The Bank of Thailand was established in 1942 to act as the countryΓÇÖs central bank. Its functions are to formulate and implement monetary policy, to issue notes, to act as banker to the government and other banks and as fiscal agent of the government in its dealing with international monetary organizations, and to supervise commercial banks, finance companies and credit fancier companies. As banker to the government, the Bank of Thailand holds the main accounts of the government and government enterprises. It extends loans to the government, as part of monetary operations, through the purchase of treasury bills and government bonds in the secondary market. The Bank of Thailand has four branches in the provinces ΓÇö a southern branch at Songkhla, a northeastern branch at Khon Kaen, and two northern branches at Lampang and Chiang Mai.
Under the Commercial Banking Act of 1962, the Bank of Thailand is entrusted with supervising the commercial banks. The Bank also acts as lender of last resort for commercial banks by giving short term loans against government securities and making available refinancing facilities. In 1979, a repurchase market was established whereby the Bank of Thailand bought and sold government bonds with an agreement to repurchase or resell.
Commercial Banks
As of February 2002, there were 13 Thai commercial banks with 3,693 branches, including head offices: 1,191 in Bangkok and 2,502 in the provinces. The commercial banking network reaches practically every town in the country. In addition, there were 18 foreign banks operating in Thailand.
Commercial banks normally provide credit both in the form of overdrafts, which are short-term basis but may be rolled over on a year-to-year basis, and term loans. Moreover, many commercial banks also provide guarantees for foreign and domestic loans.
All commercial banking businesses in Thailand are regulated under the Commercial Banking Act of 1962, amended in 1979,1992,1997 and 1998. The Act authorises the Ministry of Finance and the Bank of Thailand to issue notifications on various matters, for example, prudential requirement, and reporting standard. During the past few years, all commercial banksΓÇÖ scope of business has been expanded from traditional banking business to include: providing information and financial consultant services, as well as feasibility studies; operating as selling agent for debt instruments issued by the government or state enterprises, as well as undertaking mutual fund management; arranging underwriting and dealing in debt securities; operating as securities registrar and representative of secured debenture holder.
Commercial banks mobilise funds by accepting time, savings and demand deposits, and issuing negotiable certificates of deposits as well as borrowing from overseas. As of November 2002, total commercial bank assets stood at 6,582 billion baht. Time, savings, and demand deposits accounted for 61.9 percent, 35.1 percent, and 3.0 percent of total bank deposits, respectively. On the lending side, overdraft accounted for12.1 percent of total lending, while loans and bills discounted amounted to 57.2 percent and 28.7 percent, respectively. As of June 2002, most of bank lending has gone to the manufacturing sector.2
Bangkok International Banking Facilities
The Bank of Thailand implemented foreign exchange liberalisation in 1990, and in 1993 authorised 46 commercial banks to operate International Banking Facilities by providing loans in foreign currency to foreign and local borrowers. Of these, 20 banks were newly established foreign banks in Thailand. In January 1995, the authority granted 37 licenses for the Provincial International Banking Facilities (PIBFΓÇÖs) to 22 commercial banks in order to operate in areas outside Bangkok. The PIBFΓÇÖs funding must be from overseas as in the case of the BIBF. However, the PIBFΓÇÖs can extend credits both in baht and in foreign currencies, while the BIBFΓÇÖs can extend credits only in foreign currencies.
As of February 2002, there were 44 BIBF offices in operation. Of these, 11 belonged to Thai commercial banks, 15 to foreign bank branches already operating in Thailand, and 14 to other foreign banks.
2 Figures for commercial bank assets
are taken at end of June 1999 while
deposit and lending figures are taken
at end of August 1999
Non-Bank Financial Institutions
Finance Companies
There are 19 finance and finance and securities companies funding through issuing promissory notes and lending those funds to their clients for consumption credit, in particular, automobile and property loans. Operations of finance and securities companies are supervised by the Bank of Thailand and the Office of the Securities Exchange Commission (SEC), respectively. Four core functions of securities companies are: 1. to act as securities brokers on behalf of clients, 2. to act as dealers on behalf of themselves, 3. to act as investment consultants and 4. to act as securities underwriters.
The Thai Securities Finance Corporation
The Thai Securities Finance Corporation (TSFC) was established in 1996 to provide liquidity for the securities companies by granting or guaranteeing loan and oval, or accepting bills of exchange issued by securities companies. Its initial capital amounted to1,000 million baht. The TSFC mobilises funds through borrowing from domestic and offshore markets and issuance of debt instruments. TSFC is able to lend both cash and securities.
Life Insurance Companies
There are at present 26 life insurance companies that operate branches throughout the country. Of the different types of life insurance, endowment is the most popular, accounting for approximately 60 percent3 of all policies sold. The Life Insurance Act (1992) requires each company to make a security deposit of 20 million baht with the official insurance registrar, maintain minimum capital fund of 2 percent of life policy reserves but not less than 50 million baht, and deposit at the official insurance registrar 25 percent of life policy reserve in form of cash, government securities and other securities specified under the notification.
In 1999, the Life Insurance Company Act was amended to broaden the scope of business and type of investment the life insurance companies can undertake; this includes giving aval to promissory notes, leasing of assets, sales of lands, managing in provident funds, and investing in foreign stocks and debentures.
The Government allows tax-payers to deduct insurance premium as expenses from baht 10,000 to baht 50,000 for those insurance policies issued by Thai insurance companies and have maturities longer than 10 years. The measure was effective starting 1 January 2003.
Credit Fonciers
Credit fonciers finance the purchase of land or housing construction. They are not allowed to mobilize funds from the general public but must rely on their own resources or borrowings. There are at present 6 such companies, most of which operate in Bangkok.
3 Figure taken at end of 1997
Specialised Financial Institutions
The Government Savings Bank (GSB) is wholly government-owned. It was established in 1947 under the Government Savings Bank Act of 1946. With 573 branches throughout the country, it has been very successful in mobilising household savings and invests over 90 percent in government bonds. The GSB also operates commercial banking businesses, including the acceptance of demand and time deposits, making loans to enterprises and individuals, and selling domestic travellerΓÇÖs cheques. Moreover, Islamic banking and PeopleΓÇÖs Bank are some of GSBΓÇÖs socially oriented activities involving the provision of financial services in line with the Government policy.
The Industrial Finance Corporation of Thailand
The Industrial Finance Corporation of Thailand (IFCT) was established under the Industrial Finance Corporation of Thailand Act in 1959, functioning along the lines of a private development institution. At present, there are 35 IFCT branches throughout the country. Although established under a special Act, the IFCT is mostly owned by private entities, mainly Thai commercial banks, while the Ministry of Finance owns about 14.6 percent of IFCTΓÇÖs shares. The main sources of funds of IFCT are borrowings from several institutions abroad, namely the World Bank, the Asian Development Bank, the Kreditanstanlt fur Wiederaufban and the Japan Export-Import Bank. It has also mobilised funds through issuance of its notes and bills of exchange in the domestic market.
