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ECONOMIC GROWTH AND SOCIAL WELFARE:
EXPERIENCE OF THAILAND AFTER THE 1997 ECONOMIC CRISIS *
By Medhi Krongkaew **
1. Introduction
In July 1997, Thailand became well known as the country that started a currency crisis
that quickly spread to neighbouring countries in East Asia: Malaysia, Indonesia,
Korea, Hong Kong, and to a lesser extent, Singapore and Taiwan. The contagion
eventually spread across Asia to countries in other continents as well such as Russia
and Brazil later in 1998 and 1999 . Many economic experts were quite embarrassed
about this because, up until that time, they had had high praise for the way these East
Asian economies had grown and developed. 1 These experts have since tried to
understand the causes of this crisis and suggested ways to avoid the same crisis in the
future. 2 This crisis has also brought about new ways of thinking about present and
future development policies in Thailand, especially policies with respect to the
dichotomy or trade-off between overall growth of the economy and overall welfare of
the people.
Undoubtedly, the crisis of 1997 has hurt or affected different people differently.
Some were hurt more, some less, and some may even benefit from it. But one
message from the crisis is clear: the government could not remain inactive and let
different segments of the whole population face their own economic consequences.
For those citizens in the financial sector who directly benefited from the booming
economy and who were involved in causing the economy to collapse, the government
should mete out some punishments so that they will be deterred from committing the
same mistakes again. At the same time, the government should spearhead
institutional and structural reforms that provide legal, economic and regulatory
frameworks that help or facilitate economic governance in both public as well as
private or corporate sectors to prevent similar crisis in the future, or to lessen the
impact in case crisis is unavoidable. For those citizens who were less well-off, and
usually victims of the crisis, the state should provide better protection against future
economic calamities and a system of economic and social safety nets that cushions the
fall of these people. The 1997 crisis has brought about concerns on these issues
which have hitherto been neglected or ignored in the Thai modern economic history.
And the current economic management in Thailand could be used as an interesting
*
Paper presented at the International Seminar on Promoting Growth and Welfare: the Role of
Institutions and Structural Change in Asia, organised by UN Economic Commission for Latin America
and the Caribbean, the Institute of Developing Economies, Japan, and the Instituto de Economia,
Brazil, in Santiago, Chile, April 28-29, 2002, and Rio de Janiero, Brazil, May 2-3, 2002.
**
Professor of Economics, Thammasat University, Bangkok, Thailand.
1
The best example is probably the World Bank report, The East Asian Miracle, which was published
in 1993. The Asian Development Bank just published The Rising Asia just a few months before this
economic meltdown which started in Thailand in July 1997.
2
See, for example, Ammar Siamwalla (2000), Medhi Krongkaew (2001), Somsak Tambunlertchai
(1999), Sauwalak Kittiprapas (1999).
2
case study that shows the success or failure of how the government handles
sustainable economic growth and social welfare.
This paper is divided into 6 sections, including this Section 1: Introduction. In
Section 2, I will recount the basic philosophy that lies beneath development policies
of Thailand since the early 1960s when the Thai government launched its first
national economic development plan in 1961. Section 2 analyses the impacts or
effects of these policies on the social welfare of the Thai people, especially as seen
through changes in poverty and income inequality. Section 3 discusses the pattern of
growth and development that led to economic crisis in 1997, whereas Section 4
continues to discuss the ways the government solved the economic problems. Section
5 describes and evaluated economic policies of the present government that address
both issues of economic growth and stability, and social protection and safety nets.
Finally, Section 6 concludes with some important policy implications. It is hoped that
the Thai experience could give a unique and interesting guideline to those who look
for policy mix that helps generate satisfactory economic growth and sustainable social
welfare at the same time.
2. Basic Philosophy of Thai Development Policies
Box 1 describes the structure of the Thai economy in a nutshell. Together with Table
1, one can quickly learn about the basic development philosophy and policy of
Thailand. Since its inception in 1961, Thailand’s National Economic (and later,
Economic and Social) Development plan has played an important part in transforming
Thailand from a poor, agrarian society to a middle-income newly industrialised
country. The Thai government has done this through a combination of private
economic investment and expansion, with the government providing infrastructure
support and certain investment incentives. This is in keeping with the development
thinking at the time when growth was the most obvious and probably the most
important objective of economic development, and investment or capital formation is
the most important means to that end. No doubt, plans after plans concentrated on
growth and economic expansion (see Table 1). When growth slowed due to external
and internal problems, the government would react to stabilise the economy so that
growth returns in the shortest of time. Therefore, the development experience of the
Thai economy during last three decade has seen alternate emphases on growth and
stability, with occasional concerns on other areas such as poverty alleviation, income
inequality, energy shortage and environmental degradation thrown in, but the growth
orientation of the national economic and social development plan was never in doubt.
Then in mid-1990s things began to change. As early as the Third Plan, the
development philosophy and strategy of Thailand were already criticised for not
paying sufficient attention to the problems of poverty and inequality, environment
degradation, and social protection. In the 8th National Economic and Social
Development Plan covering the period of development from 1997 to 2001 economic
growth was no longer the final objective of the country’s development efforts. It was
but one of the many factors that worked towards people’s development, and the
development of people leads to enhancement of the capabilities of communities,
society and ultimately of the nation. This development strategy is new for Thailand.
The earlier emphasis on economic growth has changed. People will now be at the
centre and development will revolve around them.
3
Unfortunately before this 8th Plan was put in operation, the crisis struck. As will be
seen in more detail later, the whole 5 years of the 8th Plan were spent, not on
achieving its intended goals and objectives, but on how to get the Thai economy out
of the deepest recession in its modern history. At the end of the 8th Plan in 2001, the
economy is said to have recovered and is strong enough to consider a new
development philosophy and strategy. This new development policy is the SelfSufficiency philosophy proposed by His Majesty, King Bhumibol Adulyadej. Box 2
describes the essence of this Philosophy of Sufficiency Economy and various ways in
which various people (including myself) have interpreted it. It appears that the
government has become more careful about how to generate and manage economic
growth. The spirit of the Sufficiency Economy has become the guiding principle of
the 9th National Economic and Social Development Plan.
3. Economic Growth and Poverty Reduction
The success of Thailand in its economic development efforts since the early 1960s
was quite extraordinary. The economy grew on average about 6 per cent per annum
in real term during the first 25 years of development since 1961. In mid-1980s,
Thailand suffered some external balance problems which required it to devalue its
currency several times, and had to seek credit assistance from the IMF. But in the
latter half of the 1980s, Thai economy recovered quickly (see Box 1). The
devaluation in 1984 helped increase Thai exports; the influx of Japanese foreign direct
investment as a result of yen appreciation following the 1985 Plaza Accord helped
speed up domestic manufacturing; and the success of Thai tourism industry in 1987
helped bring in vast amount of foreign exchange earning. While the growth rate of
the economy from 1981 to 1986 averaged about 5 per cent per annum, the growth
began to jump up in 1987. In 1988, Thailand achieved that highest growth rate in the
world for that year at 13.2 per cent. This double-digit growth rate continued for 3
years ending in 1991. From 1991 to 1995 the growth rate of GDP ranged between 8.1
to 8.9 per cent. The economy began to experience difficulties in 1996, leading to the
collapse in 1997.
While the growth of the economy is normally depicted by the rate of growth of GDP
like that shown in Chart 1, it is probably more instructive to show the welfare of the
people through the increase in their household or individual income. The
disaggregated household or individual income cannot be obtained from the National
Income Account; it has to come from a special survey. The National Statistical Office
(NSO) of Thailand has been collecting household income and expenditure data since
1962/63. These surveys form the database in which poverty incidence in Thailand
can be calculated. Table 2 shows the relationship between the changes in these
household income and poverty incidence in Thailand from 1962/63 to 1998.
There are two series of data in Table 2. The first series shows the household income
per capita from 1962/63 to 1986, and the corresponding poverty incidence (headcount ratio) for the same time periods, and the second series shows the same set of
information from 1988 to 1998. The main difference between these two series is that
the first series uses the poverty line that was originally estimated by the World Bank
for its poverty study in Thailand in 1975 (see World Bank, 1980). This calculation of
this poverty line for Thailand was based the nutritional requirements for an average
4
Chart 1: GDP Growth, 1962 to 1998
GDP Growth
GDP Growth
10.0
5.0
98
97
96
95
94
93
92
91
90
89
88
87
86
19
19
19
19
19
19
19
19
19
19
19
19
19
84
83
85
19
19
-5.0
19
82
0.0
19
Percent (%)
15.0
-10.0
Year
Thai, the consumption habit and patterns of Thai households, and the prices of food
and non-food items that existed in the early 1960s.
This poverty line was adjusted with inflation index each time a new study is
undertaken until early 1990s when many researchers felt that the structure of
population, the nutritional requirements, the consumption habit and patterns of the
people had changed sufficiently to the point that a new poverty line was needed.
Therefore, in 1996, Kakwani and Medhi (1996) computed a set of new poverty lines
for Thailand using new nutritional requirements, new age structure of the Thai
population, and spatial price differences across the regions. These new poverty lines
vary according to the size and age compositions of members in the family, and the
location where these families live. These new poverty lines were applied backward to
the situations in 1988. Therefore the new poverty series that starts in 1988 represents
the most up-to-date poverty measurement in Thailand at present.
The detail about the incidence and profile of poverty in Thailand using the second
series of data will be discussed later, but at this juncture, it is interesting to look at the
simple relationship between economic growth and poverty reduction. Assuming that
economic growth raises income of the people, and the increase in income pushes the
people out of poverty, it is very obvious from looking at Table 2 that there exists an
clear relationship between the increase in household income and the reduction in the
incidence of poverty in Thailand. As will be mentioned later, this reduction in
poverty in Thailand did not come about as a result of any specific, well-targeted
poverty reduction policies or measures, it could be safely concluded that poverty
reduction in Thailand came as a result of an overall economic growth. 3
3
A simple regression of head-count ratio (HCR) on household income per capita (Yp) on the two
series gives the following results:
For Series 1: HCR = 53.920 – 0.0036 Yp
(7.123) (-2.409)
R2 = 0.659
For Series 2: HCR = 43.2675 – 0.0109 Yp
(25.193) (-13.052)
R2 = 0.9827
The figures in parentheses are t-values.
5
I will now pay more attention to the incidence of poverty between 1988 and 1998.
