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Thailand’s economic growth speech transcript – Zarko
The last 50 years have witnessed the succession of rapid economic growth for Thailand (Janson &
Khannabha, 2009), Arising as one of the world’s fastest growing economies and previously
speculated to be the 5th east Asia “Tiger economy” (Karunaratne, 1998). Thailand experienced an
annual growth rate of 6.6% between 1950-2000, to-which in this time we can identify 4 main periods
of boom and glooms of economic growth and development as seen in figure 1.0.
The 10 year focus period of considerable economic growth for Thailand is notably it’s most
distinguished time of economic prosperity, averaging 9.1% of annual growth between 1986-1996
(Jitsuchon, 2000). The integration of conservative fiscal/ monetary policies and strategies
encouraging high capital investment and liberalized trade, enhancing the supply side of Thailand’s
economy, are the key instruments of growth during this period.
The 1986-1996 period was prompted by key external events. Following the 1984 economic crisis, the
1985 G5 Plaza accord saw Thailand alleviate from the subsequent pressures of its pegged and highly
appreciated US dollar (Janson & Khannabha, 2009) (Citigroup, 2019), realigning international
currencies where the yen appreciated against the now falling dollar. The US heavy weighting in the
currency basket system caused the Thai baht to depreciate, to-which the rising currencies from
Japan, China and Taiwan encouraged Foreign Direct Investment of capital to Thailand, capitalising on
the low labour costs, close geographical reach and abundant natural resources (Jitsuchon, 2000)
(TIR, 2014 ). With a weaker currency, foreign direct investment and the global slump of petroleum
products in the following year became major catalysts spiking demand for Thai exports, accelerating
the countries manufacturing industry in a transition away from a previously agrarian economy
(Jitsuchon, 2000).
Thailand’s recently imposed investment policies and the liberalisation of the financial sector during
this period, were imperitive government backed strategies to subsidize and welcome this new
surging demand for manufactured and industrial goods. Essentially, the following measures
incorporate both fiscal and monetary measures.
Refinancing facilities promoting exports existed as early as 1956 in Thailand in the form of packing
credit. Despite initially aimed at the agricultural industry as industrial goods-based exporters
required longer term financing, the early 1980s saw the ratio of loans to total exports exceed 30%, in
response to increasing exports by agro-industries. The subsequent fall of this ratio to 10.3% in 1994
mirrored the divisions of labour in the industrial sector. Short-term pre-shipment loans were also
granted as an additional initiative alongside packing credit by the government, extending 458.5
million bahts in credit to 67 exporters, also encouraging new and small-scale exporters in the
process. These initiatives were transferred to the control of recently established Export-Import Bank
in February 1994 from the central bank. The Export-Import Bank further administered long-term
lending for exports of capital goods, medium-term credit to agricultural exporters, export insurance
and equity participation on overseas investment by Thai investors.
The bank of Thailand’s (BoT) monetary policy also saw a nominal exchange rate pegged to the basket
of it’s major trading partners (see figure 1.5 and 1.6), stabilizing it’s exchange rate within the target
value between November 1984 to June 1997 (Werner, 1998 ). The bank of Thailand would set a midrate for the dollar-baht exchange rate daily, trading the dollar against the baht without limit within a
narrow ±2% baht band of the midrate from 8:30 am till noon with commercial banks. This regime,
inevitably stabilized Thailand’s exchange rate within the target value during this period(figure 1.7),
to-which despite limiting monetary policy options by the bank of Thailand, the previously
aforementioned credit control policies successfully supported the period capitalisation and high
export demands.
As to further encourage exports, The Board of Investment (BOI) in 1983 implemented 100% approval
of foreign ownership investment projects with over 80% export ratios (Higashi, 1996 ). This is on top
of pre-existing income tax holidays and import duty exemptions, inviting copious economic benefits
participating in Thailand’s growth, particularly attracting the surge of young and unskilled labour
from the slowing agricultural industry into light industries, and capital accumulation. Ultimately
these export-focused projects after the global currency revaluations stood at 422, worth 62.1 billion
baht and representing 67.2% of total Foreign Direct Investment by 1990. The light industries by
sector attributed to 47.6% of investment value.
A pre-established tax refund measure system under the 1939 Customs Act was heavily utilised
during the period, allowing refunding of tax and duty paid on raw materials for export goods within a
year. Intended in improving Thailand’s international competitiveness of export products, the 34,600
applications for drawbacks for 1.84 billion baht in 1984 rose to 357,000 applications for 19 billion
baht by 1994.
A 1981 indirect tax rebate system was also set up for those who couldn’t claim rebates for exported
products not produced domestically. Paid through only tax coupons, the rebate covered tax added in
the costs of materials, spare parts, fuel, power and machinery at a 2% rebate ceiling of the total tax
revenue. The rebates rose from 1.5 billion baht in 1984 to 10.4 billion baht in 1994. Tax and duty
exemptions on capital and raw material imports for export products were applicable in export
processing zones, amounting to 10.8 billion baht in 1994, covering 41.6 billion worth of Thai exports.
Additionally, within the same year tax exemptions were applied for the 119 bonded warehouses for
storing duty free imported necessities for export production.
