George Soros

One of the big news stories in Thailand last week was the proposed visit of the billionaire investment manager George Soros. Many Thai people were angry that he was coming because they blame Mr Soros and other foreign investors for causing the 1997 fall of the Thai baht and the economic collapse that followed.

The protests against Mr Soros caused quite a bit of comment in the Bangkok Post. You will read what one of our readers had to say in this lesson. Of course, in the end, Mr Soros called off his visit and this week things are back to normal.

Much of the anger against Mr Soros was simply emotion. Few people really understand what happened in and before 1997. They don’t know if Mr Soros was really involved, nor do they understand what he is accused of doing. After you finish this lesson, you will be able to tell them.

The Thai baht is a commodity, much like rice, sugar and oil. Its value is based largely on supply and demand. If people throughout the world are buying more goods and services from Thailand than Thais are buying from the rest of the world, the baht’s value should rise.

Jules Verne

However, for the ten years prior to 1997, Thais were spending more on foreign goods and services than they were earning from their own goods and services. Thus, the baht’s value should have fallen. But it didn’t. Why not? Read on….

The Jules Verne in this lesson is a pseudonym, i.e., it is not the writer’s real name. The real Jules Verne was a famous French writer who wrote Around the World in Eighty Days and Journey to the Centre of the Earth.

One reason the baht’s value didn’t fall before 1997 was that Thai businesses were borrowing a lot of foreign money. Another reason was that the Thai central bank was keeping the baht’s value at about 25 baht per one US dollar.

For a long time, it did this by keeping Thai interest rates higher than in many other parts of the world. This attracted foreign money.

As the crisis approached, however, the central bank was forced to try a different approach. It started selling US dollars from its own reserves to buy baht.

As the situation worsened, many people believed that the central bank would soon run out of money to support the baht. The bank remained firm, however, knowing that letting the baht fall in value would ruin many local businesses with foreign loans.

Why? Suppose a Thai business had a one million dollar loan from a foreign bank. At 25 baht to the dollar, it would have to repay 25 million baht plus interest. If the baht fell to 30 to the dollar, however, it would have to repay 30 million baht plus interest.

Unfortunately, by mid-1997 so many worried investors were selling baht to buy dollars that the central bank was unable to spend enough money to support it and on July 2^nd, the baht’s value was allowed to fall.

Some Thai people believe that many of the people who were selling baht for dollars were speculators who wanted the baht to fall so they could earn large profits. The most powerful and successful of these speculators, they believe, was George Soros.

Actually, you too could have been a speculator at that time. Here’s an example of how you could have earned a handsome profit.

First suppose you had gone to a bank and borrowed 25 million baht to be repaid in three months. (To make this easier, let’s forget about the interest and fees you would have to pay.)

Next you sold the 25 million baht for one million dollars.

Now suppose that the baht fell in value to 30 to the dollar. How many baht would you get if you sold your one million dollars? Since you needed to repay only 25 million baht, how many baht would you have left over.

Now suppose, as actually happened, the baht fell to 45 baht? How many baht would you have left over after you repaid your loan?

Certainly a lot of such speculation did take place before the fall of the baht. George Soros may even have been involved although there is no clear proof. But is this an evil practice like some Thai people believe? And who deserves most of the blame for the fall of the baht, the speculators or the government officials who allowed the Thai economy to get so badly out of balance?

One of our readers wrote a letter to Postbag giving his opinion about who is to blame for the economic crisis. But he did it in the form of an allegory, a story in which the characters and events are symbols intended to teach a lesson of some kind. As you read the letter, consider the following questions:

