These funds financed a property boom that began to taper off in the mid-1990s. In addition, export growth - previously a key driver of the Thai economy collapsed in 1996, resulting in growing doubts that the Bank of Thailand could maintain the baht's peg to the dollar. The Bank mounted an expensive defense of the exchange rate that nearly depleted foreign exchange reserves, then decided to float the exchange rate, triggering a sharp increase in foreign liabilities that cash-strapped Thai firms were already having trouble repaying. An economic turnaround requires rescheduling the large short-term foreign liabilities of Thai firms, restoring high rates of export growth to finance foreign liabilities, and extensively recapitalizing the banking system.
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