"Do Current Account Deficits Matter?"
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Provides an overview of the reseach of Ghosh and Ramakrishnan on current account deficits: what they are, how they are measured and whether they matter.
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"Do Current Account Deficits Matter?"
- 1. “ Do Current Account Deficits Matter?” By Atish Ghosh and Uma Ramakrishnan
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- So
- The Asian economic crisis was the result of speculation on the Thai baht which caused foreign investors to short sell the baht which led to an extreme devaluation of the baht and the crash of the Thai stock market. Thailand had taken out short term loans from abroad to finance domestic projects many of which were for housing for which there was an over supply and a lack of demand. As businesses stopped being able to pay their loans, it looked as though the Thai gov, borrowers would default on their international loans and this led to the speculation. There was simply an oversupply of Thai baht in the hands of foreigners because Thailand had begun importing after a stint of export led growth. There was also a lack of FDI and a lack of foreign exchange reserves. There was slower growth in partner countries as China had not emerged fully and the baht was tied to the dollar which caused it to appreciate prematurely and then crash with the speculation. Had there not been a current account deficit that put the Thai baht in the hands of foreigners the Asian economic crisis could likely have been avoided.