During the later point of this period of growth, the Thai government initiated several liberalization
policies, opening more opportunities for international trade and competitiveness of exports.
The reduction of import tariffs on Thailand’s certain protected industries was a gradual process
inaugurating in 1990. By March 1994, 39.53% of total tariff items in nine categories from machinery
and electronic goods to commercial vehicles and passenger cars were reduced, further increasing to
52% of goods in 11 categories by January 1995. Grace periods were also introduced for certain
domestic goods that may suffer from international competition, allowing only half of intended tariff
amount to be cut. All agricultural import tariffs were exempt from cuts to protect slowing industry.
Overall, these initiatives brought the tariff rate down to 17.01% from 30.32% by 1997.
The Thai government also deregulated several industrial sectors, to access foreign markets and
enhance competitiveness amidst surging domestic and international demand. Particularly in the
automotive industry, the government deregulated this sector to reduce domestic car prices in 1991.
This included removing import bans of completely built up cars and whilst also substantially reducing
tariffs for these goods and completely knocked-down kits. Thailand’s petrochemical and iron/steel
industries followed suit of similar measures.
Ultimately, Thailand’s government intervention, implementing a combination of fiscal and monetary
policies contributed heavily towards economic growth during 1986-1996. Figure 1.8’s graph shows
how conservative fiscal policy and liberalization of the financial sector were consistent factors
influencing growth. Such initiatives served the supply side benefits of the economy meeting the
foreign demands after global currency revaluations. Thailand’s fiscal policies of tax exemptions,
holidays and rebates on imported capital and industrial goods and services for export, allowed for
greater international competitiveness, satisfy excess demand, avoid cost-push inflation and promote
capital expansion, which can be seen in figure 1.9.
These measures were also well sustained, as some exemptions only applied for goods exported
within certain timeframes, locations, good type and industry. The Central banks administration of
long-term loans for capital accumulation, packing credits, short-term pre shipment loans and equity
participation in overseas investments, exemplify Thailand’s expansionary monetary policy, where
conservative measures reduced financial regulation, encouraging capital growth. This was also
maintained by the Bank of Thailand’s exchange rate trading and controls to stabilize value of its
currency. Moreover, these policies in correlation to other supply side policies of trade liberalisation
and deregulation all heavily contributed to the mass capital accumulation, inevitably taking the lion
share of growth for Thailand between 1991-1995, amounting to 80% as seen in figure 2.0.
Figures 1.9 and 2.0 showcase the imperativeness that mass capital accumulation served in fuelling
Thailand’s growth, to-which the monetary, fiscal and supply side policies implemented enhanced
international competitiveness also amounted to improved total factor productivity growth and
improved labour quality as strong contributors to growth between 1986-1995.
Moreover, Thailand’s economic growth during this period did indubitably improve the well-being of
Thailand’s population with a strong decline in poverty incidence across Thailand, hitting its lowest
rate towards the end of this period as seen in figure 2.1. However, it is apparent the distributional
tendencies of this growth have reflected strong income inequality. Figure 2.2 shows discrepancies
between Thailand’s capital Bangkok and its surrounding areas where the average real per capita
income was 3 times national average and up to 10 times of the poorest regions in Thailand. This may
perhaps reflect the negative consequences that growing capitalisation in Thailand has inflicted on
the falling need for labour.
Despite of this, the policies implemented by Thailand during this period have effectively responded
in inviting the surging foreign demand for exports and Foreign Direct Investment post global
currency revaluations. Regarding developing countries of todays economic conditions that could
adopt these policies is Bhutan. Bhutan is a relatively large country abundant of open land and
natural resources. A potential area of growth that can be obtained is the deregulation of its tourism
industry, preventing low cost tourism and huge influxes of international visitors with strict
requirements of having to spend hundreds of dollars daily during their stay. By reducing this and
imposing policies to invite foreign direct investment and promote international trade could greatly
benefit economic growth for this country, particularly considering it’s close proximities to economic
powerhouses of china and India.
References
Citigroup, 2019. Plaza Accord or Currency War Playbook?. [Online]
Available at: https://www.citivelocity.com/citigps/plaza-accord-currency-war-playbook/
[Accessed 1 August 2019].
Janson, K. & Khannabha, C., 2009. THE FISCAL SPACE OF THAILAND, London : Rathin Roy and A.Heuty
.
Jitsuchon, S., 2000. Thailand’s Economic Growth: A Fifty-Years Perspective (1950-2000), s.l.: Thailand
Development Research Institute Foundation .
Karunaratne, N. D., 1998. Trade Liberalization in Thailand: A Computable General Equilibrium (CGE)
Analysis. The Journal of Developing Areas, pp. 515-540 (26 pages).
TIR, 2014 . The Macroeconomic Impact of Thailand's Military Intervention. [Online]
Available at: https://www.boi.go.th/tir/issue/201408_24_8/331.htm
[Accessed 1 August 2019].
Werner, R. A., 1998 . Macroeconomic Management in Thailand: The Policy-induced Crisis. [Online]
Available at:
http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.196.6849&rep=rep1&type=pdf
[Accessed 1 August 2019 ].