The IFCT makes term loans for financing fixed assets and permanent working capital. Loans are repayable up to 15 years but the average maturity is seven to eight years. In addition to lending activities, it also provides specialised services to industries and has introduced securities underwriting services. In the near future, the IFCT will be transformed to Specialised Financial Institution so that it can function like commercial bank.
The Small Industry Finance Corporation
The Small Industry Finance Corporation (SIFC) was established in 1992 in line with the governmentΓÇÖs policy to promote the development of domestic industries. It replaces the Small Industry Finance Office (SIFO), which was founded in 1964. The assets and liabilities of SIFO, as well as personnel, were transferred to the SIFC under the supervision of the Ministry of Finance and the Ministry of Industry. The SIFCΓÇÖs principal objective is to provide financial support to small industries, in terms of new establishment and improvement of production capacity and efficiency, so that they would play a more important role in economic and rural development, particularly in rural areas. The sources of funding are from the government and financial institutions. SIFC has changed status to SMEs Bank under the Small and Medium Enterprise Development Bank Act.
Government Housing Bank
The Government Housing Bank, established in 1953, is owned by the government. Its basic function is to provide financing facilities to low-income families to obtain houses of their own. Its sources of funds are deposits mobilised from the public, borrowing from the government, the Government Savings Bank, the commercial banks, its own capital. At present, there are 108 branches throughout the country.
The Export Import Bank of Thailand
The Export Import Bank of Thailand (EXIM Bank) was established in 1994. Its basic function is to provide medium-term credit for capital goods exports, export insurance service, investment guarantee for overseas investment of Thai investors and financing small exporters. The bank also finances import of machinery and equipment used for export production and import of goods beneficial to environment. Due to the fact that the EXIM Bank cannot take deposits from the general public, its sources of funding come mainly from the issuance of financial instruments in domestic and foreign markets, loans from the Bank of Thailand for purchase of export bills, as well as an initial capital fund of 2,500 million baht.
The Bank for Agriculture and Agricultural Cooperatives
The Bank of Agricultural and Agricultural Cooperatives (BAAC), established in 1966, is
a state enterprise under the jurisdiction of the Ministry of Finance. Its objectives are to provide financial assistance in order to promote agriculture as an occupation for farmers and farmer institutions, to help farmers and farmer institutions increase their productivity and incomes and to offer deposit services to farmers throughout the country similar to those offered by commercial banks. In the acquisition of capital for its business, it has the power to raise loans, to issue bonds or any other instruments for the purpose of investment, to sell or discount bills to various financial institutions, to receive financial aids from the Government or other persons and to issue lottery-cum-savings tickets.
The Capital Market
The capital market can be divided into equity market and non-equity market.
Equity Market
The equity market includes all activities related to equity stocks (i.e. common and preferred stocks) and unit trusts, both in the primary and secondary market. Most equity securities are traded in the Stock Exchange of Thailand.
Non-equity Market
The non-equity market includes all activities related to debt instruments such as long-term bonds, debentures, floating rate notes, and long-term negotiable certificates of deposits. Government bonds and state enterprise bonds account for a large majority of debt instruments. Debt securities are traded mainly in the over-the-counter market, and the Thai Bond Dealing Centre (Thai BDC).
The Stock Exchange of Thailand
The Stock Exchange of Thailand (SET) was established in 1974 under the supervision of the Ministry of Finance. As of December 1999, there were 392 companies listed on the SET. Capital gains tax is not levied on profit on sale of listed securities on the SET. Dividends received from listed companies also receive favourable treatment.
To closely monitor and supervise the operations of SET, the Office of the Securities and Exchange Commission (SEC) was established in 1992. In the same year, to give new dimension to the capital market, seven mutual fund management companies were licensed to give the general public a chance to participate in the investment through unit trusts. At present, there are 15 licensed mutual fund management companies.
The Thai Bond Dealing Centre
The Thai Bond Dealing Centre, formerly known as the Thai Bond Dealing Club, was established in 1994. It was set up to serve as a special market for secondary trading of debt instruments among professional wholesale participants. Instruments traded in the Thai BDC can be government, state enterprise, or corporate bonds with a minimum issue of 100 million baht. At present, unrated debt instruments are allowed to be traded in the Thai BDC, however, the SEC requires the disclosure of information on these issues.
Trade and Commerce
Overview
ThailandΓÇÖs trade and commerce performance has been recognized worldwide for its outstanding achievement through the past two decades, despite the turbulence in late 1997. In 1988, its economic growth reached 13.3 percent, the highest in the history of the country and among the highest in the world. The integration with the world economy provided greater opportunity for Thai exporters especially those in the industrial and agricultural sectors. For decades, the government has pursued an open trading policy and promoted free flow of international goods and services. The evidence can be seen in its active participation in regional and international trade forums such as the ASEAN Free Trade Area (AFTA), the Asia-Pacific Economic Cooperation (APEC) and the World Trade Organization (WTO), which shows the countryΓÇÖs commitment to the changing world trading environment.
With respect to the trading of Thai products overseas, the top trading partners nowadays include the United States of America, Japan, ASEAN, and the European Union. The country is still exploring new trading opportunities in emerging markets worldwide. ThailandΓÇÖ s major export products are automatic data processing machines and parts, electronic integrated circuits, garments, motor cars, motor vehicles, parts and accessories, and rice, whereas the major imports are electrical machinery and parts, electrical integrated circuits, industrial machinery, chemicals, aircrafts and instruments. Additionally, Thailand is well known as one of the worldΓÇÖs largest exporters of agro-products, especially rice, and is one of the worldΓÇÖs top food suppliers. The countryΓÇÖs trade surplus peaked in 1998 at US$ 12,235 million. The government has strongly focused on commercial agriculture, especially fruits and flowers, and Thailand also has potential for value-added food processing industry due to its abundance of food products.
The government has also emphasized the development of infrastructure and manpower to serve the countryΓÇÖs needs in the next century. The infrastructure development includes various sectors: electricity, water supply, telecommunications, telephone services, long-distance transmission services, satellite services, land transportation, air transport, water transport, industrial estate facilities, and manpower development services. Thailand, besides, is considered by foreign investors as a good investment destination due to its workers who are among the best trained in the region, willing to learn, and loyal to their employers. The government has also promoted the decentralization of industries in order to distribute employment opportunities and wealth throughout the nation.
The late 1990s was one of the most difficult periods in Thai history. Its economy experienced a decline, as the GDP in 1998 contracted by 10.5 percent and unemployment was around 4 percent. However, the economy recovered in 1999 as the government implemented various policies to tackle such problems as non-performing loans (NPLs), liquidity, and debt restructuring, and to stimulate consumption through a value-added tax cut as well as other programmes. The Manufacturing Production Index rose by 12.5 percent in 1999, after being contracted during 1997-98. The sectors which recovered most strongly were vehicle and equipment, food, beverages, and setting jewellery. The number of laid off workers decreased, while the Private Investment Index was on an increasing trend. However, recovery will depend very much on the conditions of the world economy.
