Download Recent Events in Thailand

April 11 2007
Kingdom of Thailand:
Strategies to Achieve Sustainable Economic Growth
Powder delivery system
Solid Freeform Fabrication Laboratory
Yoon, Chan
Tetsuya Uetake, Hye jin Lee
Overview: Economic Crisis in late 1990s
 There were financial liberalization and abolition of
interest ceilings in the early 1990s.
 The interest rate kept high.
 High interest rate attracted a massive capital inflow.
 The US dollar appreciation led Thai baht to be overvalued.
 The series of events put downward pressure on Thai baht.
 A fixed exchange rate was replaced with a floating one.
 A huge amount of capital flowed out of the country.
 There was the dramatic depreciation.
 Economic recession and the IMF reforms.
Overview: Recent Events in Thailand (2003-2006)
 Tsunami severely hit southern coast provinces.
 Political unrest in southern areas
 Prolonged drought, leading rice crop to fall.
 Military coup occurred, exiling the former
Prime Minister Thaksin Shinawatra.
 Restrictions on foreign investment by the Bank of Thailand.
Recent Macroeconomic Trends: GDP
Real GDP & Growth Rate
4,500.00
15%
10%
3,500.00
3,000.00
5%
2,500.00
0%
2,000.00
1,500.00
-5%
1,000.00
% Change
Billions of Baht
4,000.00
GDP
GDP Growth
-10%
500.00
-15%
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
0.00
Year
GDP/Person
1995 1996 1997 1998 1999 2000 2001
2002
2003
2004 2005
(baht)
49474 52009 50829 44951 46487 48212 48837
51009
54131
56521 59016
 The GDP growth rate has decelerated.
 There was a slowdown in C and I due to negative internal events and
rising interest rate.
 The high interest rate raised the value of the baht.
Recent Macroeconomic Trends: Unemployment & Inflation
Inflation Rate
Phillip's Curve
Year
1998
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
0%
1%
2%
3%
Unemployment Rate
 The unemployment and inflation have been stable.
 There is a tradeoff between inflation and unemployment.
4%
Recent Macroeconomic Trends: Exchange Rate
Exchange Rate (Baht/US$)
Exchange rate
50
45
40
35
30
25
20
15
10
5
0
44.4
41.4
31.4
40.1
37.8
43.0
37.9
41.5
40.2
40.2
25.3
24.9
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Year
 In 1997, Thailand introduced a floating exchange rate system and the
baht depreciated dramatically.
 However, since then, the baht has appreciated because of high interest
rates, economic growth, etc.
Recent Macroeconomic Trends: Current & Capital Accounts
Current & Capital Account
25
20
Billions of dollars
15
10
5
Capital Account
0
Current Account
-51995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
-10
-15
-20
Year
 Before the economic crisis, capital account was in surplus because
of high interest rate.
 After the economic crisis, there was a huge net capital outflow,
which led to a capital account deficit.
 However, in 2004, the capital account became surplus because of
recent high interest rate and increasing imports.
Recent Macroeconomic Trends: Current & Capital Accounts (2)
Exports and Imports % Change
35%
30%
% Change
25%
20%
Exports
15%
Imports
10%
5%
0%
-5%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
-10%
Year
 The dramatic depreciation in 1998 caused a large increase in exports
(24%) and decrease in imports (8%).
 Exports have increased since 2000, but slower than the imports,
which caused a current deficit in 2005.
Recent Macroeconomic Trends: Interest Rate
Interest Rate
20%
18%
16%
14%
12%
10%
8%
6%
4%
15.4%
14.4%
14.4%
13.3% 13.4%
12.2%
13.6%
11.2% 10.9%
9.0%
7.3%
7.4%
6.9%
7.8%
5.9%
5.8%
5.5%
2%
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
0%
 Before the economic crisis, the interest rate was much higher than
other Asian countries.
 The money supply increased between 1997 and 2004, which led to a
decrease in the interest rate.
 Since 2004, the interest rate has increased due to high country risk.
Problems with Current Thai Economy
 Bath appreciation
 Current account deficit
 Short-term investment
 Decelerating GDP growth
Recommendations: Short-rum policy (1)
 Assumption of a small open economy
 Relatively high interest rate
 Above the balance of payment
 Floating exchange rate
Recommendations: Short-run policy (2)
 Expansionary monetary policy will stabilize both interest rate and
exchange rate, and increase output.
Policy Recommendation: Long-run (1)
 Increase saving rate
 35.4% (1995) → 28.8% (2005)
 Maintain government budget surplus
From 1997 to 2002 : deficit → 2003: surplus
 Establish legal institutions and capital market
 Stabilize the politics : the military coup in 2006
 Invest in human capital
 Focus on education
Policy Recommendation: Long-run (2)
Human capital
Program for International Student Assessment (PISA) Score
2003
Math
Science
Reading
Hong Kong
558
539
510
Japan
553
548
598
Korea
552
538
534
Macao-China
528
525
498
Thailand
424
429
420
Indonesia
361
395
382
OECD Average
496
500
494
The test is conducted by the Organization for Economic Co-operations and
Development (OECD), which measures how 15 years old students in more
than 40 countries perform in math, science and reading.
Source: "Thailand and Its Knowledge Economy" Arkhom Termpitayapaisit
http://info.worldbank.org/etools/docs/library/233823/PWThailandandIts%20K
nowledge%20EconomyPaper06.pdf
Policy Recommendation: Long-run - Solow Model (3) Output per
effective worker, y
Investment
Break-even
Investment
Solow Model
(δ +n+g)k
y1
f(k)
y0
s1 f(k)
s0 f(k)
k0
k1
Capital per
effective worker, k
Policy Recommendation: Conclusion
Achieve Sustainable Economic Growth
Question?
Thank you