful lessons from 1997 must not be forgotten

Massive debt still needs to be paid off, focus on good governance maintained

This month marks the anniversary of the change in the exchange rate regime in the aftermath of the 1997 financial crisis. After 15 years, there remains a question on whether we have learned from the crisis, which resulted in the shutdown of dozens of financial firms and massive layoffs by many companies.

Although time has passed, the ghost of the financial crisis is still there. One of the biggest issues is how to deal with the Financial Institutions Development Fund debt, accumulated from the crisis. It could be a political bombshell for any government.

The 15th anniversary of the crisis comes amid a simmering financial crisis in Europe. Greece has sought an International Monetary Fund (IMF) bailout. Some financial institutions in Europe are in bad shape. When the crisis struck in Asian countries, there was talk about the possibility of an Asian currency as a way to help make Asian countries "immune" to such a crisis. Ironically, the ongoing crisis in Europe has shown Asian countries that a region-wide currency in Asia still has a long way to go.

Painful reforms led to speedy recovery

More than a decade ago, Thailand underwent austerity measures to fight its way out of the financial troubles. The European governments' difficulties in convincing their peoples to tighten their belts should serve as a reminder of the political risks that Finance Minister Tarrin Nimmanahaeminda had to go through to curb the damage and win back backing from foreign investors in Thailand at that time.

The austerity policies and the painful financial reforms have led to a speedy recovery for Thailand. Our financial institutions were reformed after the crisis. Asian financial regulators have adopted restrictive measures to cope with the capital flows and protect financial markets from being too exposed to the subprime crisis in the US and the ongoing economic woes in the eurozone.

However, Thailand cannot be complacent with the positive economic performance that the kingdom has enjoyed so far. In fact, the ghosts of the financial crisis can still be haunt us if we do not learn lessons from 15 years ago.



Excessive spending beyond our means

Firstly, the crisis was a glaring example of the severe impact that can come from excessive spending beyond our means, especially for politicians who prefer to promise the world to voters to win electoral seats. The Thai government in 1997 did not face a fiscal crisis. But that could be an issue in the future because of excessive spending on populist policies. If public money is not spent wisely and populist programmes fail to produce an economic output (or multiple economic impacts) as the government hoped, there could be fiscal problems. Public debt could rise from the current level of 40 per cent of GDP with excessive spending. If public debt is not controlled, the government could run into fiscal trouble and fall into a similar situation to the Greek tragedy.

Moreover, the campaign to ensure good corporate governance should continue to prevent any future strife. The crisis in 1997 was partly a result of financial frauds and mismanagement in some companies. The economic woes led to a campaign for good governance. The campaign must continue in earnest to serve the best interest of all stakeholders.

The 1997 crisis also reminded us of the importance of a strong agricultural base in rural areas. Thailand did not face social unrest in spite of the massive layoffs because people

who were unemployed went back to provinces. Their families in the provinces provided them with a social safety net. Unfortunately, the rural sector seems to be weaker these days as many farmers have sold their land plots for industrial or property development. Society has changed over recent years. Many people have become more dependent on the government's subsidy policies.

In fact, people in power at the moment should be in the best position to learn lessons from the financial crisis. People who were familiar with what occurred in 1997 are decision-makers right now. The lesson from the crisis has led us to where we are right now. It would be a shame if we fail to gain from our loss.