Free Trade Arrangements
Due to the rapidly changing international trade environment and the increasingly intensive competition in the global market, each country, therefore, has to make adjustments both to its domestic and international strategic policies in order to remain competitive and to keep pace with other countries.
One of the recent Foreign Trade Policies adopted by Thailand is for the establishment of Free Trade Areas with potential countries. The main purposes of such arrangement are to reduce or eliminate obstacles to trade, including tariff and non-tariff barriers, with its trading partners, and to create a trade alliance that provides a gateway to increased trade in each region.
At present, Thailand is in the process of conducting feasibility studies and/or consultations for the establishment of Free Trade Areas with a number of countries, including the United States, Japan, Australia, Bahrain, India, and Peru. In addition, Thailand, as part of ASEAN, has also begun consultations with China, Japan, Korea, India, and CER (Australia and New Zealand).
Toward the New Millennium
To face the challenge of the new millennium, Thailand has promoted cost reduction and quality upgrading of export products to enhance its competitiveness in the world market. The government has also emphasized human resources development, education and environmental protection. Furthermore, the government has promoted industrial decentralization with the aim of generating income, jobs and well-being to people in the rural areas. The effective cooperative mechanisms of the private and public sectors, such as the Joint Public-Private Sectors Consultative Committee, play a constructive role in promoting trade and investment for the country.
The increased use of electronic commerce and the internet, which had a significant impact on the world trading practices, is also a crucial factor for the flow of trade and its influence on international trade is expected to be tremendous in the 21st century. The public and private sectors have been actively involved in many projects educating people to the new trends and developments in the information technology arena.
Trade and commerce in general have been adapted to the changing environment in the international arena. This development will ensure the readiness and flexibility of the economy, especially the trading community, in dealing with any challenges in the future.
The Role of the Private Sector and the Linkage Mechanism with the Government Sector
The private sector plays a pivotal role in the Thai economy and has been continuously regarded as the ΓÇ£engine of growthΓÇ¥ to propel the economic growth. Members of the business community in Thailand group themselves in the form of associations, trade associations, chambers, federations, confederations and boards. Foreign business corporations operating in Thailand have formed their own chambers according to their nationalities, such as the Japanese Chamber of Commerce, Thai- German Chamber of Commerce, etc. Currently, there are 22 foreign chambers of commerce located in Bangkok metropolitan.
To link with the government sector and to act as coordinating body of the Thai private sector, the Joint Standing Committee on Commerce, Industry and Banking (JSCCIB) was established by the 3 leading private organizations, namely Board of Trade of the Thailand, Federation of Thai Industries and Thai BankerΓÇÖs Association.
Recognizing the rapid changes in globalisation era, the JSCCIB has set up the Joint WTO Committee and ICC-Thailand. These two forums have played their significant roles in the multilateral negotiation process to voice concerns over the interested issues and made recommendations as raised by the Thai private sector.
To promote and strengthen regional trade and economic cooperation, the JSCCIB has appointed its representatives to participate in various forums and organizations, such as ASEAN Chamber of Commerce and Industry (ASEAN-CCI), APEC Business Advisory Concil (ABAC), GMS Business Forum, Asia-Europe Business Forum (AEBF), ect. The participation and involvement of the JSCCIB in these regional developments is aimed at facilitating business operation and business collaboration regionally.
In addition, a number of bilateral business councils with ThailandΓÇÖs major trading partners were also set up to promote and strengthen trade and investment cooperation on bilateral basis. Currently, there are a total of 22 bilateral councils formed under the framework of JSCCIB, such as Thai-China Business Council, Australia-Thailand Business Council, ect.
In dialogues with the government sector, the private sector relies on the Joint Public-Private Sectors Consultative Committee (JPPCC) which was created in 1981. The secretariat of JPPCC is located at the Office of the National Economic and Social Development Board. Fifteen representatives of the JSCCIB join the JPPCC to address issues arising from or affecting business practices in all areas including trade, industry, finance, banking and others. From the 6th National Economic and Social Development Plan onward, efforts have been made to strengthen the working machinery of the private sector and to make the work of JPPCC contributory to the economic development of Thailand.
Infrastructural Support
Irrigation During the period of the first two development plans, the irrigation service area increased from 1.5 million hectares in 1964 to two million hectares in 1974. By 1999, the irrigated area was 3.58 million hectares, which is 16.90 percent of the entire agricultural area. Most of the irrigation service areas are in the central and northern regions fed by tributaries of the Chao Phraya River.
About 3.2 million hectares have access to gravity irrigation, of which 94,205 hectares are under an intensive on-farm development programme known as the Land Consolidation Project. Within gravity irrigation servicing areas, major structures such as reservoirs, diversion dams and main canals have been built.
Investment in on-farm development is generally required to enhance the effectiveness of the system.
Pumping irrigation is another important technique in the irrigation system which was first implemented in 1973. In 1998 pumping stations serviced 382,054 hectares. The northeastern region benefits most from this service.
In addition, underground reserves provide a significant amount of irrigation water in certain areas. It is estimated that ground water used for farmland at present amounts to 95,620 cubic metres per day. Farm ponds are also used to supplement rainfall for many areas of the dry north-east.
Public Utilities
The Electricity Generating Authority of Thailand (EGAT) is a state enterprise and the countryΓÇÖs principal producer of electricity. Over the past few years, efforts to reduce the use of high cost imported fuel oil for power generation by developing substitute domestic resources from natural gas and lignite have yielded satisfactory results.
The Metropolitan Electricity Authority (MEA) is responsible for the distribution of electricity in the Bangkok Metropolitan area, while the Provincial Electricity Authority (PEA) handles the distribution to the rest of the kingdom. Water supply to the capital city is the responsibility of the Metropolitan Waterworks Authority (MWA). It has successfully completed the first stage of a massive filtration and distribution scheme to double the cityΓÇÖs potable water supply.
Key elements of the project were the construction of an enormous filtration plant and an underground network of transmission tunnels. Laser-directed ΓÇ£molesΓÇ¥ were employed to dig and lay 3.86 metre-diametre pipes 20 metres below the ground in the worldΓÇÖs first soft earth tunnelling project, a feat of considerable engineering ingenuity involving both Thai and foreign contractors.
Industrial finance to the locals One means of promoting industrial activity is to direct funds to the locals for further economic development. At present, major secondary cities in Thailand are adequately served by private banks. Up to 1975, 60 percent of the deposits made in the provinces were being channelled back to Bangkok, a situation which necessitated government guidelines requiring that at least 60 percent of the deposits be lent locally. In addition, the Industrial Finance CorporationΓÇÖs priorities are to support industries which significantly increase the value-added worth of a commodity, generate employment, use domestic raw materials, produce export products, or locate their factories outside of Bangkok.
