Thailand Permanently Closing Insolvent Finance Companies

Thailand will liquidate 56 of 58 insolvent finance companies shut down by the Central Bank earlier this year, the government announced today, beginning the biggest-ever overhaul of the country’s financial system.

The permanent closure of the firms is expected to leave between 5,000 and 10,000 workers unemployed, rattle the already battered stock market and spark a further drop in Thailand’s currency, the baht, which has lost more than 40 percent of its value against the dollar.

The move was not wholly unexpected. It is part of the terms of a $17.2 billion bailout of the Thai government supervised by the International Monetary Fund. However, the scope of the liquidation came as a shock to some analysts, who had expected something much more modest.

Through most of this decade, Thai finance companies lent heavily to real estate developers who created a massive glut of homes, offices and retail space. Unable to sell their property, many developers defaulted on loans, eroding the foundations of the finance sector.

The same pattern has appeared in many other Asian countries recently, creating similar havoc in those stock and currency markets.