Prior to 1988, the NSO conducted the nation-wide socio-economic survey (SES)
irregularly about once in every five years or so. From 1988 onward, however, the
government had asked the NSO to conduct this SES every two years after realising
that the results of the survey could be very useful in many policy decisions. Professor
Nanak Kakwani of the University of New South Wales in his work with the NESDB
had made an extensive use of these SES data, and had produced the results of his
studies in a series of newsletters issued by the NESDB itself. Table 3, for example,
shows the overall poverty situations for the whole kingdom from 1988 to 1998 (with
preliminary information on 2000 added) 4 Three kinds of poverty measures are
reported here: poverty incidence or the head-count ratio which shows the percentage
of the poor in the total population, poverty gap ratio which shows the extent to which
the actual income of the poor had fallen below the poverty threshold relative to that
poverty line, and the severity of poverty index which shows how serious and how
concerned the society is towards the existing poverty by giving more weight to
income movement among the poor. 5
In general, the lower these indices are the better in terms of poverty alleviation. On
the Head-Count ratio or the percentage of the poor in total population, it may be seen
that the percentage of the poor in Thailand had fallen from 32.6 per cent in 1988 to
11.4 per cent in 1996 before rising to 12.9 per cent in 1998 mainly as a result of the
economic crisis. Professor Kakwani had estimated the trend of this poverty
improvement and predicted that had it not been for the crisis, the poverty incidence
for the whole kingdom in 1998 would have fallen to only 10.8 per cent. The fact that
the actual poverty incidence in 1998 was 12.9 per cent means that the impact of the
crisis had caused the poverty incidence to increase about 19.7 per cent. In terms of
the number of the poor during crisis, the last column in Table 3 shows that, without
the crisis, the expected number of the poor would be 6.4 million. The fact that the
actual number of the poor was 7.9 million means that there was a 22.3 per cent
increase in the number of the poor between 1996 and 1998 (about 1.5 million people).
Somchai and Jiraporn (2001) provided additional information on poverty incidence in
1999 and 2000. In 1999, the NSO conducted a special socio-economic survey for
smaller sample size throughout the country (about half the size of 1998) in order to
check and monitor the seriousness of the crisis on income and expenditure. The
results had shown that although the average poverty line for 1999 was lower at 881
baht per person per month (due mainly to lower prices), the loss of income during the
4
Information on poverty incidence (and income distribution) from 1988 to 1998 was obtained from
Kakwani (1989), whereas the additional information of the same for 1999 and 2000 was obtained from
Somchai and Jiraporn (2001).
5
The Head-Count Ratio (HCR) is defined as HCR = q/n where q = number of population having
income below the poverty line, z; and n = total number of population or income-receiving units. The
Poverty-Gap Ratio (PGap) is defined as PGap = HCR . IGap where the Income-Gap Ratio (IGap) is
equal to [(z-y*)/z] where z is the poverty line, and y* the average income of the poor. This ratio
measures the extent to which the poor is far away from poverty threshold. Any transfer from the poor
to the rich, while the HCR may remain unchanged would still the IGap.. This shows the proportion of
total income or resources necessary to bring every unit below poverty line up to the poverty line. The
Severity of poverty index is the same as the Foster-Greer-Thorbecke Index (FGT) which is defined as
FGT = (1/n) ∑ [(z-yi )/z ]α where yi is the income of the poor individual, i, and α is a parameter that
measures how sensitive the index is to transfer among the poor units. When α is 0, FGT becomes
HCR; and when α is 1, FGT become IGap. The α value used in this study is 2.
6
year caused the incidence of poverty to increase to 14.6 per cent. By the end of 1999,
the employment situation in Thailand had improved, and large amount of public
spending had begun to show its multiplier effect, resulting in the proportion of the
poor falling to 14.2 per cent in 2000.
It is useful to discuss the distribution of income in the country as well when the issues
of poverty is considered. Income inequality can be considered as relative poverty. It
is often believed that the distribution of income of a country could become more
unequal in the early phase of its economic development but will improve once a
certain development level is reached. This is the famous ‘Kuznets Curve Theorem’
which relates the economic development of a country with increasing income
inequality (as measured by the Gini index, for example) to produce an inverted Ushaped curve. The income distribution of Thailand exhibited the rising part of the
Kuznets curve from the beginning of its modern economic development until 1992
when the Gini index reached the highest point of income inequality and began to fall
after that. As shown in Table 4, the Gini index for 1992 was estimated at 0.0.536,
falling to 0.521 in 1994 and 0.516 in 1996 and 0.509 in 1998. In 1999, however, the
Gini index had increased to 0.531 or an increase of about 4.3 per cent. In 2000, as the
employment situations improved, the distribution of income also improved, and the
Gini index for 2000 fell slightly to 0.525.
Also in Table 4 the income share of the overall population was divided in to 5 equal
groups or quintiles, ranging from the poorest group (Quintile1) to the richest group
(Quintile5). It may be noted that between 1998 and 1999, the income positions of all
quintiles except the richest one had deteriorated. This is sufficient to explain the
increase in the Gini index between these two periods as shown earlier. In 2000, the
income position of the poorest quintile improved slightly while that of the richest
quintile fell slightly, but overall the income distribution in the post-crisis period is still
very unequal. In the last column of Table 4 we can see the ratio of the richest quintile
(Quintile5) and the poorest quintile (Quintile1). The larger of this ratio shows the
more unequal distribution of income. Not surprisingly, this ratio for 1999 of 15.2 is
the highest.
To conclude, the economic development of Thailand since the First Plan in 1961 had
raised the welfare of the Thai people through an increase in their real income during
the last three and a half decades. This increase in real income directly reduces
poverty across the board in Thailand. However, the distribution of income became
more unequal in the early periods of development, reaching the deepest inequality in
1992 before worsened again as a result of economic crisis in 1997. In 1998 when the
crisis reached its lowest point, poverty reversed in declining trend and became higher,
while the income inequality also reversed itself equalising trend and became more
unequal again. The economic crisis of 1997 had indeed created enormous havoc in
the normal life of the Thai people. It is an economic event that will forever etched
itself in the Thai economic history. We need to know the causes of this crisis and
must do our best to avoid it in the future.
7
4. The 1997 Economic Crisis and Policy Responses
4.1 Causes of Economic Crisis
On looking back, the new economic development in Thailand that started in
earnest in 1988 with the establishment of the new government under General
Chartichai Choonhavan had created a situation that an economic crisis of some sort
could not be averted. It was the crisis that Thailand ‘has to have’. Why? This is
because everyone was carried away by the euphoria of economic success and
prosperity. Short-term and long-term foreign capital kept pouring in, adding to the
economic bubble that was already forming. There is no shortage of analysis on the
causes of the Thai currency turned financial and economic crisis. 6 In my own
analysis, I have pointed out six factors that led to the crisis, namely financial sector
mismanagement, high current account deficit, high domestic interest rate and
uncontrolled capital inflows, the rigidity of exchange rate, lack of economic
leadership from political leaders, and the decline in export performance.
(1) Financial-sector mismanagement. Many banks and financial companies lent
excessively, and imprudently, made possible by abundant and cheap foreign
sources of money. Much of the loans were spent in the non-productive property
and stock markets. The existing state philosophy protected public financial
institutions at all costs, creating a grave moral hazard.
(2) Current account deficit. Thailand had spent beyond its means; it had to borrow
from the savings of other countries to finance its investment and consumption.
This overspending became chronic and reached a level thought to be unsustainable
(more than 8 percent of GDP in mid-1997), creating uncertainty in its ability to
maintain the fixed rate of the baht.
(3) High domestic interest rate and uncontrolled capital inflows. High interest rates in
the domestic market and low interest rates in overseas markets induced
uncontrollable inflows of foreign capital. An excess inflow of foreign capital
pressured the local currency to appreciate; subsequently, baht appreciation hurt
Thai export performance.
(4) Rigidity of the exchange rate. Thailand attempted to practice the so-called
impossible trinity, the combination of a fixed exchange rate, freedom from capital
controls, and freedom from interest rate control. This was abandoned when the
U.S. dollar appreciated in early 1997 as the baht became overvalued and
subsequently devalued.
(5) Lack of economic leadership from political leaders. Before flotation of the baht,
political leaders were kept out of the decision-making process concerning the use
of reserves to defend the baht. The existing system had not required close
supervision or consultation of top leaders of the country, and leaders were
informed after foreign reserves were depleted.
(6) Decline in export performance. Increasing costs in the production of Thai exports
eroded the price competitiveness that Thailand had over other competitors,
especially China. The slowdown in world demand of Thai exports also contributed
to the decline in export performance, although the overvalued baht was another
factor. With a high current account deficit, the poor export performance in 1996
and early 1997 severely hurt the Thai economy.
6
See, for example, Ammar Siamwalla (forthcoming), Ammar Siamwalla and Orapin Sopchokchai
(1998), Somsak Tambunlertchai (1998), and Sauwaluck Kittiprapas (1999).
8
4.2 Policy Approaches to Economic Crisis
I will leave the account of the social impacts of the economic crisis until later.
What I want to do now is summarise policy approaches adopted by the government
during the first two years to combat this crisis. When Thailand turned to Japan and
the IMF for help after the meltdown of its currency in July 1997, it had less than 3
billion US dollars left in its foreign reserve. More than 30 billion US dollars were lost
in the defence of the baht. Japan and the IMF together had managed to raise 17.2
billion US dollars rescue package for Thailand. This package had come with the
usual IMF conditionalities. First, the IMF had asked the Thai government to spend
less. As it is now well known, this was a bad decision as the contraction in the private
economy got worse with this drastic cut in public spending. However, the IMF had
some reasons for making such a recommendation. The losses from the bail-out of the
commercial banks and finance companies would require the government to use
enormous amount of public funds to payback to the Financial Institution Development
Fund (FIDF) which provided the bail-out money in the first place. The government
needed all the public savings it could get, and that included the increase of the ValueAdded Tax (VAT) from 7 to 10 per cent. This latter measure was also another bad
idea because it had caused further contraction, created tax evasion, and hurt the
majority of workers and other fixed income and self-employed people.
Other than these two fiscal measures, the other measures were followed by the Thai
authority with a better result. First of all, the currency was already floated (devalued),
so this part of conditionalities was met. Next, the mismanagement of the financial
sector which was at the heart of the problems was tackled immediately and forcefully.
Through special legal power, the Thai monetary authority suspended more than half
of the finance companies and eventually seized control of almost all of them. A
special institution called the Financial Sector Restructuring Authority (FRA) was
established to auction off the assets of these failed financial institutions to pay back
the debts to the government. The Bank of Thailand also ordered the remaining
financial institutions to increase their capital bases, and establish more stringent
controls over their loans. In order to help them recapitalise their capital bases, the
majority control of foreign financial institutions was allowed. The government also
provided public funding for those banks who were having problems with the
recapitalisation requirement and would like the government to help in exchange for
some public control on the management and operation of those banks. These
stringent recapitalisation plans by the Thai government were often criticised for being
too stringent, but the government was quite adamant in its intention to enforce these
accepted international standards for the future of Thai banking institutions.
On monetary policy, the Bank of Thailand has kept a watchful eye over the
fluctuation in the exchange rate. When the baht is weak in the exchange market,
domestic interest rate will be kept high to help stabilise it, but when the baht becomes
stronger and more stable, this high domestic interest rate would be reduced. Domestic
money supply was also under close scrutiny by the Bank of Thailand so that the
appropriate rate of monetary expansion is maintained to reduce the pressure of
inflation. The government had succeeded in cutting its budget to the point that a
fiscal surplus for the fiscal year 1997 was achieved, but later the IMF had agreed to
allow larger and larger fiscal deficits so that the public sector could usher in the
9
economic recovery and to help provide social assistance to the public (social safety
net and social investment programs)..
Perhaps one earlier good news was the good performance in the external sector where
exports had increased while imports had plummeted. The positive change in the
external sector was so quick and drastic that the current account had turned into
surplus within a few months after the crisis broke. From October 1997 onward the
current account of Thailand remains in surplus. At the end of July 1999, this surplus
amounted to more than 1.2 billion US dollars. This had positive effects upon the
external confidence on the Thai economy as shown by the continued improvement in
the exchange rate of the baht since February 1998.