Industrial services The technical assistance and training services provided by the Department of Industrial Promotion (DIP) serve to promote industrial development. DIP also has 11 regional centres in Chiang Mai, Khon Kaen, Songkhla, Chon Buri, Suphan Buri, Phichit, Phitsanulok, Surat Thani, Nakhon Si Thammarat, Buri Ram and Udon Thani. The training and advisory services offered cover all aspects of industrial management, investment and joint-venture, industrial technology and industrial design.
Moreover, since 2001, the government has initiated a number of programmes to help strengthen the economy, especially from the grass-root level. These programmes aim to provide access to funds especially for those with low incomes and to relief their debt burden. These programmes included Village Funds, Debt Burden Relief Programme, PeopleΓÇÖs Bank, and SMEsΓÇÖ Development Bank.
Foreign Trade and Balance of Payments
Foreign trade accounts for a major portion of GDP, and its importance has grown substantially over the last decade (1990-1999). Its share was 34.79 percent of the GDP in 1990, and increased to about 88 percent in 1999.
Exports Thai exports have changed through policies implemented under the National and Social Economic Development Plan since the inauguration of the first Plan. Previously, Thai exports depended on certain agricultural products, especially rice and rubber which accounted for half of the total export value. Up until the Third National Economic and Social Development Plan (1972-1976), industrial products had played an important role. In 1986, for example, export and industry products contributed more than half of the total export value. This role has continually expanded up to the present ΓÇö it was 75.30 percent and 76.35 percent of total export value in 2001 and 2002, whereas agricultural products and processed agro-industrial goods were 18.21 percent and 17.78 percent of total export value respectively.
ThaiΓÇÖs exports expanded by 5.8 percent for the entire year in 2002. The forecast of export growth for 2003 is expected to grow at 5.5 percent. However, this depends on the situation of the Middle East conflict.
Major export markets are ASEAN, U.S.A., EU, and Japan which account for 68.67 percent of total exports. Exports to ASEAN which ranked top for the first time, accounting for 19.71 percent of total export value, were mostly distributed to Singapore (8.06 percent), Malaysia (4.12 percent), Indonesia (2.44 percent), and the Philippines (1.97 percent). Exports to the USA which ranked second, increased from 18.0 percent in 1996 to 19.61 percent in 2002.
Imports During the years from 1990-2002, total import value increased 10 percent per year. Major items were capital goods, raw materials and intermediate products, fuels and lubricants, consumer goods, vehicles and transportation equipment. In 2002, 75.33 percent of total imports were capital goods, raw materials and intermediate products.
Fuels and lubricant, consumer goods, vehicles and transportation equipment, mainly imported parts for car assembly, accounted for 11.49 percent, 8.57 percent, and 3.52 percent respectively.
Major import markets were Japan (23.03 percent), ASEAN (16.83 percent), EU (10.98 percent) and the U.S.A. (9.56 percent). In addition, imports from East Asia, particularly China has continually grown from 2.7 percent in 1996 to 7.62 percent in 2002.
Terms of trade In early 2002, the world trade volume expanded marginally due to the global economic slowdown caused by the incident of 11 September 2001, resulting in high consumer prices and downturn in manufacturing production. JapanΓÇÖs economy also continued to contract due to declining trading partnerΓÇÖs demand and coupled with weakness in the world financial sector. However, during the second half of 2002, the trend reversed as the world economy began to recover. The trade situation for 2003 will depend largely on the duration and scope of the Middle East conflict. If the situation turn into a war, but a short one, it is expected to have minimal impact toward ThailandΓÇÖs recovery and export growth.
Balance of payments ThailandΓÇÖs long time trade deficit has turned to surplus in 1998 after the crisis. In 2002, the larger trade account and current account, which benefited from tourism income, recorded a strong surplus while capital outflows declined. Consequently, the balance of payments registered a surplus of 4,234 million USD in 2002. By the end of 2002 ThailandΓÇÖs international reserves stood at USD 38.9 billion, equivalent to 7.4 months of imports. Meanwhile the stock of total external debt was reduced to about USD 59 billion at the end of 2002, of which around 23 percent was short-term. The ratio of international reserves to short-term debt was therefore as high as 2.8 times. Such strong external position allowed Thailand to be able to pay back all the loans under the IMF programme by the end of July 2002.
Conclusion
Throughout the early1990s, the Thai economy was among the fastest growing in the world. Indeed, according to a World Bank report, between 1985-1994 ThailandΓÇÖs average annual per capita GNP growth of 8.2 percent was number one in the world. After enjoying a high growth rate of GDP averaging 9.5 percent during 1986-1995, the rate slowed down to 5.9 percent in 1996 signalling the onset of the collapse of the Thai economy in mid-1997 following the flotation of its currency. Thailand sought an International Monetary Fund (IMF) rescue package for its deteriorating economy amounting to US$ 17.2 billion. Thailand at that time faced four major economic problems including the depletion of net international reserve, the systematic problems in the financial sector, serious liquidity shortage in the ΓÇ£real sectorΓÇ¥ of the economy and the constraint in the countryΓÇÖs ability to resolve economic difficulties arising from widespread regional economic turmoil.
To cope with the crisis, the government placed priorities on policies to restore confidence and to revive the economy. These policies gave significant results. For example, international reserves were built up to a satisfactory level, foreign capital rebounded and the exchange rate stabilized. The list of measures taken to stabilize the economy is a long one. Measures included budget cuts, tax and tariff increases, and implementation of a tight monetary policy. In addition, a series of 11 key economic laws and regulations was adopted, covering areas such as land and condominium ownership, bankruptcy and foreclosure procedures, and foreign business regulations. The net result of all these reforms was to strengthen the legal framework, while at the same time opening Thai markets to foreign investors, thereby preparing the country for the global attractive market place for the 21st century.
With the stimulus package and the improved economic conditions, the Thai economy regained market confidence and recovery was on its way. Notably, positive growth was recorded for the first time in the second quarter of 1999 and GDP growth in 1999 turned positive to 4.4 percent after a decline of 10.5 percent in 1998. In addition, the inflation rate was only 0.3 percent in 1999 compared to 8.1 percent in the previous year. The economy continued its growth momentum in 2000 before the global economic slowdown in 2001. However, in 2002, the GDP growth is expected to expand at the rate of 5 percent, while the inflation rate remained low at 0.4 percent.
In conclusion, the government has taken a systematic but flexible approach to resolving the economic crisis so as to allow the economy to recover quickly and in a sustainable manner. All the measures taken resulted in improvements of several economic indicators. This confirms that the Thai economy is on the recovery path, but this time, with strong economic and financial fundamentals laid down by major reforms by the current government.
