Thailand in General

Background: 

The roots of Thailand’s economy are firmly planted in its abundant natural resources and agricultural advantages. Famous for rice and products native to tropical climates including rubber, sugar, pineapple, tropical fruits, tapioca and seafood, the production and export of these products have produced sizeable earnings for the country.

A major campaign to promote industry in Thailand, beginning in the late 1970’s, has driven the modernization of the economy with tremendous growth in manufacturing, technology and foreign investment. While traditional resources are still important, multinationals and joint ventures with local partners assemble and produce automobiles and vehicle parts, computers, integrated circuits and major consumer products.

Thailand’s agricultural resources, combined with the growth of industry, manufacturing and technology make the kingdom’s economy unique, diverse and vibrant compared with its neighbors in Southeast Asia.

Thailand emerged from the 80s as the most promising developing nation in the world with growth rates of 13 percent in 1988 and 11 percent in 1989 leading the world for these two years. High growth continued in the early to mid 90’s and it looked likely that Thailand would join the group of Asian Tiger economies composed of South Korea, Singapore, Hong Kong and Taiwan.

By the mid Nineties, cracks were beginning to show in the Asian economic miracle, with Thailand having its share of economic worries. A swelling negative current account balance combined with stagnant exports, reduced consumer spending and high inflation foreshadowed the trouble ahead for Thailand’s economy.

A speculative run on the long-stable Thai baht was met with an ill-advised and abortive attempt to defend the currency using the country’s foreign exchange reserves. Instead of stabilization, Thailand was forced to float the baht in August 1997, leading immediately to a substantial devaluation. The devaluation quickly crippled the Thai economy as the baht’s value plunged, effectively freezing the financial sector. Most loans quickly went into default with creditors left clutching at overvalued collateral from the decade-long property bubble, and weak bankruptcy laws protecting the assets of debtors. Exporters keen to capitalize on the sudden demand for goods made relatively cheaper by the devalued Thai baht were unable to obtain financing from local institutions. The crisis that began in Thailand quickly spread around Southeast Asia also affecting Northern Asia and Russia as well.

A 17.2 billion dollar bailout package was offered to Thailand by the International Monetary Fund to stabilize the Thai economy and allow it to meet its short-term debt obligations. The package was granted on the condition of major restructuring to the economy, financial institutions and regulatory framework in Thailand.

There has been improvement in the Thai economy since the crisis in 1997. Although the economy shrank in 1998 with large increases in unemployment and non-performing loans, 1999 saw a return to GDP growth with bolstered foreign reserves, an improving external debt situation and improved domestic consumption and exports. The baht has stabilized and interest rates and inflation are both at very low levels.