It was earlier expected that the economy would bottom out before the end of 1998,
and earlier signs in both the domestic sector (low inflation rate, falling interest rates)
and the external sector (stable exchange rate and slowdown in capital outflows) but
this was not to be the case. To succeed in stimulating the economy quickly, the
commercial banks must be able to start lending quickly. At first these banks were not
able to do so because of tight money situation. But when the liquidity was eased and
the interest rate was brought down, commercial bank lending was still slow. Most
local banks were burdened with large numbers of non-performing loans (NPLs), and
the corporate debt restructuring between these banks and their debtors was not very
successful at first. The bankruptcy law that existed at the time of the crisis was
inadequate to cope with the situation where debtors and creditors need to negotiate
about their debt settlement quickly and move on. The attempt by the government to
enact a new bankruptcy law was faced with strong resistance from the Thai political
community, particularly in the Senate. It took the government several months to pass
this new law, with several compromises. This was one of the reasons the new
bankruptcy law was not very effective in changing the behaviour and practices of Thai
debtors. As a result of recapitalisation push of many commercial banks, the liquidity
situations became loose again, but commercial banks still refused to lend for fear of
NPLs.
4.3 Some Macroeconomic Results
(a) GDP Growth
As can be seen from the Chart 2, the economy was growing at the rate of about
4.7 per cent during the last quarter of 1996. During the first half of 1997, the
economy began to falter through stagnant export, with the GDP growth less than 2 per
cent at the end of the second quarter of 1997. Then the crisis struck. The growth rate
of GDP during the last quarter of 1997 was minus 4.6 per cent. The economy was
already in recession. The economy continued to contract throughout 1998, and
reached the bottom during the second quarter of 1998. It then began a slow climb
back, achieving the positive growth rate for the fist time since the crisis broke during
the second quarter of 1999 (with the GDP growth rate of just 0.1 per cent). The
growth hit the highest rate in the post-crisis period at 7.5 per cent during the third
quarter of 2000 then became more laboured through the remainder of 2000 and 2001
due to the slowdown in the world economy. The latest growth statistics for the third
quarter of economic growth in Thailand shows the Thai economy grew only 1.5 per
cent during this quarter.
10
Chart 2: Growth Rate of GDP, 1995 to 2001
10
%
GrowthRateofGrossDomesticProduct:Q2/1995Q4/2001
5
0
-5Q4/95
Q4/96
Q4/97
Q4/98
Q4/99
Q4/00
Q4/01
-10
-15
-20
GDP Original
SeasonallyAdjusted
Source: NESDB
(b) Production and Trade
The production situations before and after the crisis are divided into two parts,
agricultural production and manufacturing production. With the overall crop
production in 1995 set at 100, the index for 1996 and 1997 were 106.1 and 110.9,
respectively. It may be seen that the crop production index for 1998 was 109.1, only a
slight, almost imperceptible, decline from 1997 level. A simple interpretation of this
phenomenon is that the crisis had little impact on the crop production of the country.
Indeed the relative crop production levels of 1999 and 2000 continued to grow
strongly with the respective indices of 115.3 and 121.7 for 1999 and 2000. The
depreciation of the baht had made the agricultural commodities of Thailand cheaper in
the eyes of foreigners, and the demand for them had subsequently increased. 7
Chart 3: Industrial Growth and Capacity Utilisation
IndustrialGrowth& CapacityUtilization
%
100
80
60
40
20
0
-20Q1/96
-40
Q1/97
Q1/98
Q1/99
IndustrialCapacityUtilization(
Q1/00
Q1/01
GrowthRate(%)
Source: NESDB
7
It should be noted, however, that the increase in agricultural section is in terms of volume, not value.
In fact, with the price of agricultural commodities generally lower in 1998 and 1999, the earning from
agricultural exports of Thailand in 1999 and 2000 actually declined despite a larger volume of
production and sales.
11
The situation was different with regards to manufacturing production. The total index
of manufacturing production declined from 107.1 in 1997 (with the index for
1995=100) to 96.5 in 1998. However, the manufacturing production picked up
quickly in 1999, with the index of 108.6, and in 2000 with the index of 112.1. Again,
the massive devaluation of the Thai currency explains a lot of this increase through
production for export. The value of exports in 1996 in dollar terms was lower than
that of 1995. This was one of the reasons that brought about the crisis as mentioned
earlier. In 1997, the export earning in dollar terms improved slightly but fell again in
1998. It was not until 2000 when the value of export in dollar terms had increased
noticeably. Thailand has to sell a lot more in volume terms to receive the same
amount of earning compared to the situation before the crisis.
Even before the crisis, there was an excess capacity in the manufacturing sector of
Thailand. Chart 3 shows that in 1995, two years before the crisis, the industrial
capacity utilisation was estimated at 77.4 per cent. This fell to 72.5 per cent in 1996.
The economic shocks at the end of 1997 hit the industrial sector hard as the rate of
capacity utilisation dropped to 64.8 per cent in 1997 and hit the bottom at 52.8 per
cent in 1998 before increase slightly to 61.2 in 1999. Regrettably, the industrial
capacity utilisation during the last two years do not show much improvement at all.
In fact, the latest figure for September 2001 only shows the rate of capacity utilisation
of only 52. 8 per cent, the same level as at the bottom of recession.
(c) Consumption
The crisis had brought about fear of uncertain future among the people
resulting in their withholding the purchase of unnecessary items and/or increase
saving. This has a deleterious effect on expansion of the economy. The Composite
Private Consumption Index shows a decline from 101.4 in 1997 to 95.4 in 1998 (with
1995=100). Typically private consumption was slower in comparison with the
manufacturing production in their response to economic change. In the short-run,
many people would find it difficult to cut consumption quickly, and they are likely to
try to maintain their consumption patterns as long as they could. If the economic
downturn continues, these people have no choice but to slow down their consumption
also, and in reverse, would not adjust quickly to the return of economic normalcy.
This phenomenon is very clear when we compare the Composite Consumption Index
with the Manufacturing Production Index. Whereas the manufacturing activities
showed a strong recovery in 1999, the Consumption Index was still at 96.9 in 1999.
Even in 2000, the Consumption Index was only 100.2, only slightly higher than the
starting period in 1995. Domestic aggregate demand will need to go up much higher
if the economy is to maintain a much higher rate of growth than now.
12
HouseholdConsumptionExpenditureGrowth
%
10
5
0
-5Q1/96
Q1/97
Q1/98
Q1/99
Q1/00
Q1/01
-10
-15
-20
RealTerm
SeasonalAdjusted
Chart 4: Household Consumption Expenditure Growth
Source: NESDB
(d) Price Level
The price level in Thailand rose quickly after the crisis struck at the end of
1997, especially food price. Not that food was scarce, but the increase in the demand
for food as a natural response to a crisis had bid up the food price. The food price
index was highest in 1998 (137.9 compared to 125,9 in 1997) representing the rate of
increase in the price level of 9.5 per cent. In 1999, however, the food price had come
down. Meanwhile the non-food items whose supply was plentiful as a result of excess
production capacity did not increase much in price. It, therefore, acted to pull down
the overall price inflation in the economy. The core consumer price inflation
(calculated from the index excluding the raw food and energy items) for the periods
1997 to 2000 stood at 4.7, 7.2, 0.02, and 0.7 per cent, respectively for 1997 to 2000.
Even in the second quarter of 2001, the core consumer price inflation was only less
than 1.5 per cent. This low inflation helped economic recovery and cushioned the
plight of poor families and families of laid-off workers as well. The change in the
price level using GDP deflator shows similar result as the change in consumer price
index.
Chart 5: Growth Rate of GDP Deflator
GrowtRateofGDP defator,CPI,PPI
%
60
45
30
15
0
-15Q1/96
-30
Q1/97
Q1/98
GDP deflator
Source: NESDB
Q1/99
Q1/00
CPI
Q1/01
PPI
13
4.4 The Social Welfare Effects of the Crisis and Policy Responses
There are at least three ways that the life and well being the Thai people could
be affected by the crisis. One way is for the crisis to hurt the private business causing
losses which could lead to the companies shedding their workers or employees. The
loss of employment is a major source of adverse outcome of the crisis. The second
way is for the crisis to cause a slowdown in economic activities causing a drop in
income of the self-employed like the farmers, and a cut in wage or salary of those who
remain in employment. But while these two ways cause the negative effects on the
people, the government or the state could intervene to help by providing social
assistance through its social spending such as on health, education, or other welfare.
In this section we will discuss these three ways in which the life and welfare of the
Thai people are affected by the crisis.
(a) Employment and Unemployment
This crisis has hurt many people in different sectors differently. In the public
sector, public servants who are normally paid less than their counterparts in the
private sector may lose some of the fringe benefits that come with the jobs such as
medical allowances, supplementary salaries based on special qualifications or
entertainment expenses due to government budget cuts, but their job security has
remained intact. The long-standing policy of the government to freeze the size of the
public officials by allowing no more than a 2 per cent increase in the existing work
force annually actually helps those who remained in the jobs because the government
does not need to incur heavy additional costs to look after new officials.
The situation is different for private sector workers, the professional and business
people are those who were most adversely affected by the current economic crisis
because the economic slowdown has translated into less economic activities and
income. Those who had foreign-denominated debt without appropriate hedging had
suffered immensely from the rapid depreciation of the baht. The wage and salary
workers are also affected by job losses. These people may benefit from availability of
credits but only through the regeneration of jobs and employment by the professional
and business people. Lack of unemployment benefits in the Thai social security
system makes these workers very vulnerable to hardship. Some may have to find a
new job completely in order to survive, and a majority of these unemployed wage and
salary workers may have to depend on their families at least in the short-run until
business activities improve, or a new job is found. Wage workers who came from the
countryside may choose to return to the rural areas where family supports are still
available.
Farmers may be the only group of people who could benefit from this crisis.
Assuming that their production inputs are mainly land and labour which have little
import contents, their products would be in greater demand through a depreciated
exchange rate (as is actually the case with regard to the production and exports of
high-quality rice). However, they could not escape the impact of inflation brought
about by the increase in the costs of production of other necessary household goods
and services. Moreover, the burden of the farm sector in the rural areas in looking
after members of the families who had gone to work in cities but returned home after
job losses could put a great deal of pressure on these farmers who are generally the
least well off in the society.
14
The analysis in this paper is based on the Labour Force Survey which have been
compiled by the National Statistical Office (NSO) since 1963. The NSO presently
conducts four rounds of the survey for the whole kingdom each year; the first round
is scheduled in February to capture the data on the non-agricultural season; the
second round is normally held in May when new graduates finish their schooling and
join the workforce; the third round is held in September – during the peak agricultural
season; and – starting from 1998 – the fourth round of survey has been conducted in
November as well so as to better capture the changes in the data. Readers of this
paper should note that the patterns of employment of many Thai workers often
exhibit high degrees of underemployment, shifting, or seasonal employment from
circular migration (especially between rural and urban areas during the dry and wet
season). In addition, due to the lack of unemployment insurance facilities, poor
workers have to try to find new odd jobs as soon as they lost their old jobs. This type
of employment pattern is difficult to assess.
