During the Asian financial crisis (IMF crisis) Thailand, Indonesia and South Korea crumpled under the relentless currency attack which led to the downward spiralling of their currencies and ultimately have to resort to IMF for bailouts to avoid falling into defaults which could bankrupt the nations if left unchecked. Thailand, Indonesia and South Korea shared some common traits, they all borrowed or invested heavily in the US currency and initially had resisted IMF’s assistance and tried to salvage the situation.
The conventional high-interest-rate economic wisdom is normally employed by monetary authorities to attain the chain objectives of tightened money supply, discouraged currency speculation, stabilized exchange rate, curbed currency depreciation, and ultimately contained inflation.
In the Asian meltdown, highest IMF officials rationalized their prescribed high interest rates as a one pill cure all panacea.
Malaysia on the other hand snubbed the offer from IMF and decided to do it the ‘Malaysia Bolih’ way. Mahathir quoted "We were strongly criticized by the Western countries, but we never bowed to them in any field, because we are responsible to our country, to our people. They are not responsible for our country. To them, if our people suffer, it is not their problem. But we are responsible. We are elected by the people, and it is our responsibility to look after the people's security and well-being. No one declared that currencies should be regarded as commodities and traded like sugar or wheat or coffee.... Indeed, for a long time there was no currency trading, while the world traded and grew economically. Fixed exchange rates enabled values to be attached to goods and services”.
It is interesting to note that most of Thailand foreign exchange reserves were locked up in forward contract prior to Asian crisis. With its foreign exchange reserves depleted (while trying to defend the Baht), Thailand lacked the foreign currency needed to finance...