Why would this be bad for the economy in face of devaluation

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Background: In the summer of 1997, Thailand experienced a speculative attack on its currency (the Baht), which was under axed exchange rate regime. Unable to meet the demand for its foreign currency reserves, Thailand was forced to oat its currency. This precipitated an economic crisis not only in that country but also many other East Asian nations, as panic over the nancial stability of those countries led to runs on foreign exchange reserves there as well. The factors that made these counties vulnerable to speculative attack and currency runs, as well as the reasons that such attacks had such a negative impact on their economies, are numerous and well-documented. Corsetti et al. (1999) provide a useful summary.

Question: One reasons that devaluation acted the economies was that their corporations held large amounts of debt that was denominated in foreign currency. Why would this be bad for the economy in the face of devaluation?

Reference no: EM13898329

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