Since a large proportion of the population is working in the agricultural sector,
unemployment usually increases during dry season and falls during wet season. In
order to accurately analyse unemployment data, this seasonal effect must be taken
into consideration. A recent study by Professor Nanak Kakwani has attempted to do
that. He had used the employment trends of the periods before the crisis to project
the employment and unemployment situations in the crisis period (the first quarter of
1998). The difference between this projected figure and the actual figure is an
estimation of the effects of the crisis. As it turned out, the estimated unemployed
persons as a direct result of the economic crisis numbered about 810,000 – much
lower than the often quoted number of between 1.5 to 2 million persons. The study
also found that the effect of the crisis on total unemployment was statistically
insignificant. This may infer that the nature of the crisis was cyclical and not
structural.
A new study by Behrman, Deolalikar, and Tinakorn (2001) presented several
interesting findings on the overall labour market effects in Thailand. Some of their
findings are:
(1) The pre-/post- crisis comparison indicates that there were not only
significant downward quantity adjustments in employment, but
also in hours worked and in shifts from wage to non-wage
employment.
(2) The post-crisis average real wage rate did not decline compared to
pre-crisis levels (except for some rounds). Actually, post-crisis
average real wage rates exceeded pre-crisis real wage rate due to a
combination of reduced hours worked for fixed (monthly/weekly)
pay workers and some movements from wage to non-wage
employment by previously lower wage workers.
(3) Wage labour earnings in Thailand decline only by about –7.6 per
cent in 1998, which was less than the decline of –10.0 per cent in
GDP. Workers in other Asian countries were not as lucky, since
wage labour earnings declined nearly three times as much as GDP
in Indonesia and Korea.
(4) Previous studies on the labour market outcomes in Thailand and
other East Asian economies confound changes in hours worked in
15
their measures of changes in real wage rate and hence can be
misleading with regard to price or wage effects (aggregation
problems).
(5) Wage flexibility in Thai labour markets are not as high as those in
some low-income countries (e.g. Indonesia) where post-crisis
unemployment change was minimal.
According to the LFS data, unemployment began to surge dramatically in the first
quarter of 1998 (dry season) from 0.9 per cent of the current labour force to 4.8 per
cent of the labour force. Unemployment remained high for several quarters and
peaked at 5.6 per cent in May 1999 before declining to 3 per cent in August 1999. A
recent data shows that unemployment rates are between the 2.5 per cent - 3.5 per cent
range, which are still higher than the pre-crisis level (between 1 per cent - 2 per cent
range). In October 2001, about one million people are reported to be unemployed
(3.2 per cent of the current labour force).
There are several policies which have existed in Thailand prior to the crisis such as
policies on minimum wages which is set according to regional labour market
conditions, severance payments, social security, and labour unions. However, some
these policies are not strictly adhered to or do not cover the majority of workers, and
hence are not as effective as they should be. Take minimum wage for example, LFS
Data shows that approximately 30 per cent of all wage employees in the Thailand earn
wages that were below the minimum wage. Therefore, further expansion of public
6%
5%
4%
3%
2%
1%
(F
eb
.9
6
(F
eb
.9
7
(F
eb
.
(A 98
ug
.9
8
(F
eb
.9
8
(A
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(F
eb
.
(A 00
ug
.0
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(M
ar
.0
1
0%
Underemployed
Unemployed
works programs could be the principal vehicle for temporarily strengthening social
safety nets; as public works programs which guarantees at least the minimum wage
rate is attractive to these poor workers.
There are several measures that the government could undertake in order to prevent
future negative impacts on the labour market. These include prioritising human
resource development, synchronising between technology-intensive industries and
labour-intensive industries, introducing more employment options (alternative
employment industries and SMEs), enhance social security and unemployment/
severance benefits, and improve law and policy enforcement against misuse of labour
(exploitation of children, women, and migrant labourers).
16
(b) Individual income and its distribution
A series of Tables 5 to 9 depict various aspects of the changes of average
income and expenditure of households in Thailand from 1975/76 to 2000. I have
already discussed this topic in Section 3. This section simply provides additional
information on the detail of sources and distribution of income of Thai households in
the last 25 years or so. I have mentioned earlier that the NSO has been collecting data
and information on household income and expenditures of the Thai households since
the early 1960s. By mid-1970s, it has become very proficient at these socio-economic
surveys which provide accurate and reliable information for researchers who want to
study poverty and income inequality among the Thai population. Table 5, for
example, shows that the average monthly household income steadily increased from
1,928 baht in 1975/76 to 10,779 baht in 1996, one year before the crisis. 8 Note that
the average income of Thai households continued to increase to 12,492 baht in 1998,
and indeed to 12,729 baht in 1999. This can be seen as a delayed effect of the
economic crisis. But more accurately, however, this could be interpreted to mean that
there are both gainers and losers in the first two years of the economic crisis, and the
it appears that the average income of households did not fall until the year 2000. This
is also a problem of distribution, or rather, maldistribution of income. On the
expenditure side, the household expenditure did fall slightly between 1998 and 1999.
At least the anxiety and apprehension of the crisis was shown here among the average
Thai households. By 2000, the cut in home consumption was very clear. This is a
natural response to hard time.
Table 6 shows a clear trend of modernisation of the Thai economy where the
importance of money income increases, and that of income-in-kind decreased. Tables
7 and 8 further substantiate this modernisation trend where the non-food expenditure
increased against food expenditure, and income from wage and salaries had shown an
increased important. Table 9 indicates an interesting fluctuation of income
distribution. Income inequality in Thailand reached the peak in 1993, then fell
continuously until the depth of the crisis in 1998, then increased in 1999. With the
economic situation improved in 2000, the inequality also slightly declined. Table 9
shows income inequality classified by different regions and locations. It is obvious
that the regional inequality is less than national inequality because a national
inequality as a result of the combination of a rich region, say, Bangkok, and a poor
region, say, the Northeast, would be certain to stretch the income distribution further,
causing greater inequality.
It is possible that the crisis still bring about the increase in average household income
as was the case in Thailand, but this is possible because the income distribution has
become more skewed, and it was the income position of the rich that makes up to the
increased in the average income of the overall households. Section 3 has already
discussed the details of poverty and income inequality. It is sufficient to say here that
future income policy should not address only absolute poverty problems, but relative
poverty problems as well. Otherwise, the situation that we saw in Thailand in 1998
and 1999 could happen again, that is to the average income has shown an increase
8
Since 1988, the government has instructed the NSO to conduct this SES every two years. The SES in
1999 was a special survey that the government asked the NSO to carry out in order to find out the
impact of the economic crisis.
17
while the majority of the population is genuinely suffering from economic hardship
through job losses and the fall in income and earning.
(c ) The Role of State in Providing Social Assistance: Health, Education,
and others
There were many government spending programs which target at alleviating
negative social impacts resulting from the crisis. The Chuan Government has been
using part of the normal government budget to assist and resolve problems
experienced by the poor (simply defined as people whose income are lower than
10,000 baht per year). The other part of the funding came from loans from foreign
governments and organisations:
(1) The Social Investment Project (SIP) from the World bank and the Japan
Bank for International Co-operation (JBIC) totalling 21,689 million baht.
Through this government loan program, the Government Savings Bank
distributed and lent out money to local authorities and organisations in
order to enhance their residents’ economic positions.
(2) Loans from the Asian Development Bank (ADB) under the Social Sector
Program Loan of approximately 7,800 million baht. This fund was mainly
used to alleviate the negative impacts experienced by the newly
unemployed and the disadvantaged people in the society.
(3) Loans from the World Bank and the JBIC to help increase growth-induced
government spending. This package was announced in March 1999, with
the following details:
Million
Baht
(1) Investment and job creation aimed at alleviating the
24,827.25
social impact of the economic crisis
(2) Improvement in the quality of life
9,564.99
(3) Improvement in the foundation of economic development
7,008.55
(4) Improvement in the competitiveness of manufacturing and export
2,329.92
industries
(5) Improvement in basic infrastructure and the development
867.46
of specific areas
(6) Enhancing the effectiveness of public administration
8,799.74
Total
53,397.90
Source: ECONOMIC STIMULUS PACKAGE OF THE THAI GOVERNMENT
March 1999 (No. 41/1999)
It was commonly referred to as ‘the Miyazawa fiscal stimulus package’ or
‘the Miyazawa Plan’ following the name of the Japanese Minister of
Finance who provided a large portion of funding for this social assistance
program. The policy started hiring people in April 1999. It generated
short-term employment for low-skilled workers in the rural areas in the
rehabilitation of water supply, irrigation, and other public work.
18
(4) Measures to encourage rural and society development. The budget for
this program was 4,272 million baht, and the funding came from existing
SAL loan (no additional borrowing necessary).
To sum up, after two years of conservative, market-driven, policy packages, the Thai
economic began to show sign of recovery. This was helped also by various statedirected policy packages, for example, two major economic stimulus packages by the
government, one in March 1999 and the other in August 1999, and heavy doses of tax
cuts and increased public spending. In early September 1999 when the Thai
government was preparing its 8th and last Letter of Intent to the IMF, the economy
had clearly shown strong signs of recovery. The manufacturing production index had
shown continuous positive increase, whereas the private investment index had
stopped its decline. The household consumption has also begun to increase, thanks to
stable price level, cuts in income and sales taxes, increase public spending, and so on.
The growth rate of GDP was 4.6 per cent in 1999 and 4.6 per cent in 2000. The
current account remained in surplus, while the balance of payments also turned to
surplus one year after the massive outflows of capital which precipitated the crisis.
Employment started to increase as the production in the real sector began to come to
life again.
But as the economy had shown signs of responding to the government’s medicine at
the end of 1999, the government itself appeared to have run out of its own gas. It was
ineffective in tackling the two stickiest problems, the continued high level of NPLs
and the stagnant real estate sector. The unresolved NPL problems had caused a
failure in commercial bank credit expansion. The rising oil price in 2000 compared to
two years earlier, had dampened the GDP growth. The export was growing well in
2000, but that was partly because the baht had become weaker. Toward to end of the
year, the US economy began to slow down, whereas the Japanese economy continued
its depressed state. The prospects of the Thai economy at the end of 2000, therefore,
was not very promising. Coupled with popular political campaigns of the new
political party, the Thai Rak Thai (TRT), the government under the Democrat Party
became unpopular, and lost the election to the Thai Rak Thai at the general election in
early 2001.
5. Current Development Policies: An Evaluation
The events surrounding the victory of the TRT Party and the subsequent assumption
of power of Mr Thaksin as the current prime minister of Thailand were very
interesting. The new constitution promulgated in October 1997 was already in force
which had given a kind of political transparency that hitherto unexperienced in
Thailand, such as strict rules against vote buying, separation of legislative power from
executive power, creation of various legal bodies to counter the political influence of
politicians and bureaucrats, and so on. As a successful businessman who has made a
fortune in telecommunications, Mr. Thaksin was financially secure to make deal with
old- and new-styles local politicians to lend their support for his eventual prime
ministership. At the same time, Mr. Thaksin needed to seek the support of modern
businessmen, many of whom were counted among those who were laden with NPLs
but whom political, social, and economic influences were large. He also had the
support of many technocrats and business associates who could provide the necessary
political manpower to run a modern government. Despite the shaky start due to the
19
impending case against him in the Constitution Court for his indictment for the
concealment of his assets (which could cost him the prime ministership if found
guilty), Mr. Thaksin won his case and thus could concentrate on implementing his
election promises.