Banks
The Bank of Thailand
The Bank of Thailand was established in 1942 to act as the countryΓÇÖs central bank. Its functions are to formulate and implement monetary policy, to issue notes, to act as banker to the government and other banks and as fiscal agent of the government in its dealing with international monetary organizations, and to supervise commercial banks, finance companies and credit fancier companies. As banker to the government, the Bank of Thailand holds the main accounts of the government and government enterprises. It extends loans to the government, as part of monetary operations, through the purchase of treasury bills and government bonds in the secondary market. The Bank of Thailand has four branches in the provinces ΓÇö a southern branch at Songkhla, a northeastern branch at Khon Kaen, and two northern branches at Lampang and Chiang Mai.
Under the Commercial Banking Act of 1962, the Bank of Thailand is entrusted with supervising the commercial banks. The Bank also acts as lender of last resort for commercial banks by giving short term loans against government securities and making available refinancing facilities. In 1979, a repurchase market was established whereby the Bank of Thailand bought and sold government bonds with an agreement to repurchase or resell.
Commercial Banks
As of February 2002, there were 13 Thai commercial banks with 3,693 branches, including head offices: 1,191 in Bangkok and 2,502 in the provinces. The commercial banking network reaches practically every town in the country. In addition, there were 18 foreign banks operating in Thailand.
Commercial banks normally provide credit both in the form of overdrafts, which are short-term basis but may be rolled over on a year-to-year basis, and term loans. Moreover, many commercial banks also provide guarantees for foreign and domestic loans.
All commercial banking businesses in Thailand are regulated under the Commercial Banking Act of 1962, amended in 1979,1992,1997 and 1998. The Act authorises the Ministry of Finance and the Bank of Thailand to issue notifications on various matters, for example, prudential requirement, and reporting standard. During the past few years, all commercial banksΓÇÖ scope of business has been expanded from traditional banking business to include: providing information and financial consultant services, as well as feasibility studies; operating as selling agent for debt instruments issued by the government or state enterprises, as well as undertaking mutual fund management; arranging underwriting and dealing in debt securities; operating as securities registrar and representative of secured debenture holder.
Commercial banks mobilise funds by accepting time, savings and demand deposits, and issuing negotiable certificates of deposits as well as borrowing from overseas. As of November 2002, total commercial bank assets stood at 6,582 billion baht. Time, savings, and demand deposits accounted for 61.9 percent, 35.1 percent, and 3.0 percent of total bank deposits, respectively. On the lending side, overdraft accounted for12.1 percent of total lending, while loans and bills discounted amounted to 57.2 percent and 28.7 percent, respectively. As of June 2002, most of bank lending has gone to the manufacturing sector.2
Bangkok International Banking Facilities
The Bank of Thailand implemented foreign exchange liberalisation in 1990, and in 1993 authorised 46 commercial banks to operate International Banking Facilities by providing loans in foreign currency to foreign and local borrowers. Of these, 20 banks were newly established foreign banks in Thailand. In January 1995, the authority granted 37 licenses for the Provincial International Banking Facilities (PIBFΓÇÖs) to 22 commercial banks in order to operate in areas outside Bangkok. The PIBFΓÇÖs funding must be from overseas as in the case of the BIBF. However, the PIBFΓÇÖs can extend credits both in baht and in foreign currencies, while the BIBFΓÇÖs can extend credits only in foreign currencies.
As of February 2002, there were 44 BIBF offices in operation. Of these, 11 belonged to Thai commercial banks, 15 to foreign bank branches already operating in Thailand, and 14 to other foreign banks.
2 Figures for commercial bank assets
are taken at end of June 1999 while
deposit and lending figures are taken
at end of August 1999
Non-Bank Financial Institutions
Finance Companies
There are 19 finance and finance and securities companies funding through issuing promissory notes and lending those funds to their clients for consumption credit, in particular, automobile and property loans. Operations of finance and securities companies are supervised by the Bank of Thailand and the Office of the Securities Exchange Commission (SEC), respectively. Four core functions of securities companies are: 1. to act as securities brokers on behalf of clients, 2. to act as dealers on behalf of themselves, 3. to act as investment consultants and 4. to act as securities underwriters.
The Thai Securities Finance Corporation
The Thai Securities Finance Corporation (TSFC) was established in 1996 to provide liquidity for the securities companies by granting or guaranteeing loan and oval, or accepting bills of exchange issued by securities companies. Its initial capital amounted to1,000 million baht. The TSFC mobilises funds through borrowing from domestic and offshore markets and issuance of debt instruments. TSFC is able to lend both cash and securities.
Life Insurance Companies
There are at present 26 life insurance companies that operate branches throughout the country. Of the different types of life insurance, endowment is the most popular, accounting for approximately 60 percent3 of all policies sold. The Life Insurance Act (1992) requires each company to make a security deposit of 20 million baht with the official insurance registrar, maintain minimum capital fund of 2 percent of life policy reserves but not less than 50 million baht, and deposit at the official insurance registrar 25 percent of life policy reserve in form of cash, government securities and other securities specified under the notification.
In 1999, the Life Insurance Company Act was amended to broaden the scope of business and type of investment the life insurance companies can undertake; this includes giving aval to promissory notes, leasing of assets, sales of lands, managing in provident funds, and investing in foreign stocks and debentures.
The Government allows tax-payers to deduct insurance premium as expenses from baht 10,000 to baht 50,000 for those insurance policies issued by Thai insurance companies and have maturities longer than 10 years. The measure was effective starting 1 January 2003.
Credit Fonciers
Credit fonciers finance the purchase of land or housing construction. They are not allowed to mobilize funds from the general public but must rely on their own resources or borrowings. There are at present 6 such companies, most of which operate in Bangkok.
3 Figure taken at end of 1997
Specialised Financial Institutions
The Government Savings Bank (GSB) is wholly government-owned. It was established in 1947 under the Government Savings Bank Act of 1946. With 573 branches throughout the country, it has been very successful in mobilising household savings and invests over 90 percent in government bonds. The GSB also operates commercial banking businesses, including the acceptance of demand and time deposits, making loans to enterprises and individuals, and selling domestic travellerΓÇÖs cheques. Moreover, Islamic banking and PeopleΓÇÖs Bank are some of GSBΓÇÖs socially oriented activities involving the provision of financial services in line with the Government policy.
The Industrial Finance Corporation of Thailand
The Industrial Finance Corporation of Thailand (IFCT) was established under the Industrial Finance Corporation of Thailand Act in 1959, functioning along the lines of a private development institution. At present, there are 35 IFCT branches throughout the country. Although established under a special Act, the IFCT is mostly owned by private entities, mainly Thai commercial banks, while the Ministry of Finance owns about 14.6 percent of IFCTΓÇÖs shares. The main sources of funds of IFCT are borrowings from several institutions abroad, namely the World Bank, the Asian Development Bank, the Kreditanstanlt fur Wiederaufban and the Japan Export-Import Bank. It has also mobilised funds through issuance of its notes and bills of exchange in the domestic market.
