What caused the Thai currency to sell off so badly during the late 90's?

Question

I understand that they had their currency artificially fixed against the dollar and then it floated, but could anybody explain this to me better and how come this had such a detrimental effect on asia as a whole?

Answer 1

in the early 1990's thailand and other asian tigers' economies were doing well because of a recession in the US. They had high interest rates and as a result good returns for investors.
When the US came out of recession and the investors started moving investments out, especially those that were short term speculations. Thailand had a fixed exchange rate against the US and to prove that there economy was still industry worthy they floated their currency rather than devaluing(this could have been politically motivated 'cos the opposition leader thaksin at that time would have benefitted from the devaluation).
this whole scenario in general had a detremental effect on investments in developing nations and as a result asia.
some countries recovered faster by adopting repairing monetary policies, SIngapore, Malaysia.

Answer 2

As you say it was artificially fixed, and eventually the pressure against that fix broke the dam. The wobbling actually started in Indonesia ~ the rupiah dropped in a few weeks from 650/$ or thereabouts to 10,000/$!! Hedge funds (George Soros?) moved heavily into short positions on floating ASEAN currencies (not the Sing $) and the Thai Central Bank simply didn't have the resources (US$) to resist.

Because the Malaysian economy was basically sound (that country has been well run and is an example to the rest of the developing world in how to let politicians make money without corruption becoming endemic), the ringgit "only" dropped by 1/4 and has been pretty stable since.

The kerfuffle plunged SE Asia into recession at the time because bursting of speculative bubbles always does. Indonesia obviously fell into crisis, political as well as economic, because virtually no-one there could afford to buy any imports any more. And in a mini-version of the 1929 Depression, neighbouring countries lost each other's markets and so everyone lost some of their wonted standard of living. Mercifully, they could all continue selling exports into China and the US with the help of their more-competitive exchange rates and their economies recovered. After a year of minus 6% growth it was plus numbers all the way, as these countries benefited from foreign direct investment inflows (viewed from the Western end, outsourcing and globalization).