These election promises were no small matters. It is true that Mr. Thaksin has the
capability to be prime minister and head of progressive government, but there is no
denial that his Party overwhelmingly won the election because of these election
promises. Once in power, he must fulfil his party’s election promises which became
guidelines for his development policies. In the context of appropriate governance, he
has to do two things at the same time, that is to continue to maintain and speed up the
economic recovery and to implement policies that essentially bestow social welfare or
social well-being to a certain target group of people, mainly farmers and the people in
the countryside.
In February 2001, Mr. Thaksin announced his government’s policies to the
Parliament. In his policy statements, Mr. Thaksin introduced several ‘urgent’ policies
aiming at improving the living standards of the people. Nine of his urgent policies are
as follows: (see summary of these policies in Table 10).
(1) Immediately grant a grace period for both interest and principle payments
for 3 years for individual small farmers to relieve their debt burden as part of a
comprehensive reform of the traditional farm economy to be more viable and
self sustaining in the long term.
(2) Establishment of the Village and Urban Revolving Fund, funded with one
million baht each as a loan facility available for individuals and households of
each community to borrow for local investment and supplementary vocations.
Concurrently, the Government will promote a "One Village One Product"
project to enable each community to develop and market its own local product
or products based on traditional indigenous expertise and local know-how. The
Government is further prepared to provide additional assistance in terms of
appropriate modern technology and new management techniques to market such
local products from the village to domestic and international outlets through a
national or international retail network or through the internet.
(3) Establish a People’s Bank to ensure better and improved access to banking
facilities and resources for low income citizens to enhance their capacity to
increasing their income from self employment and thus reduce their dependence
on organised and punitive money market sources.
(4) Establish the Bank for Small-and Medium-sized Enterprise in order to
promote existing and increasing the number of entrepreneurs in a systematic
manner with a view to expanding the national productivity base, increasing
additional employment opportunity and creating income, promoting exports,
and serving as the mainstay for future national economic growth and stability.
(5) Establish a National Asset Management Corporation in order to
comprehensively solve the problem of Non-Performing Loans (NPLs) in the
20
commercial banking system swiftly, systematically, comprehensively and to
enable the financial system to resume their normal credit functions.
(6) Utilise State Enterprise as key vehicle to mobilise domestic resources from
Thai investors to promote revitalisation and development of the Thai economy
through selling shares of incorporating a holding company incorporated by
grouping a number of state enterprises with strong income potentials employing
professional management and free from political interference as one alternative
and listing of individual state enterprise directly in the Stock Market of Thailand
at the appropriate time as another alternative.
(7) Provide universal health insurance with a view to reducing the overall cost
to the country and the people in acquiring health-care capping each hospital visit
at 30 baht. All Thai people will be guaranteed that equal access to a nationally
acceptable standard of health care.
(8) Accelerate efforts to establish drug rehabilitation centres concurrently with
implementing effective drug suppression and prevention measures.
(9) Encourage full and open public participation in the prevention and
suppression of corruption.
How good are these policies? Will they be able to generate necessary growth and
provide specific welfare to the people at the same time? Are there better alternatives
to these policies which are conditioned by election promises. Is Mr. Thaksin different
from, and better than other prime ministers before him? These are some of the
questions that many will raise while evaluating the success or failure of his policies.
Let take a look at some of his policies referred to above.
(a) The National AMC Policy and the Solution to NPL Problems
I have said earlier that one of the two stickiest problems facing Thai
government during economic crisis was the problems of NPLs. The last government
under Mr. Chuan Leekpai attempted to solve the problem by recapitalising banks and
finance companies. The Government, with the advice from the Financial
Restructuring Advisory Committee, the Ministry of Finance (MOF), and the Bank of
Thailand, implemented the August 14th 1998 Recapitalisation Scheme promising to
provide matching Tier 1 capital for Thai financial institutions that can find funding
from strategic partners. The scheme also offers to provide Tier 2 capital to financial
institutions in percentage terms of their credit extension and debt restructuring. At the
end, only about one-third of the 300,000 million baht pledged for this program was
actually used, indicating that there were some concerns among the private banks about
government intervention if they enter the program, especially the Tier 1 Scheme
which the MOF has the right to appoint a representative(s) in the Boards of
participating financial institutions, and reserves the right to change the existing
management team if it sees fit.
The establishment of a national asset management corporation (AMC) was one of the
Thaksin’s government brainchild. Thai Rak Thai proposed to establish a central,
government-run organisation to take over the NPLs and facilitate a quick debt
21
restructuring to strengthen the real sectors and the service sectors, with the hope to
kick start the economy. This idea of the nationalisation of bad loans differs from the
Chuan government’s policy of encouraging banks and financial institutions to set up
private AMCs to manage their own NPLs.
The TAMC intends to restructure a substantial amount (500,000 million baht) of
NPLs by the end of 2002. All NPLs are expected to be resolved in two years’ time
(by the end of 2003). The TAMC will continue to monitor the performance of the
restructured loans for another 3 years. By the end of 2006, all the process is expected
to be concluded – 3 years earlier than originally expected. It was reported that the
TAMC will initially focus on big debtors so as to stimulate the economy, then it will
turn to focus on smaller debtors – some of which can be grouped up and managed by
professional asset managers. 9
The TAMC not only sets ambitious goals for itself, but it also sets equally demanding
goals for the state-owned banks who act as its asset managers, for the management of
the NPL pools. State-owned banks are responsible for managing the single creditor
loans which they originated and are given nine months to finalise all deals (until
September 2002). Debtors normally propose debt restructuring plans with a certain
percentage of haircuts. So far the TAMC has approved an average of 10-20 per cent
haircut (or debt reduction).
How does TAMC work? The TAMC was set up in June 2001 after the enactment of
the TAMC Act. Its current Board consist of a banker, a representative from the
Industry Council of Thailand, a representative from the Trade Council of Thailand,
and nine technocrats/bureaucrats. The assets which were transferred are separated
into two types: state-owned (state banks and AMCs) and private-owned.(private banks
and AMCs). State-owned AMCs are not allowed to be the lead creditor in multicreditor debt restructuring negotiations. The difference between these two types of
transferred assets are shown in the Table below.
Table 11: Difference between State-Owned Assets and Private-Owned Assets
Under Article 30 : state-owned FI
Under Article 31 : private-owned FI
1. Classified as NPLs as of 31 Dec 01
1. Classified as NPLs as of 31 Dec 01
2. Outstanding balance over 5 mn baht
2. Outstanding balance over 5 mn baht
3. Loans can be collateralised or non3. Loans without collateral (clean loans)
collateralised
are not accepted
4. Single creditor loans can also be
4. Only multi-creditor loans can be
transferred
transferred
5. Exclude case where the Court
5. Exclude case where the Court
judgements are finalised, or restructuring
judgements are finalised, or restructuring
process is completed prior to the transfer
process is completed prior to the transfer
date
date
9
It has been observed, however, that NPLs that have not been settled one way or another now, almost 5
years after the meltdown, are probably beyond any resurrection now, and are probably better off
liquidated. Dr. Ammar Siamwalla, for example, believed that by the time the TAMC was set up much
of the damage to the economy and therefore to asset values had already occurred. The firms and assets
that could be kept intact had already gone through either the Corporate Debt Restructuring Advisory
Committee (CDRAC) process or the bankruptcy courts. The assets that remained would only
command break-up values. See Ammar (2001).
22
According to the gain/loss sharing scheme between the TAMC and the financial
institutions (Articles 47 - 52), the financial institutions would shoulder the first 20 per
cent loss, while the next 20 per cent loss would be split equally between the TAMC
and the financial institutions. The TAMC will be responsible for all losses over the
40 per cent threshold. If the overall results turn out positive, the first 20 per cent of
the gains would be shared equally between the TAMC and the originating financial
institutions. Gains above 20 per cent will go to the financial institutions (but not to
exceed the difference between the accounting value of the asset and the transfer
price). Any extraordinary gains belongs to the TAMC
This is a method to resolve NPLs which this government hardly need to worry about
upfront payments, as the initial investment is paid out of the FIDF (which receives
regular funding from the banks), and the TAMC uses the interest income from debtors
to fund its day-to-day operations. As for the payment for the NPLs transferred, this
government has arranged for the TAMC to pay the financial institutions in the form of
promissory notes (P/N) which has a 10-year maturity. How will the TAMC finance
the P/N repayment with cash in ten years’ time is not this government’s problem – the
government in power in the year 2011 will have to figure that out. TAMC encourages
financial institutions to extend additional credit to debtors by promising that any new
financing that they provided would receive a senior debt status (that is, they would get
their money back before other original creditors).
The government also introduced a new ‘matching fund’ concept whereby a Fund can
choose to invest in companies which has been restructured by the TAMC. The first
Fund was established in April 2002 with joint funding from Ceberus (an international
asset management firm) and Krung Thai Bank and the Industrial Finance Corporation
of Thailand (or IFCT, both of which are state-owned financial institutions). Minimum
investment in each debtor company is set at 5 million USD. The government stressed
that the primary intention of the matching fund must not be to purchase assets from
the debtor companies, but should be to restructure the companies. A few other Funds
have expressed interests in joining this Matching Fund program.
Since October 2001, the TAMC has accepted multiple lots of loans (around 4,600
accounts) from state-owned financial institutions and private financial institutions,
with book value totalling almost 700,000 million baht – significantly lower than their
original target of 1,100,000 million baht. In the TAMC’s latest progress
announcement as of March 31st, 2002, it reported a completion of 100,216 million
baht (177 cases) of debt restructuring, up 100 per cent from its previous
announcement three weeks earlier (50,133 million baht). Of this number, 55.4 per
cent are cases with multiple creditors (67 cases). 37.1 per cent of the cases are in the
property sector, 26.8 per cent are in the industrial sector, and 15.4 per cent are in the
service sector.
Even though the overall restructuring figures for the TAMC seemed impressive, some
felt that the core of the problem has not been resolved. There were speculations that a
majority of the 50,083 million baht of NPLs restructured in the last three weeks of
March 2002 are single creditor loans (previously originated by government-owned
banks) which are much easier to resolve compared to multi-creditor loans. Since the
TAMC only employs less than 100 full-time staff, one might question whether it is
23
possible to conduct a thorough analysis of each debtors’ financial status prior to
executing these restructuring deals. I believe these doubts are not unfounded. In
addition, it is suspected that many of the restructuring deals were back-end loaded,
namely, debtors only need to pay a small amount up-front and agree to pay the rest of
the money later on, usually in several payments. It remains to be seen whether or not
these debt repayments actually materialises.
Another point of concern for the private banks is the fact that the TAMC prohibits
state-owned AMCs from being the lead creditor in multi-creditor debt restructuring
negotiations. This meant the private banks have to shoulder some additional burden
of managing the whole restructuring negotiations, even if their total lending is small
relative to other state-owned creditors. The gain (or loss) sharing is scheduled in year
5 and 10, but the expenses incurred as a result of these asset management activities
goes straight into the banks’ profit and loss account every year. No wonder why
some of the banks are getting somewhat reluctant in becoming the lead creditor!
