The devaluation sparked off a regional financial crisis, hitting South Korea and Indonesia and, to a certain degree, Malaysia. Then the effect spread to other parts of the world, notably Russia, Argentina and Turkey.

A lot of Thais are now re-examining the 1997 financial crisis, which wiped out most of the country's wealth. They are wondering whether Thailand is going to face another financial crisis in the future. To be sure, the Thais have learnt a hard lesson.

Thailand is not likely to face another banking and foreign-exchange crisis on the scale of the 1997 meltdown again. After the financial and economic reforms that ensued, Thai banks have emerged with stronger balance sheets. Financial supervision has improved. Cronyism in the banking system has been substantially reduced, although managers of some state-controlled banks are still trying to go back to the good old days. Risk management has been put in place to preserve capital and maintain capital adequacy. Foreign currency debts have been cut back to a manageable level.

In foreign-exchange management, the Thai authorities have now realised that they can't defy market forces for long. They have now adopted a flexible exchange-rate policy by allowing the baht to move in line with market forces rather than fixing the currency tightly to the US dollar like before.

In 1997, Thai authorities exercised bad judgement. They thought that they could corner the global financial markets by their strong baht defence to guard the fixed exchange-rate system, while they were trying to fix the financial system. In the end, they lost most of the foreign-exchange reserves, plunging the whole country into a crisis. Later on, Thailand was forced to seek a US$17.2 billion (Bt593.9 billion) bailout package from the International Monetary Fund.

Moreover, Thai economic planners now no longer look at high growth rates of 7-8 per cent a year as something desirable. High growth comes with instability - from high indebtedness, an overheated economy to runaway inflation - which is difficult to manage. Thailand has already passed that stage of high growth, which is now facing newcomers such as China, Vietnam and India. It is now considered a middle-income country, which cannot compete on low wages any longer.

Thai policy planners now prefer economic growth rates of 5-6 per cent so that growth and stability can go hand in hand. The Thai economy, due to political complications, is growing at about 4 per cent.

You might say that the 1997 crisis has brought about the most significant adjustment of Thailand's macroeconomic thinking, which now emphasises a sound financial system, a flexible exchange-rate regime and stable economic growth of 5-6 per cent a year. If another crisis were to occur, it would be due to something beyond Thailand's control, such as the collapse of the US dollar, or as the result of a severe global recession.

Ironically, at a time when we have yet to fully digest the lessons of the 1997 financial crisis, we have to grapple with the political crisis. Over the past two years, Thailand has been rocked by its political crisis, which has divided the nation, exposed flaws in our political system and given rise to contentious views on the definition of democracy. Thaksin held the Thai political system hostage for almost a year before he was booted out by a military coup. The coup was bad, but most of the middle-class and the elite considered it a lesser evil needed to put Thailand back on a more stable democratic path.

In the UK, despite back-stabbing, the transition from Tony Blair to Gordon Brown within the Labour Party has been smooth. This was unthinkable within the one-man-show Thai Rak Thai Party. If the Thai Rak Thai Party had been managed more professionally, it would have had produced a successor to Thaksin and helped the country avoid a military coup.

Now it appears that Thailand is gradually recovering from its political hangover. The election will take place in December or earlier this year, paving the way for the arrival of a democratically elected government. After this painful round of political crises, things are turning out for the better. But elections are not magic and there are still other problems, particularly the social divide, for Thailand to overcome.

A Western diplomat said Thailand would have a big challenge to overcome in terms of bridging the gap between "those who eat khao niew (sticky rice) and those who eat khao chao (white rice)." Those who eat sticky rice represent the underprivileged or the poor from the rural areas of the North and the Northeast, while those who eat white rice represent the urban areas in Bangkok and elsewhere. If this gap is not handled carefully, it might lead to another social crisis.

 About 60 per cent of the 65 million Thais earn their living in the farming sector, which accounts for only 10 per cent of Thailand's gross domestic product. They earn their living either on the farm or by providing cheap labour. Thaksin is the first politician to have exposed this rural/urban difference gap by projecting himself as a champion of the poor.

He introduced his populist policies to give his voters easy access to credit, while he took on independent watchdogs and other democratic institutions with an iron will.

Thaksin's tactics did not last. But, going forward, Thais will have to avoid the looming social crisis by doing everything they can to lift the standard of living of rural people through better education, jobs and opportunities.

Thanong Khanthong

The Nation