Who deserves the cream pie? There was once a fine trading ship which became rich trading across the seven seas. The passengers elected Captain C and his crew, who promised to maintain the ship, sail a safe passage in case of a storm, and make the passengers rich from trade. Everyone knew that there were sharks in the sea, as well as a famous pirate called George who specialised in plundering shipwrecks. Pirate George had informers in every port. George always got to know which ships were seaworthy, which carried gold, and which captains were prepared for a storm. The sharks followed pirate George because they knew that he would lead them to the shipwrecks. For years, the seas were calm and the winds were fair. The ship traded well and carried a lot of gold. Captain C and his crew had never experienced a storm. Every time the captain and his crew put into port, they took with them a few bars of gold, and promised they would spend the money on the ship’s maintenance, as well as lifeboats for the passengers. In fact, over the years, they kept most of this money for themselves; the passengers knew this because they saw Captain C and his crew spending their gold carousing in port. It was obvious to everyone that most of the lifeboats were rotten, that the rudder was rusty, and the ropes were wearing thin. However, the passengers were too busy trading and eating well to bother about Captain C and his crew. Why worry about a few gold bars when there was so much to spare? One day, the ship was planning a long voyage and the talk in all the ship was about the coming storm. Captain C and his crew were carousing as usual, so they did not study the weather conditions. The outcome of the story is predictable but sad. The ship set sail, closely followed by Pirate George and the sharks that swam with his ship. Our ship ran into the storm, its rudder broke, and masts snapped. Captain C and his crew had a hangover from their carousing, and did not know what to do. They were terrified of Pirate George, so they took the only lifeboat, filled it with gold and saved themselves, not before telling the passengers that Pirate George was to blame for their misery. The ship ran against the rocks, and many passengers drowned. Pirate George was soon on the scene to plunder what gold remained, and the sharks had a feast. Two years later, the ship was repaired and ready to set sail with a new captain, Captain T, most of the old passengers, and a lot less gold. Captain T promised that everything would be like the old times; Pirate George and the sharks were still around, but had not been seen for some time, and the seas looked calm. What became of Captain C and his crew, you may ask. Was he hanged by the passengers? Was he banished to a desert island with his crew? No, he was elected by the passengers and Captain T to be second in command on the next voyage. Can you guess what happens next? Who is the real villain? Who is the real sucker? Who do you think deserves a cream pie: a) Pirate George, b) the sharks, c) Captain C, d) Captain T, or e) the passengers? Jules Verne

Know these words and phrases cream pie a type of pie which protestors sometime throw at people they don’t like maintain to keep in good condition plundering stealing from carousing having fun, esp. loudly and by drinking a lot of alcoholic drinks rudder a piece of metal or wood at the back of a boat which is moved to make a ship go in different directions rusty in poor condition hangover a headache from drinking too much alcohol misery a very unpleasant condition banished forced to leave villain evil person sucker a person who has been tricked or deceived

TEACHER'S NOTE

In the main section they will begin by reading some background on how Thailand’s economic crisis came about and about one of the speculative techniques some investors used that probably contributed to the fall of the baht.

I have written this part in very simple language, but it is still something that should be read slowly and carefully. Make sure your students work through the speculation exercise. (Incidentally, if the baht falls to 30, they earn a 5 million baht profit. This jumps to 20 million baht if the currency falls to 45.)

The letter to Postbag, can be read much more quickly. Here the main concern should be to identify the people the writer is talking about and catching his main point. Obviously, the writer blames Thai political leaders for the crisis much more than he does speculators like George Soros, but since he does so in an allegory, it may not be so obvious to your students. (Captain C is Chavalit Yongchaiyudh, his crew is his cabinet and key members of his government, Pirate George is George Soros and Captain T is Thaksin Shinawatra.

If you want more information on what is known about the origins of the Thai economic crisis and the role of speculators, you can look at my About Business column which appeared on Wednesday. It is available by clicking here.

Exploring the Premier league How far? In which direction? David Beckham and his Manchester United team-mates will be travelling to Chelsea this week for their match. How far will they travel and in which direction? On the other hand, Everton's Thomas Graveson (on the ground), will remain in his home stadium for his match. Which city is that in? Who is coming to visit? How far will they have to travel? I have often wondered whether a Premier League like England’s featuring teams from various parts of the country would be practical here in Thailand? For example, you might have teams from Hat Yai, Nakhon Si Thammarat and Phuket from the South, Chiang Mai and Phitsanulok form the North, Nakhon Sawan and Ayutthaya from the Central Region, several teams from the Bangkok area, Udon Thani, Khon Kaen and Ubon Ratchathani form the Northeast and so on. One of the big problems of course would be travel. Distances between cities can be rather long and Thailand does not have the modern transporation system that England has. A team travelling from Phuket for a game in Khon Kaen would have to go almost 1000 kilometres and a Hat Yai team travelling to Chiang Mai would travel more than 1300 kilometres. What is the travel situation like in England? Use your map to determine the distances and the directions the visiting teams will have to travel for games listed below. Ipswich goes to Arsenal Newcastle goes to Charlton Derby goes to Leeds Manchester United goes to Chelsea Middlesbrough goes to Aston Villa Bradford goes to Southhampton Leicester goes to Everton Liverpool goes to Sunderland Note: This lesson requires a map. The best map for our purposes is available by clicking here.