Moreover, it is speculated that the TAMC, in an attempt to meet their ambitious
target, was directly negotiating several restructuring deals with the debtors – without
notifying the creditor banks as previously agreed. The creditor banks, especially
private banks which are more concerned about the terms of the restructuring and the
resulting haircuts, disapprove of this practice. As a result, there seemed to be some
increased tensions among the parties involved.
The law which legitimises the TAMC outlines the profit and loss sharing structure
between the TAMC and the financial institutions (Articles 47 - 52). The financial
institutions would absorb the first 20 per cent loss, while the next 20 per cent loss
would be shared equally between the TAMC and financial institutions. Any losses
over the 40 per cent threshold will be borne by the TAMC. As one can see, since the
originating banks are only responsible for up to the first 20 per cent plus half of the
next 20 per cent, it is the people’s tax money that is at risk if the TAMC faces huge
losses.
A major criticism of the TAMC law is that the TAMC committee is given too much
power and there is no oversight of the committee.10 The committee has the power to
authorise and approve all kinds of debt and business restructuring, asset sales, and
liquidation of debtors, as long as they have acted in a “careful and professional
manner” – which is sometimes difficult to assess. The TAMC Committee, managing
director, and other officials are well protected by professional immunity as specified
in Article 28. They shall not be held responsible for their activities, if they have acted
in a careful and professional manner. However, this immunity provision would not
apply if they violate the law, are dishonest or guilty of gross negligence.
In spite of the summary powers of the TAMCs and the opportunity to clean up their
balance sheets, many banks were not too enthusiastic about the scheme and tried to
10
Source: Bangkok Post newspaper, November 25, 2001. On the power of the TAMC, Dr. Ammar
Siamwalla also noted that the TAMC was not unlike the FRA in its role as an asset disposal unit. But
whereas the FRA was in charge of disposing of financial institutions’ assets, with its buyers still having
to go collect on the loans given to the debtors, TAMC will itself directly deal with the debtors, in many
cases, if not in most, actually foreclosing on properties. Consequently, unlike the FRA, a key feature of
the TAMC law is to empower it to grab these assets. Actually, there is nothing wrong with this as long
as TAMC is doing its jobs openly, professionally and accountably.
24
speed up their restructuring efforts and finalise the deals prior to the cut-off date
(transfer date) in order to reduce the amount of NPLs which needs to be transferred to
the TAMC. The value of loans transferred from private banks fell short of
expectations, which many observers put down to fears that the TAMC will go soft on
well-connected debtors. Besides, Thailand’s privacy laws makes it impossible for
outsiders to evaluate the TAMC’s degree of toughness on each debtor. At present,
there are approximately 12 per cent of NPL in the banking system. NPL re-entry are
occurring every month – but not at a worrying rate.
To conclude, the existing bad loans problems in Thailand are beyond the point where
the work of TAMC could make any real difference. The greatest worry now is that
TAMC performs badly, either unprofessionally through irregular practices, or does
not protect public interest well enough. If this happens, it is the taxpayers who will
eventually pay for the past and present mistakes of those who are now handling the
country’s NPLs.
(b) ‘30-baht’ Health Care Scheme
Another ambitious Thaksin Government policy is to provide universal health
services and facilities, capping each hospital visit at 30 baht, in order to reduce the
overall cost to the country and the people in acquiring health care. This is part of the
long-term government plans to reform the health service system to provide health
benefits comparable to those of the social security system to all Thai citizens for free
or for a small co-payment. It is considering the possibility of merging all public
health benefit programs into single or dual health funds. The Universal Health Care
Coverage also allows private health care providers to participate in the program, with
the hope that their participation would give more choices to the people and increase
the quality and efficiency of the system. The government proclaimed that since April
1st, 2002, all Thai people has been guaranteed equal access to a nationally acceptable
standard of health care.
The Scheme works this way. All Thais over 13 years of age who do not currently
receive other forms of Government-assisted health insurance11 are entitled to join this
‘30-baht’ program in which they are (supposed to) be able to get most kinds of
medical treatment while paying only 30 baht each time. Those citizens who are not
government servants or employees who are already covered by the government
medical expenditure scheme, and private workers who are not covered by private
insurance, and poor citizens who are provided with free medical care cards, will be
given ‘Gold Cards’ to receive comprehensive medical services for a charge of 30 baht
(less than 70 US cents) each time. The Government will pay 1,052 baht for each
person registered at a particular hospital (whether public or private). The program
covers necessary vaccinations, medical treatments, (except for the kidney dialysis
which is extremely expensive), pregnancy care and delivery, and dental care. In
December 2001, the Public Health Ministry has extended its 30-baht health care
scheme to cover anti-retroviral drugs for HIV/AIDS. In the early stages, the scheme
would cover 6,000 – 7,000 AIDS sufferers. A Committee would work out a budget
management plan and criteria for deciding who should get the drugs. However,
11
Such as the Social Welfare Scheme for the poor, Voluntary Health Card Scheme, Civil Servant
Medical Benefit Scheme, Social Security Scheme.
25
provincial Committees may decide to give different rates of budget to the contracting
unit for primary care for each population group in the areas depending on the health
conditions of each group. The ministry said its budget on AIDS would be increased
to more than 1 billion baht, of which 42 per cent would go on prevention, 39 per cent
on treatment, and the rest on information and research.
This is one of the most popular public programs under the new government. The idea
of providing universal health services for a very nominal fee (almost free) is a good
one, especially for the poor. But the actual practices or implementation of this policy
of this government have several flaws. The followings are some of the flaws:
•
This 30-baht Scheme does not target the poor only but applies to everyone who is
not public servants, workers who enrolled in social security scheme, and those
Free Medical Card holders. This wastes resources, creates moral hazard for the
overutilisation of health services, and disturbs good practices of both the patients
and health providers.
•
The present health care services system in Thailand is already functioning well, or
at least not functioning too badly. The public hospitals or health clinics already
charge reasonable fees for various medical services commensurate with the true
costs of treatments. Those with ability to pay can go to private health care
services; low-income households can buy low-cost health insurance cards; poor
households can apply for Free Medical Service Cards; and so on. There are better
ways in which to use several billion baht of government budget to provide health
services for those who need them most.
•
The 30-baht Scheme affects the behaviour of both the patients and health
providers in a certain way. For example, as the first receiving hospital has to take
care of the patient throughout the treatment episode, if expensive specialised
services in other hospital are need, the first receiving hospital may be reluctant to
refer its patient there for fear of having to bear additional burden of costs. The
cost comparison between different medical schemes may disrupt normal
behaviour that is not efficient.
•
There is a natural constraint to the provision of medical services under this 30baht Scheme. Limited supply of medical services under low price will eventually
bring about rationing and queuing of those services. Indeed, because of the
possibility of the system correcting itself through service rationing and queuing,
the state can even set the price lower than 30 baht per visit.
•
It is obvious that the government recognises the political popularity of this policy,
and is willing to go through with it. But eventually the welfare of the whole
population could be adversely affected by this market-distorted policy than is
helped by it.
(c) The Village and Urban Revolving Fund
Another election promise which has become one of the earliest implemented
policies of the Thaksin government is the establishment of the One-Million Baht
Village and Urban Revolving Fund. Every village in the whole kingdom was
26
promised one million baht each from the Thaksin government as a loan to that village
to use in a project or activity that generates income, employment and better livelihood
for that village. This loan will remain in the village without having to return to the
government unless it is clear that the village administrators were not able to make the
proper use of it. This loan could be further lent out to households or individuals in the
village for investment purposes. This loan can also be combined with another villagebased policy called ‘One Village One Product’ which is the government policy to
encourage village or group of village to develop at least on local product based on
traditional indigenous expertise and local know-how that can be sold or marketed in
larger markets outside that village (even nationally or internationally). 12 The
government is further prepared to provide additional assistance in terms of appropriate
modern technology and new management techniques to market such local products
from the village to domestic and international outlets through a national or
international retail network or through its internet website (see
<http://www.thaitambon.com>.
The government believes that the overall economy would gain momentum through
increase investments and local spending. By early March 2002, 71,578 Village and
Urban Revolving Funds (69,960 villages and 1,668 Urban Communities) have been
set up. One million has been transferred into each account. This accounts for 95.6
per cent of the government’s target of 74,881 Funds. The rationale for this policy is
the need to build a strong local network of people who have the right political mindset
and culture which is more independent and less hierarchical. Simply put, people
should be willing to help one another rather than wait for government assistance,
otherwise the program could be creating problems at a local level.
At present, the Department of Community Development in the Ministry of Interioris
the only government authority responsible for monitoring and measuring the
performance of this program. Some feel that this arrangement is inadequate as it is
suspected that some village fund do not have sufficient planning and monitoring for
credit extensions, allowing locals to borrow to buy luxury items such as mobile
phones, motorcycles, or even use the money to gamble. Moreover, the low interest (1
per cent) of the VURF is also very attractive and has caused some villagers to churn
away from their village’s own savings co-operative. If this practice continues, the
local savings co-operative may have to wind down its operations, and it would be
quite difficult to rebuild it again once the VURF Scheme is phrased out in 2004.
The government would also like to see this VURF as part of the Sufficiency Economy
where each community at the grassroots level produces for personal consumption first
and then sells excess production to augment income at the family level. Villagers are
encouraged to join together in conducting economic activities at the community level,
accelerate the development of small- and medium-scale entrepreneurs, provide access
to domestic and overseas markets in order to systematically strengthen the income
creation process for the people.
The way this VURF works is that National VURF Committee and provincial VURF
Committees will be established. Villages and Urban communities are encouraged to
12
The government often cited that it got the idea from Oita, Japan, which started off as a very poor
village but later became a national success story following the implementation of the ‘One Village One
Product’ project
27
set up local councils to plan and oversee the management and distribution and fund,
and approve local projects before forwarding them to the Government Savings Bank
(GSB) to be reconsidered. Once the project is approved by the GSB, the money for
each project would be transferred. Fund Council’s committee members receive no
compensation but have to be responsible for making approval decisions for all the
loans, setting appropriate interest rates, and collecting all debt repayments – which
could be rather burdensome for them. Initially the government required 15 elected
local people to become committee members in each council, but they later relaxed this
requirement to a range of 9-15 elected locals instead. This is because it can be
somewhat difficult to find enough numbers who are willing to get involved in this
difficult, time-consuming, and risky tasks.
This program limits each individual borrowing to 20,000 baht and the amount must be
paid back in one year’s time. Once a village distributed all of its one million baht to
the local borrowers, additional lending is prohibited until the Fund receives at least 20
per cent of the total debt repayment. Interest level is not specified by the government,
the local Fund Council can determine the appropriate interest applicable to different
types of loans depending on the loan’s objectives and repayment schedule.
In March 2002, Dr. Chalongphob Sussankarn, the President of Thailand Development
Research Institute (TDRI), the country’s well known think tank, commented13 that the
government’s ‘grass-root funding program’ is theoretically beneficial, but is facing
several obstacles in practice because it cannot encourage the grass-root population to
lead the economic recovery process. In addition, the system is not exactly marketdriven and hence may lead to business failures that could bring about another problem
at a national level. Since most of the lower income population in Thailand has limited
purchasing power and significant income inequality, the funding from the government
has to pass through the same old political-business groups. As a result, it might not
yield the right ingredients for success, similar to what has happened in the past where
the government introduced several unsuccessful projects in the rural areas. Therefore,
adequate performance measurement and continuous monitoring should be emphasised
in order to ensure the effectiveness of these programs. A strong, independent, and
transparent local committee is also a crucial factor.
