Concurrent with the third devaluati

Concurrent with the third devaluation of the Thai baht, on 22 September 1985 Japan, the United States, the United Kingdom, France and West Germany signed the Plaza Accord to depreciate the U.S. dollar in relation to the yen and the Deutsche Mark. Since the dollar accounted for 80 percent of the Thai currency basket, the baht was depreciated further – making Thailand's exports more competitive and the country more attractive to foreign direct investment (FDI) (especially from Japan, whose currency had appreciated since 1985). In 1988 Prem Tinsulanonda resigned and was succeeded by Chatichai Choonhavan, the first democratically elected prime minister of Thailand since 1976. The Cambodian-Vietnamese War was ending; Vietnam gradually retreated from Cambodia by 1989, enhancing Thai economic development.
After the 1984 baht devaluation and the 1985 Plaza Accord, although the public sector struggled due to fiscal constraints, the private sector grew. The country's improved foreign trade and an influx of foreign direct investment (mainly from Japan) triggered an economic boom from 1987 to 1996. Although Thailand had previously promoted its exports, during this period the country shifted from import-substitution (ISI) to export-oriented industrialization (EOI). During this decade the Thai GDP (calculated from the IMF World Economic Outlook database) had an average growth rate of 9.5 percent per year, with a peak of 13.3 percent in 1988.[37] In the same period, the volume of Thai exports of goods and services had an average growth rate of 14.8 percent, with a peak of 26.1 percent in 1988.[38]
However, economic problems persisted. From 1987 to 1996 Thailand experienced a current account deficit averaging -5.4 percent of GDP per year, and the deficit continued to increase. In 1996, the current account deficit accounted for -7.887 percent of GDP ($14.351 billion).[39] A shortage of capital was another problem. The first Chuan Leekpai government, in office from September 1992 to May 1995, tried to solve this problem by granting Bangkok International Banking Facility (BIBF) licenses to Thai banks in 1993. This allowed BIBF banks to benefit from Thailand's high interest rate by borrowing loan from foreign financial institutions at low interest and loaning to Thai businesses. By 1997 foreign debt had risen to $109,276 billion (65 percent of which was short-term debt), while Thailand had $38,700 billion in international reserves.[40] Many loans were backed by real estate, creating an economic bubble. By late 1996, there was a loss of confidence in the country's financial institutions; the government closed eighteen trust companies and three commercial banks. The following year, 56 financial institutions were closed by the government.[40]
Another problem was foreign speculation. Aware of Thailand's economic problems and its currency basket exchange rate, foreign speculators (including hedge funds) were certain that the government would again devalue the baht - which was under pressure on both the spot and forward markets. In the spot market, to force devaluation speculators took out loans in baht and made loans in dollars. In the forward market, speculators (believing that the baht would soon be devalued) bet against the currency by contracting with dealers who would give dollars in return for an agreement to repay a specific amount of baht several months in the future.[41] Within the government, there was a call from Virapong Ramangkul (one of Prime Minister Chavalit Yongchaiyudh's economic advisers) to devalue the baht - which was supported by former prime minister Prem Tinsulanonda.[42] Yongchaiyudh ignored them, relying on the Bank of Thailand (led by Governor Rerngchai Marakanond, who spent as much as $24,000 billion – about two-thirds of Thailand's international reserves) to protect the baht. On 2 July 1997 Thailand had $2,850 billion remaining in international reserves,[40] and could no longer protect the baht. That day Marakanond decided to float the baht, triggering the 1997 Asian Financial Crisis.