The IFCT makes term loans for financing fixed assets and permanent working capital. Loans are repayable up to 15 years but the average maturity is seven to eight years. In addition to lending activities, it also provides specialised services to industries and has introduced securities underwriting services. In the near future, the IFCT will be transformed to Specialised Financial Institution so that it can function like commercial bank.
The Small Industry Finance Corporation
The Small Industry Finance Corporation (SIFC) was established in 1992 in line with the governmentΓÇÖs policy to promote the development of domestic industries. It replaces the Small Industry Finance Office (SIFO), which was founded in 1964. The assets and liabilities of SIFO, as well as personnel, were transferred to the SIFC under the supervision of the Ministry of Finance and the Ministry of Industry. The SIFCΓÇÖs principal objective is to provide financial support to small industries, in terms of new establishment and improvement of production capacity and efficiency, so that they would play a more important role in economic and rural development, particularly in rural areas. The sources of funding are from the government and financial institutions. SIFC has changed status to SMEs Bank under the Small and Medium Enterprise Development Bank Act.
Government Housing Bank
The Government Housing Bank, established in 1953, is owned by the government. Its basic function is to provide financing facilities to low-income families to obtain houses of their own. Its sources of funds are deposits mobilised from the public, borrowing from the government, the Government Savings Bank, the commercial banks, its own capital. At present, there are 108 branches throughout the country.
The Export Import Bank of Thailand
The Export Import Bank of Thailand (EXIM Bank) was established in 1994. Its basic function is to provide medium-term credit for capital goods exports, export insurance service, investment guarantee for overseas investment of Thai investors and financing small exporters. The bank also finances import of machinery and equipment used for export production and import of goods beneficial to environment. Due to the fact that the EXIM Bank cannot take deposits from the general public, its sources of funding come mainly from the issuance of financial instruments in domestic and foreign markets, loans from the Bank of Thailand for purchase of export bills, as well as an initial capital fund of 2,500 million baht.
The Bank for Agriculture and Agricultural Cooperatives
The Bank of Agricultural and Agricultural Cooperatives (BAAC), established in 1966, is
a state enterprise under the jurisdiction of the Ministry of Finance. Its objectives are to provide financial assistance in order to promote agriculture as an occupation for farmers and farmer institutions, to help farmers and farmer institutions increase their productivity and incomes and to offer deposit services to farmers throughout the country similar to those offered by commercial banks. In the acquisition of capital for its business, it has the power to raise loans, to issue bonds or any other instruments for the purpose of investment, to sell or discount bills to various financial institutions, to receive financial aids from the Government or other persons and to issue lottery-cum-savings tickets.
The Capital Market
The capital market can be divided into equity market and non-equity market.
Equity Market
The equity market includes all activities related to equity stocks (i.e. common and preferred stocks) and unit trusts, both in the primary and secondary market. Most equity securities are traded in the Stock Exchange of Thailand.
Non-equity Market
The non-equity market includes all activities related to debt instruments such as long-term bonds, debentures, floating rate notes, and long-term negotiable certificates of deposits. Government bonds and state enterprise bonds account for a large majority of debt instruments. Debt securities are traded mainly in the over-the-counter market, and the Thai Bond Dealing Centre (Thai BDC).
The Stock Exchange of Thailand
The Stock Exchange of Thailand (SET) was established in 1974 under the supervision of the Ministry of Finance. As of December 1999, there were 392 companies listed on the SET. Capital gains tax is not levied on profit on sale of listed securities on the SET. Dividends received from listed companies also receive favourable treatment.
To closely monitor and supervise the operations of SET, the Office of the Securities and Exchange Commission (SEC) was established in 1992. In the same year, to give new dimension to the capital market, seven mutual fund management companies were licensed to give the general public a chance to participate in the investment through unit trusts. At present, there are 15 licensed mutual fund management companies.
The Thai Bond Dealing Centre
The Thai Bond Dealing Centre, formerly known as the Thai Bond Dealing Club, was established in 1994. It was set up to serve as a special market for secondary trading of debt instruments among professional wholesale participants. Instruments traded in the Thai BDC can be government, state enterprise, or corporate bonds with a minimum issue of 100 million baht. At present, unrated debt instruments are allowed to be traded in the Thai BDC, however, the SEC requires the disclosure of information on these issues.
Trade and Commerce
Overview
ThailandΓÇÖs trade and commerce performance has been recognized worldwide for its outstanding achievement through the past two decades, despite the turbulence in late 1997. In 1988, its economic growth reached 13.3 percent, the highest in the history of the country and among the highest in the world. The integration with the world economy provided greater opportunity for Thai exporters especially those in the industrial and agricultural sectors. For decades, the government has pursued an open trading policy and promoted free flow of international goods and services. The evidence can be seen in its active participation in regional and international trade forums such as the ASEAN Free Trade Area (AFTA), the Asia-Pacific Economic Cooperation (APEC) and the World Trade Organization (WTO), which shows the countryΓÇÖs commitment to the changing world trading environment.
With respect to the trading of Thai products overseas, the top trading partners nowadays include the United States of America, Japan, ASEAN, and the European Union. The country is still exploring new trading opportunities in emerging markets worldwide. ThailandΓÇÖ s major export products are automatic data processing machines and parts, electronic integrated circuits, garments, motor cars, motor vehicles, parts and accessories, and rice, whereas the major imports are electrical machinery and parts, electrical integrated circuits, industrial machinery, chemicals, aircrafts and instruments. Additionally, Thailand is well known as one of the worldΓÇÖs largest exporters of agro-products, especially rice, and is one of the worldΓÇÖs top food suppliers. The countryΓÇÖs trade surplus peaked in 1998 at US$ 12,235 million. The government has strongly focused on commercial agriculture, especially fruits and flowers, and Thailand also has potential for value-added food processing industry due to its abundance of food products.
The government has also emphasized the development of infrastructure and manpower to serve the countryΓÇÖs needs in the next century. The infrastructure development includes various sectors: electricity, water supply, telecommunications, telephone services, long-distance transmission services, satellite services, land transportation, air transport, water transport, industrial estate facilities, and manpower development services. Thailand, besides, is considered by foreign investors as a good investment destination due to its workers who are among the best trained in the region, willing to learn, and loyal to their employers. The government has also promoted the decentralization of industries in order to distribute employment opportunities and wealth throughout the nation.
The late 1990s was one of the most difficult periods in Thai history. Its economy experienced a decline, as the GDP in 1998 contracted by 10.5 percent and unemployment was around 4 percent. However, the economy recovered in 1999 as the government implemented various policies to tackle such problems as non-performing loans (NPLs), liquidity, and debt restructuring, and to stimulate consumption through a value-added tax cut as well as other programmes. The Manufacturing Production Index rose by 12.5 percent in 1999, after being contracted during 1997-98. The sectors which recovered most strongly were vehicle and equipment, food, beverages, and setting jewellery. The number of laid off workers decreased, while the Private Investment Index was on an increasing trend. However, recovery will depend very much on the conditions of the world economy.