The fact that the government has relied on Keynesian economics – that is boosting
expenditure with the hope that it would in turn boost income may not be the ideal
solution during the economic crisis such as this one. If the problem of the country is
structural, demand management may not help. The country needs structural change,
in terms of infrastructure and means of production, to make it more competitive
internationally. This is a factor which Dr. Chalongpob feels the government is
lacking.
Mr. Paiboon Wattanasiritham, a well known leader in non-governmental organisations
stated that this VURF program has its positive and negative sides. The possible
negative outcomes include:
13
Source: Krungthep Turakij newspaper, March 25, 2002 (in Thai).
28
•
•
•
•
“Bubble” at the grassroot level due to the huge economic stimulus (similar
to the bubbles at the national level during the pre-crisis period where
foreign capital inflows were very high)
people who receive easy-money may not be careful in spending it
the scheme could weaken the local community, making it accustomed to
seeking help from outside rather than build a strong internal network.
Treating money as the most essential ingredient of development, not
people.
The possible positive outcomes are: if well-managed, the program could create a
structural change in the local economy and may lead to numerous job creation and
strengthen the local community, both socially and economically.
A World Bank Report14 suggested that block grants and other anti-poverty
interventions targeted to the poorest villages are likely to be a better use of public
funds than universally distributed programs, at least from an equity perspective.
It is difficult to judge the usefulness of the VURF since, on one hand, part of the
money actually goes into developing the skills of the local people. On the other hand,
it could also create ruptures in the local community. In addition, some communities
could still have local Mafia or political groups who may try to control the distribution
of the funds.
(d) Debt Moratorium to Small Farmers
The Government has also initiated a policy to immediately grant a grace
period for individual small farmers for both interest and principle payments for 3
years, to relieve their debt burden as a part of a comprehensive reform of the
traditional farm economy to be more viable and self-sustaining in the long term. The
ideas of giving or granting debt rescheduling or even debt forgiveness to small
farmers for a long time and in all governments, but thus far no government was bold
enough to implement it.
Critics commented that the need for debt moratorium indicates that people in the rural
areas are spending more than they can afford, just like the people in the metropolitan
areas. They tend to use their extra income to finance their debt obligations instead of
generating additional economic wealth.
The government provides two options for the farmers:
(1) Pure debt moratorium for 3 years
The government will pay the interests for loans of all the farmers who chooses
this option
(2) Debt Reduction program
The BAAC will reduce the interest rates changed on loans to the farmers. The
reduction would depend on the credit status of the farmers. Credit status which
are considered above-average are divided into 3 levels – excellent, very good,
14
Poverty and Public Policy
29
and good. ‘Excellent’ borrowers would receive higher interest cuts than ‘good’
borrowers.
By September 2001, 95 per cent of the eligible farmers have joined the program. 1.1
million farmers opted for pure debt moratorium option, while around 1 million
farmers chose to join the debt reduction program.
There are concerns that the moral hazard problem, already reflected in the large
number of strategic NPLs in the country, would spread to the grass-root level as well.
Imagine a case where two farmers borrow the same amount of money from the
government’s bank. Farmer A is a good farmer who is diligent and disciplined. He
used his loan well and was able to recoup his investment within the stipulated period
of time, pay his debt to the government’s bank, and make plans for his agricultural
improvement and expansion. Farmer B is opposite. He used his loan badly, spending
it on consumer goods rather than on investment. When the time comes to pay back
the debt, he is unable to do so. Now the government came out with a policy to help
Farmer B while Farmer A receives nothing from the government at all. This not only
distorts good economic decision making and destroy good ‘debt culture’, it has the
effect of rewarding the indigent and punishing the diligent. This is not saying that all
indebted farmers are indigent—some indeed are afflicted by natural and market
calamities, but the incentive packages should help both farmers equally. If Farmer B
is to receive assistance from the state, similar assistance should also be made available
to Farmer A. This is the basic idea that should govern the way the government gives
a debt amnesty to small farmers. It does not seem that this idea lies beneath the debt
moratorium policy of the current government.
(e) The People’s Bank15 : a microcredit program run by the GSB
Actually this idea was already conceived by the previous government under the
leadership of the Democrat Party, but they did not have the opportunity to operate it.
When the new government came into power, this idea was independently developed
and expanded. In an effort to ensure better and improved access to banking facilities
and resources for low income citizens to enhance their capacity to increase their
income from self-employment, and eventually reduce their dependence on organised
and punitive money market sources, the government’s ‘People’s Bank’ program
commenced its operation on June 25, 2001.
It is very easy to become a member of this program, one only needs to have a
contactable address and a determination to start self-employment, plus a savings
deposit account at the Government Savings Bank (GSB). Apart from requesting for
loans to facilitate self-employment, members can use all types of deposit services of
the bank and can also receive regular employment training and advice. The GSB will
consider each loan application after the deposit account has already been opened for
two months, and will determine the appropriate amount of loan. The loans can be
used as working capital in self-employment, to repay (employment-related) personal
debts incurred elsewhere, or for use in necessary day-to-day expenditures; on the
15
This is different from Krung Thai Bank’s Community Bank Program which complements the
government’s People’s Bank Program. KTB’s program focuses on customers with higher borrowing
needs, especially startup manufacturers. The loan offers are up to 50,000 baht each, with up to 3 year
repayment terms.
30
condition that borrowers are credit worthy enough. At present, the first batch of loan
to each person is limited to 30,000 baht (double from its original limit of 15,000 baht),
while the second batch of loan has a higher cap of 50,000 baht – but this amount
could be higher provided that there is adequate collateral.
Interest to be charged on these loans is fixed at 1 per cent per month. Borrowers can
repay both the principal and the interests on a monthly basis, with repayment terms
varying from 13 to 37 periods (months). Both personal guarantees and asset
collaterals are accepted in this program.
As of February 15th, 2002, there were approximately 500,000 members in the
program, of which approximately 70 per cent have submitted loan requests and 83 per
cent of these loan requests have been approved – totalling around 4,000 million baht.
Forty per cent of members are from the Central region, 29 per cent from the
Northeastern region, 18 per cent from the Northern region, and 13 per cent from the
Southern region. It is reported that approximately 3,000 new members are joining the
program each month.
Despite the fact that the stated 1 per cent per month interest rate seemed low, the
principal that is used to calculate the interests does not reduce with each debt
repayment. Therefore, the real interests that the borrowers have to pay are much
higher than a simple 12 per cent as some might understood. As it turned out, the
members who borrowed from this program had to pay approximately 22 per cent
effective interest per year. The People’s Bank argued that there was a need to charge
high interested because the effective cost of the Bank in providing loans to the
members is approximately 18 per cent per year, as it has to incur a lot of expenses in
hiring 500 new staff and motorcycles for use in collecting the debts. In addition, the
loans were granted to retail borrowers who are mostly considered to be in a high-risk
category, hence the Bank need to account for that in the interest charges. This interest
level is still lower than credit card interests (approximately 25 per cent per year) or
interests charged by illegal loan sharks (which can run up to 100 – 300 per cent per
year).
The matter was investigated by the Senate and the Senate Advisory Committee. The
investigation concluded that the Bank’s interest calculation methodology was
confusing to the borrowers and that the Bank should return at least half the interest
collected to the borrowers. However, the People’s Bank has yet to change its interest
calculation methodology.
There were several problems encountered by program administrators such as:
•
•
•
•
•
•
Members do not fully understand the Program’s criteria and conditions.
Members do not have continuous savings stream, resulting in lack of funds for
future employment capital.
Members cannot find acceptable collateral/guarantor.
Members have too much debt ‘outside the system’, and some of them still have
high outstanding debt obligations with financial institutions.
Members do not have adequate planning on how to utilise the loans granted in
improving their employment status.
Members misuse the loans, or save less once the loans were granted.
31
•
Members move residence frequently, and bank representatives have trouble
locating them.
Despite these problems it must be admitted that this People’s Bank is a great help to
the poor or near-poor. Without state intervention, poor borrowers with little or no
collaterals would have little chance of borrow from commercial banks. So, this
intervention is to supplement normal functioning of the market rather than to add
obstacles to it.
6. Summary, Conclusions and Policy Implications
In this paper I have tried to address the issues of the dichotomy or trade-off between
economic growth and promotion of social welfare in the context of the development
of Thailand in the last 40 years or so. I have argued that the Thai government has
adopted free-market approach to economic development with the private sector
playing the leading role in private investment and the public sector providing
institutional and infrastructure support. This development approach has been
beneficial to Thailand and its people in the past 40 years, as can be seen by the rapid
rate of economic growth, the rate of increase of household and individual income, and
the subsequent reduction in poverty. As poverty reduction is a direct consequent of
economic growth, the government was under no pressure to institute specific antipoverty policies that directly attack remaining poverty. The recent economic crisis
that struck in 1997 has reversed the trend of poverty decline, as well as the slow
improvement in income inequality, making the government more conscious about the
effects of economic growth and its impacts on social welfare. The development
policies of the current government in Thailand have taken into account various
measures to increase social welfare of the Thai people. However, many of these
policies measures are inefficient and wasteful as they distort the working mechanisms
of the market. It is still important that the government maintains satisfactory
economic growth through good macroeconomic management, and use public
resources more efficiently by the better targeting of the poor and the better delivery
system of public expenditure.
This paper also discussed how the crisis started in Thailand and how the government
had dealt with the most severe economic problems in its recorded history. We have
looked at some of the more important macroeconomic indicators that show the state of
the economy such as the growth in GDP, the production conditions in both
agricultural and manufacturing sectors, the household consumption levels, the price
levels, and so on. We also looked at the impact of the crisis on the welfare or wellbeing of the people. Foremost in our concern is the employment and unemployment
situations facing the Thai households during and after the depth of the crisis. It is
obvious that welfare and well-being of most Thai people have declined, although the
severity of the problem had not gone beyond our worse expectation. There are several
explanations for this resiliency in the life of the Thai people. One is the existence of
the family ties that bind members together in time of trouble and crisis. The other is
the reasonable public policy to help the public in needs. However, there is a danger in
trying to raise welfare of the people through inefficient economic means. This wastes
resources and may not achieve the twin goals of reasonable rate of economic growth
and satisfactory level of social welfare.
32
The economic crisis of 1997 has taught the Thais many lessons. One is not to get
carried away by the appearance of rapid economic growth, and the other is not live
beyond one’s means. The new Philosophy of Sufficiency Economy which stresses
moderation, constant awareness and adjustment to surrounding environment, and
careful management of risk has become a guiding principle of present and future
development of Thailand. However, there is still much to do in reducing the
remaining poverty and income inequality. This is the main tasks that any government
in Thailand will have to tackle.
