Fewer than a dozen people all in the central bank knew the answers. For months, they had been hiding two crucial numbers from the Thai government and the public. Thanong knew he was not going to get the information just by sitting in his office, as his predecessor Amnuay Viravan had done. He and three assistants climbed into the leather seats of his Volkswagen and set off to demand information from Rerngchai Marakanond, governor of the Bank of Thailand.
Thanong had not wanted this job. He was in Hong Kong when rumours of Amnuays resignation surfaced, dreading the knowledge that he would be on the shortlist of replacement candidates drawn up by PM Chavalit Yongchaiyudh. But Thanong got a phone call and Chavalit ordered him to leave the presidency of the Thai Military Bank and take charge of the economy.
Thanong was not regarded as an especially good banker, but he knew the tricks of the trade as well as anyone. Sure enough, on his visit to the central bank, Thanong found the numbers he was looking for. He was horrified.
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With the blessing of his superiors, the central banks young and inexperienced chief currency trader, Paiboon Kittisrikangwan, had locked up most of Thailands forex reserves in forward contracts. Thailands reported reserves of $30bn were a myth they had dwindled to $1.14 bn, equal to just two days of imports.
On top of that, the central banks Financial Institutions Development Fund (FIDF) had lent over Bt200bn ($8bn) to struggling financial institutions. Finance One, the countrys largest finance company, had alone received Bt35bn in the first quarter of 1997. This lending had drained seven years worth of the Thai governments fiscal surpluses; the central bank was printing money to make up for the rest. The financial system had become a black hole, sucking out government money with no end in sight.
Within hours of Thanongs meting Rerngchai came the leak. As is common with market-moving news in Thailand, no announcement was made. Instead, influential brokers and privileged journalists were quietly told that the FIDF would not, as it had promised one month earlier, buy new shares in Finance One.
Finance One would shut down two days later, along with 15 other cash-strapped companies. Five days after that, Thailand was forced to free its currency from its peg to the US dollar, plunging East Asia into the financial turmoil that continues to this day.
By floating the baht, Thanong avoided leading Thailand into a default in its international debt. And by letting Finance One fail, he started plugging the hole in the financial system, although FIDF lending now stands at about Bt600bn and continues to climb. But there was a downside. By abandoning Finance One, Thai authorities altered the way investors assessed Thailand so fundamentally that when the baht was floated, it sank.
Thailand had an open capital market and the Bank of Thailand acting as lender of last resort, says Rob Collins, head of Paribas Asia Equity, an affiliate of Finance One at the time. That created a huge market distortion; there was no significant risk premium. It was all sovereign risk.
When the Bank of Thailand decided it could not or would not act as a lender of last resort, the risk premium went through the roof, Collins says.
Investors had been told that the bahts value would remain stable, and that leading financial institutions would not be allowed to fail. Though both these propositions were open to question, the authorities had persuaded investors of their validity.
The first questioning of the bahts value came towards end- 1996. By then, it was possible to construct an argument that the bahts peg to the US dollar had to go. Exports, the original engine of Thailands fantastic growth, had stalled to be replaced by a financial and real estate boom that kept foreign capital coming in. This new capital was increasingly short-term in nature.
Currency speculators recognised this and made two preliminary attacks on the baht. Yet devaluation was hardly inevitable and a number of countries in Asia, eastern Europe and Latin America showed similar signs of distress. The Thai confidence in their dollar peg won the day.
Towards the end of February 1997, the authorities appeared to have steered their way through a financial sector problem, when the first rumours that Finance One was in trouble began. Pin Chakkaphak, the companys managing director, denied that the company was facing financial difficulties. Nonetheless, he had been selling his stake in the company to the tune of Bt254m during a six-month, 75 per cent plunge in Finance One shares.
Pin was the undisputed hero of Thailands bubble years. With an MBA from Wharton and experience at Citibank, he built a formidable empire with assets of $3.8bn by latching on to the stock market and exploiting the interest rate differential between the Thai baht and the US dollar.
Problems at Finance One would have a wide impact. So the government stepped in Finance One was to merge with a small Thai bank it had once tried to take over, Thai Danu, in a deal sponsored by the central bank which would amount to a bailout. Over the following months, Thai Danu began to unravel and inappropriate share dealings and loans to affiliated parties were revealed. Every plan put forward to save Finance One fell flat .
Partly this was due to the extent of the problems within the system, problems for which Finance One stood as a striking example. Nearly two-thirds of its loans were in three areas property, hire purchase and stock margins. As interest rates rose and the economy slowed, Finance Ones non-performing loans doubled in 1996, then doubled again in the first quarter of 1997.
Finance One was the symbol of the excesses Thailand had built up, says Nikhil Srinivasan, vice-president of Morgan Stanley, which also had a joint venture with a Finance One affiliate. Through it you saw the rise and fall of a system where raising capital every year was thought to be a substitute for cash flow....
These days, Amnuay spends his time playing golf, after suffering a mild stroke in Hong Kong just two days before the baht was floated. Rerngchai resigned the Bank of Thailand governorship. He is due to receive a bonus from the central bank, rewarding him for his three decades of service. Thanong has returned to the presidentship of the Thai Military Bank, his own resignation as finance minister having precipitated the collapse of the Chavalit government.
Pin splits his time between Boston and the UK, steering clear of Thailand, where the authorities might seek to make an example of him. Thai Danu was bought by the Development Bank of Singapore last month.
A blow-by-blow account of how the Thai economy crashed, taking all of south-east Asia along with it