Free Trade Arrangements
Due to the rapidly changing international trade environment and the increasingly intensive competition in the global market, each country, therefore, has to make adjustments both to its domestic and international strategic policies in order to remain competitive and to keep pace with other countries.
One of the recent Foreign Trade Policies adopted by Thailand is for the establishment of Free Trade Areas with potential countries. The main purposes of such arrangement are to reduce or eliminate obstacles to trade, including tariff and non-tariff barriers, with its trading partners, and to create a trade alliance that provides a gateway to increased trade in each region.
At present, Thailand is in the process of conducting feasibility studies and/or consultations for the establishment of Free Trade Areas with a number of countries, including the United States, Japan, Australia, Bahrain, India, and Peru. In addition, Thailand, as part of ASEAN, has also begun consultations with China, Japan, Korea, India, and CER (Australia and New Zealand).
Toward the New Millennium
To face the challenge of the new millennium, Thailand has promoted cost reduction and quality upgrading of export products to enhance its competitiveness in the world market. The government has also emphasized human resources development, education and environmental protection. Furthermore, the government has promoted industrial decentralization with the aim of generating income, jobs and well-being to people in the rural areas. The effective cooperative mechanisms of the private and public sectors, such as the Joint Public-Private Sectors Consultative Committee, play a constructive role in promoting trade and investment for the country.
The increased use of electronic commerce and the internet, which had a significant impact on the world trading practices, is also a crucial factor for the flow of trade and its influence on international trade is expected to be tremendous in the 21st century. The public and private sectors have been actively involved in many projects educating people to the new trends and developments in the information technology arena.
Trade and commerce in general have been adapted to the changing environment in the international arena. This development will ensure the readiness and flexibility of the economy, especially the trading community, in dealing with any challenges in the future.
The Role of the Private Sector and the Linkage Mechanism with the Government Sector
The private sector plays a pivotal role in the Thai economy and has been continuously regarded as the ΓÇ£engine of growthΓÇ¥ to propel the economic growth. Members of the business community in Thailand group themselves in the form of associations, trade associations, chambers, federations, confederations and boards. Foreign business corporations operating in Thailand have formed their own chambers according to their nationalities, such as the Japanese Chamber of Commerce, Thai- German Chamber of Commerce, etc. Currently, there are 22 foreign chambers of commerce located in Bangkok metropolitan.
To link with the government sector and to act as coordinating body of the Thai private sector, the Joint Standing Committee on Commerce, Industry and Banking (JSCCIB) was established by the 3 leading private organizations, namely Board of Trade of the Thailand, Federation of Thai Industries and Thai BankerΓÇÖs Association.
Recognizing the rapid changes in globalisation era, the JSCCIB has set up the Joint WTO Committee and ICC-Thailand. These two forums have played their significant roles in the multilateral negotiation process to voice concerns over the interested issues and made recommendations as raised by the Thai private sector.
To promote and strengthen regional trade and economic cooperation, the JSCCIB has appointed its representatives to participate in various forums and organizations, such as ASEAN Chamber of Commerce and Industry (ASEAN-CCI), APEC Business Advisory Concil (ABAC), GMS Business Forum, Asia-Europe Business Forum (AEBF), ect. The participation and involvement of the JSCCIB in these regional developments is aimed at facilitating business operation and business collaboration regionally.
In addition, a number of bilateral business councils with ThailandΓÇÖs major trading partners were also set up to promote and strengthen trade and investment cooperation on bilateral basis. Currently, there are a total of 22 bilateral councils formed under the framework of JSCCIB, such as Thai-China Business Council, Australia-Thailand Business Council, ect.
In dialogues with the government sector, the private sector relies on the Joint Public-Private Sectors Consultative Committee (JPPCC) which was created in 1981. The secretariat of JPPCC is located at the Office of the National Economic and Social Development Board. Fifteen representatives of the JSCCIB join the JPPCC to address issues arising from or affecting business practices in all areas including trade, industry, finance, banking and others. From the 6th National Economic and Social Development Plan onward, efforts have been made to strengthen the working machinery of the private sector and to make the work of JPPCC contributory to the economic development of Thailand.
Infrastructural Support
Irrigation During the period of the first two development plans, the irrigation service area increased from 1.5 million hectares in 1964 to two million hectares in 1974. By 1999, the irrigated area was 3.58 million hectares, which is 16.90 percent of the entire agricultural area. Most of the irrigation service areas are in the central and northern regions fed by tributaries of the Chao Phraya River.
About 3.2 million hectares have access to gravity irrigation, of which 94,205 hectares are under an intensive on-farm development programme known as the Land Consolidation Project. Within gravity irrigation servicing areas, major structures such as reservoirs, diversion dams and main canals have been built.
Investment in on-farm development is generally required to enhance the effectiveness of the system.
Pumping irrigation is another important technique in the irrigation system which was first implemented in 1973. In 1998 pumping stations serviced 382,054 hectares. The northeastern region benefits most from this service.
In addition, underground reserves provide a significant amount of irrigation water in certain areas. It is estimated that ground water used for farmland at present amounts to 95,620 cubic metres per day. Farm ponds are also used to supplement rainfall for many areas of the dry north-east.
Public Utilities
The Electricity Generating Authority of Thailand (EGAT) is a state enterprise and the countryΓÇÖs principal producer of electricity. Over the past few years, efforts to reduce the use of high cost imported fuel oil for power generation by developing substitute domestic resources from natural gas and lignite have yielded satisfactory results.
The Metropolitan Electricity Authority (MEA) is responsible for the distribution of electricity in the Bangkok Metropolitan area, while the Provincial Electricity Authority (PEA) handles the distribution to the rest of the kingdom. Water supply to the capital city is the responsibility of the Metropolitan Waterworks Authority (MWA). It has successfully completed the first stage of a massive filtration and distribution scheme to double the cityΓÇÖs potable water supply.
Key elements of the project were the construction of an enormous filtration plant and an underground network of transmission tunnels. Laser-directed ΓÇ£molesΓÇ¥ were employed to dig and lay 3.86 metre-diametre pipes 20 metres below the ground in the worldΓÇÖs first soft earth tunnelling project, a feat of considerable engineering ingenuity involving both Thai and foreign contractors.
Industrial finance to the locals One means of promoting industrial activity is to direct funds to the locals for further economic development. At present, major secondary cities in Thailand are adequately served by private banks. Up to 1975, 60 percent of the deposits made in the provinces were being channelled back to Bangkok, a situation which necessitated government guidelines requiring that at least 60 percent of the deposits be lent locally. In addition, the Industrial Finance CorporationΓÇÖs priorities are to support industries which significantly increase the value-added worth of a commodity, generate employment, use domestic raw materials, produce export products, or locate their factories outside of Bangkok.
