1997: A crack in the baht

ON JULY 2, 1997, the Bank of Thailand shocked the markets by floating the baht, in essence giving up on defending the beleaguered currency and giving bearish speculators free reign.

The fall of the baht is now seen as the first domino that set off the Asian financial crisis. The turmoil that followed demonstrated in unforgiving terms what can happen when countries run current account deficits with insufficient foreign reserves and face large foreign indebtedness at high interest rates.

The crisis was the biggest economic disaster to hit the region during the 1990s, sending an exuberant Asia into economic contraction, pummelling regional currencies, unleashing a wave of corporate bankruptcies, rewriting political careers, fuelling critics of the International Monetary Fund and forcing regulators to focus on financial stability.

The crisis took its toll on Singapore as well, but the country emerged relatively unscathed compared to its regional peers, allowing Singapore to cement its status as a South-east Asian safe haven.

The baht's float came just days after another historic event, the handing over of Hong Kong from the British to China.

The handover marked the end of more than 150 years of colonial rule for Hong Kong, and gave the territory a true hinterland that has helped it to grow tremendously over the past two decades. China was determined to make it work right from the start, most notably by making accommodations with the "one country, two systems" principle.

On the corporate front, Neptune Orient Lines (NOL) made a surprise US$825 million bid for APL to create one of the world's largest shipping companies at the time. It was a hefty price tag that remains controversial even today, when the planned takeover of NOL by CMA CGM led investors and market commentators to revisit that fateful acquisition.

The Business Times has been there to report and analyse the most significant news since 1976. Every week, this feature will showcase excerpts from the biggest stories for each year that the paper has been in operation. The full text of all the stories can be found online at bt.sg/bt_40