Industrial services The technical assistance and training services provided by the Department of Industrial Promotion (DIP) serve to promote industrial development. DIP also has 11 regional centres in Chiang Mai, Khon Kaen, Songkhla, Chon Buri, Suphan Buri, Phichit, Phitsanulok, Surat Thani, Nakhon Si Thammarat, Buri Ram and Udon Thani. The training and advisory services offered cover all aspects of industrial management, investment and joint-venture, industrial technology and industrial design.
Moreover, since 2001, the government has initiated a number of programmes to help strengthen the economy, especially from the grass-root level. These programmes aim to provide access to funds especially for those with low incomes and to relief their debt burden. These programmes included Village Funds, Debt Burden Relief Programme, PeopleΓÇÖs Bank, and SMEsΓÇÖ Development Bank.
Foreign Trade and Balance of Payments
Foreign trade accounts for a major portion of GDP, and its importance has grown substantially over the last decade (1990-1999). Its share was 34.79 percent of the GDP in 1990, and increased to about 88 percent in 1999.
Exports Thai exports have changed through policies implemented under the National and Social Economic Development Plan since the inauguration of the first Plan. Previously, Thai exports depended on certain agricultural products, especially rice and rubber which accounted for half of the total export value. Up until the Third National Economic and Social Development Plan (1972-1976), industrial products had played an important role. In 1986, for example, export and industry products contributed more than half of the total export value. This role has continually expanded up to the present ΓÇö it was 75.30 percent and 76.35 percent of total export value in 2001 and 2002, whereas agricultural products and processed agro-industrial goods were 18.21 percent and 17.78 percent of total export value respectively.
ThaiΓÇÖs exports expanded by 5.8 percent for the entire year in 2002. The forecast of export growth for 2003 is expected to grow at 5.5 percent. However, this depends on the situation of the Middle East conflict.
Major export markets are ASEAN, U.S.A., EU, and Japan which account for 68.67 percent of total exports. Exports to ASEAN which ranked top for the first time, accounting for 19.71 percent of total export value, were mostly distributed to Singapore (8.06 percent), Malaysia (4.12 percent), Indonesia (2.44 percent), and the Philippines (1.97 percent). Exports to the USA which ranked second, increased from 18.0 percent in 1996 to 19.61 percent in 2002.
Imports During the years from 1990-2002, total import value increased 10 percent per year. Major items were capital goods, raw materials and intermediate products, fuels and lubricants, consumer goods, vehicles and transportation equipment. In 2002, 75.33 percent of total imports were capital goods, raw materials and intermediate products.
Fuels and lubricant, consumer goods, vehicles and transportation equipment, mainly imported parts for car assembly, accounted for 11.49 percent, 8.57 percent, and 3.52 percent respectively.
Major import markets were Japan (23.03 percent), ASEAN (16.83 percent), EU (10.98 percent) and the U.S.A. (9.56 percent). In addition, imports from East Asia, particularly China has continually grown from 2.7 percent in 1996 to 7.62 percent in 2002.
Terms of trade In early 2002, the world trade volume expanded marginally due to the global economic slowdown caused by the incident of 11 September 2001, resulting in high consumer prices and downturn in manufacturing production. JapanΓÇÖs economy also continued to contract due to declining trading partnerΓÇÖs demand and coupled with weakness in the world financial sector. However, during the second half of 2002, the trend reversed as the world economy began to recover. The trade situation for 2003 will depend largely on the duration and scope of the Middle East conflict. If the situation turn into a war, but a short one, it is expected to have minimal impact toward ThailandΓÇÖs recovery and export growth.
Balance of payments ThailandΓÇÖs long time trade deficit has turned to surplus in 1998 after the crisis. In 2002, the larger trade account and current account, which benefited from tourism income, recorded a strong surplus while capital outflows declined. Consequently, the balance of payments registered a surplus of 4,234 million USD in 2002. By the end of 2002 ThailandΓÇÖs international reserves stood at USD 38.9 billion, equivalent to 7.4 months of imports. Meanwhile the stock of total external debt was reduced to about USD 59 billion at the end of 2002, of which around 23 percent was short-term. The ratio of international reserves to short-term debt was therefore as high as 2.8 times. Such strong external position allowed Thailand to be able to pay back all the loans under the IMF programme by the end of July 2002.
Conclusion
Throughout the early1990s, the Thai economy was among the fastest growing in the world. Indeed, according to a World Bank report, between 1985-1994 ThailandΓÇÖs average annual per capita GNP growth of 8.2 percent was number one in the world. After enjoying a high growth rate of GDP averaging 9.5 percent during 1986-1995, the rate slowed down to 5.9 percent in 1996 signalling the onset of the collapse of the Thai economy in mid-1997 following the flotation of its currency. Thailand sought an International Monetary Fund (IMF) rescue package for its deteriorating economy amounting to US$ 17.2 billion. Thailand at that time faced four major economic problems including the depletion of net international reserve, the systematic problems in the financial sector, serious liquidity shortage in the ΓÇ£real sectorΓÇ¥ of the economy and the constraint in the countryΓÇÖs ability to resolve economic difficulties arising from widespread regional economic turmoil.
To cope with the crisis, the government placed priorities on policies to restore confidence and to revive the economy. These policies gave significant results. For example, international reserves were built up to a satisfactory level, foreign capital rebounded and the exchange rate stabilized. The list of measures taken to stabilize the economy is a long one. Measures included budget cuts, tax and tariff increases, and implementation of a tight monetary policy. In addition, a series of 11 key economic laws and regulations was adopted, covering areas such as land and condominium ownership, bankruptcy and foreclosure procedures, and foreign business regulations. The net result of all these reforms was to strengthen the legal framework, while at the same time opening Thai markets to foreign investors, thereby preparing the country for the global attractive market place for the 21st century.
With the stimulus package and the improved economic conditions, the Thai economy regained market confidence and recovery was on its way. Notably, positive growth was recorded for the first time in the second quarter of 1999 and GDP growth in 1999 turned positive to 4.4 percent after a decline of 10.5 percent in 1998. In addition, the inflation rate was only 0.3 percent in 1999 compared to 8.1 percent in the previous year. The economy continued its growth momentum in 2000 before the global economic slowdown in 2001. However, in 2002, the GDP growth is expected to expand at the rate of 5 percent, while the inflation rate remained low at 0.4 percent.
In conclusion, the government has taken a systematic but flexible approach to resolving the economic crisis so as to allow the economy to recover quickly and in a sustainable manner. All the measures taken resulted in improvements of several economic indicators. This confirms that the Thai economy is on the recovery path, but this time, with strong economic and financial fundamentals laid down by major reforms by the current government.