The present government of Thailand under the leadership of Mr. Thaksin Shinawatra
came into power with enormous political support from the Thai population. This
makes it easier for him to carry out economic policies that continue to get the Thai
economy out of recession and strengthen its macroeconomy. Despite the earlier
perception that his government was inward-looking and anti-foreigners, the true
nature of this government is very much outward-looking and market-oriented. 16 This
is good and should help future economic position of Thailand. However, this
government is laden with several election promises to undertake several welfareoriented policies that are very costly, inefficient, and unlikely to fulfil the objectives
of raising the welfare of the people in the long run. The creation of huge public debts
to finance these policies can become the Achilles’ Heel of this government. In the
final analysis, it is always proper to refer to the Philosophy of Sufficiency Economy to
find an answer to development policies that give balance between sustainable
economic growth and adequate social welfare and protection.
16
On the analysis of foreign economic policy of the new government, see Medhi (2001).
33
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TDRI Website <http://www.tdri.or.th>, September 28, 2000.
Ammar Siamwalla (2001), ‘Conceptualising the Process of Cleaning Up Balance
Sheets in Post-Crisis Thailand’, TDRI Quarterly Review, June 2001.
Ammar Siamwalla (forthcoming), ‘Anatomy of the Thai Economic Crisis’, in Peter C.
Warr (ed.), Thailand Beyond the Crisis, London: Routledge, forthcoming.
Ammar Siamwalla and Orapin Sobchokchai (1998), ‘Responding to the Thai
Economic Crisis’, Bangkok: UNDP, 1998.
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Medhi Krongkaew (2001a), ‘A Tale of an Economic Crisis’, in Chu Yun-Peng and
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Edward Elgar, 2001.
Medhi Krongkaew (2001b), “The New Foreign Economic Policy of Thailand and Its
International Implications”, TDRI Quarterly Review, September 2001.
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Seoul: Korea Development Institute, 1998.
World Bank (1980), Income Growth and Poverty Alleviation, World Bank Country
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World Bank (1999), Coping with the Crisis in Education and Health, Bangkok:
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World Bank (2000), Social Capital and the Crisis, Bangkok: World Bank Bangkok
Office.
34
Box 1: Structure of the Thai Economy in a Nutshell
Thailand was a low income, low growth economy at the end of the 1950s. Close to 85
per cent of the total population were engaged in agriculture of which rice the major
agricultural product. Its main exports consisted of rice, rubber, teak and tin. Then its
leaders decided to move the country quickly along the path of modern economic
development emphasising import substitution and later export promotion. With the
help of the World Bank in preparing its first national economic development plan,
Thailand adopted market approach to economic development, that is to say, it allowed
the private sector to initiate their own investments with the government taking
essentially non-interventionist approach but providing necessary incentives and basic
infrastructure, legal and business frameworks.
Thailand today is a middle-income, developing economy. It has come this far through
agricultural diversifications where several more crops such as maize, cassava,
sugarcane were added to the list of agricultural expansion and exports. Import
substitution industrialisation started with textile and consumers products, then moved
up garments, electrical appliances, electronic components, processed food, and
jewellery. While the majority of the population is still engaged in agriculture (about
half in 1996), the contribution of agriculture to GDP has fallen from about 40 per cent
at the launch of Thailand’s first national economic development plan in 1961 to about
10 per cent today, while manufacturing has increased its share from about 8 per cent
to 30 per cent during the same time period. The services sector has remained
relatively unchanged around 50 per cent. The rest of GDP is made up of contributions
from other industrial activities such power and utilities, and transportation.
Three major factors helped explain the rapid economic growth of the Thai economy in
the latter half of the 1980s: the extraordinary increase in exports after devaluation of
the baht in 1984; the increase in (the second wave of) foreign direct investment from
Japan after the Plaza Accord in 1985, and the increase in earning from foreign tourists
from 1987. The country has begun to suffer from shortage of infrastructure
prompting the government to play much greater role in the provisions of
infrastructure, the role made possible by the fiscal surplus in a booming economy.
The strength of the economy also enabled the Thai authorities to liberalise its financial
system quickly, opening the country to more competition (and higher risk) from
abroad. The growth of the economy raised the average income the people across the
board, resulting in drastic reduction in the incidence of poverty to around 10 per cent
in 1994.
Thailand suffered domestic political turmoil in 1991 and again in 1992 which saw its
growth slowed. The problems erupted again in 1996 in the aftermath of serious floods
throughout most parts of the country, when the inflation soared past 7 per cent, its
exports failed to increase due to the loss of comparative advantage in low-cost
manufacturing products, its current account deficits worsened to about 8.5 per cent of
GDP, and its property market in trouble after too aggressive expansion in the late
1980s. The slow down in export growth in 1996 and the first quarter of 1997, coupled
with the financial difficulties of many banks and finance companies put a great deal of
pressure on the Thai monetary and fiscal authorities to maintain economic stability,
and erode the confidence of investors, domestic as well as foreign. The continued
35
high level of current account deficits also put pressure on the exchange rate of the
baht which was effectively fixed with the US dollar. Many speculative attacks on the
baht convinced the government leaders that the defence of the baht fixed exchange
rate with the US dollar was untenable. This led to the flotation of the baht in early
July 1997. This is the now well known beginning of the Thai economic crisis that we
are discussing elsewhere in this paper.
36
Table 1(a): Summary Objectives of National Economic and Social Development Plans: Plan 1 to Plan
4
Plan 1
Plan 2
Plan 3
Plan 4
(1961-1966)
(1967-1971)
(1972-1976)
(1977-1981)
1. Economic growth and 1. Economic growth and 1. Economic growth and 1. Economic
expansion
expansion
expansion
rehabilitation for higher
growth
2. Promotion of
2. Economic and
2. Economic
2. Reduction of
industrial production
financial stabilisation
stabilisation
economic and social
gaps among people
3. Promotion of
3. Promotion of private
3. Solutions to balance
3. Reduction of
investment and
investment in the
of payments problems
population growth rate
competition in the
industrial sector
and improvement of
private sector
quality of the population
and domestic
employment
4. Promotion and
4. Raising the income
4. Conservation and
maintenance of social
and standard of living
improvement of national
justice
and income distribution
environment and
of the rural people
resources
5. Maintenance of
5. Increase employment
5. Maintenance of
national security
of the people
national security
6. Reduce population
growth rate
7. Expansion of public
services
8. Maintenance of
national security
Source: NESDB, various plans documents
37
Table 1(b): Summary Objectives of National Economic and Social Development Plans: Plan 5 to Plan
8
Plan 5
(1982-1986)
1. Rehabilitation and
strengthening of
economic and financial
conditions of the
country
Plan 6
(1987-1991)
1. Economic growth and
expansion
Plan 7
(1992-1996)
1. Maintenance of
appropriate rate of
economic expansion
leading to sustained and
stable growth
2. Structural adjustments
and improvement of
economic efficiency in
both agricultural and
industrial sectors to
increase output
2. Employment
generation
2. Greater distribution of
income and
development to rural
areas and countryside
3. Development of
structure and
distribution of social
services
3. Economic, financial
and fiscal stabilisation
3. Acceleration of
human resources
development,
development of quality
of life, the environment
and natural resources
Plan 8
(1997-2001)
1. Promotion of
potentials of individuals
both physically and
intellectually with good
health, knowledge and
skills for gainful
occupation, and ability
to adjust and adapt to
changing economic,
social and administrative
conditions
2. Development of
stable social
environment; promotion
of the strength of family
and community leading
to the support of human
potentials and quality of
life, including the
possibility of greater
community participation
in national development
3. Economic
development of the
country which is stable,
secure and balanced,
promoting the
opportunity to
38
Plan 5
(1982-1986)
Plan 6
(1987-1991)
4. Poverty alleviation in
backward rural areas
4. Improvement of
human quality to
develop progressive,
peaceful and just society
5. Coordination of
economic development
and national security
5. Preservation of
national identity,
culture, and good values
6. Reforms of
government
development
administration and the
redistribution of assets
6. Raising the standard
of living and quality of
life of people in rural
and urban areas
Sources: NESDB, various plans documents
Plan 7
(1992-1996)
Plan 8
(1997-2001)
develop human
potentials to participate
in development and to
receive fair results of
development
4. Utilisation and
preservation of natural
resources and the
environment in support
of the development of
the economy, society,
and sustainable quality
of life
5. Adjustments of
administrative and
management systems to
allow greater private
organisations, private
sector, communities and
general public to
participate more fully in
development process of
the country
39
Table 1 (c): Objectives of the 9th National Economic and Social Development Plan, 2002-2006
In order to ensure that Thailand’s development follows a common vision under the sufficiency
economy philosophy and lead to an evolution of an ideal Thai society in the future, the 9th
Development Plan (B.E. 2002 - 2006) has outlined the objectives and main goals of the country’s
development as follows:
Objectives
(1) To stimulate economic recovery and promote stability in the system by:
Strengthening the financial system
Enhancing and stabilising the government’s fiscal position.
Restructuring the grassroot economies, to make them more independent
Increasing the efficiency of the whole economic system to make it more competitive, and able to
meet the challenges of the modern recovery
(2) To prepare the foundation for the country’s development by:
Developing human resources, carrying out educational and health care system reform, building a
functional social safety net
Strengthening the local communities and networks to facilitate sustainable rural and city
development.
Ensuring appropriate management of the environment and natural resources, and continuous
developments in science and technology which is appropriate in the Thai context.
(3) To ensure good management in all levels of the Thai Society as a foundation for the efficient
development of the country by:
Ensuring transparency and allowing for regular audits
Reforming the public sector’s management system
Promoting proper management in the private sector
Encouraging the public’s participation in the development process
Building a responsible political system which focuses on meeting societal needs and reducing
corruption
(4) To solve the poverty problem and elevate Thai people’s potentials and opportunities to become
independent by:
Providing equal opportunities in the form of educational services and social welfare for all
Creating employment, thereby increasing income and upgrading people’s quality of life
Allowing local communities and local people to participate in the development and adjustment of
public policies to enable better problem-solving processes
40
Box 2: The Philosophy of Sufficiency Economy: Thailand’s New Guiding
Development Principles
The economic crisis of 1997 affects everyone in Thailand even His Majesty the King.
Seeing many of his subjects suffering from the pain of economic crisis, he gave his
kind words of advice that Thai people should change the economic philosophy of their
livelihood so as to be able to cope with present economic adversity and withstand
future economic insecurity. His Majesty’s words has become known as the
Philosophy of Sufficiency Economy, and has been used as the guiding principle for
the drafting of the current 9th National Economic and Social Development Plan.
This philosophical statement can be summed in just one paragraph, in Thai, and the
following is the translation from that paragraph:
•
Sufficiency Economy is a philosophy that guides the livelihood and behaviour of
people at all levels, from family to community to the country, on matters
concerning national development and administration so that the ‘middle way’ is
observed, especially economic development that keeps up with the world of
globalisation. Sufficiency means moderation, reasonableness, including the need
to build reasonable immunity system against any shocks from the outside as well
as from the inside. In so doing, one must rely on intelligence, attentiveness and
extreme care to use all kinds of knowledge in making plan and in carrying out
every step of its implementation. And at the same time we must build up the
spiritual foundation of all people in the nation, especially state officials, scholars,
and business people of all levels, to be conscious of moral integrity and honesty,
and to strive for appropriate wisdom to live the life with forbearance, diligence,
self-awareness, intelligence, and attentiveness, so as to maintain the balance and
readiness to better cope with rapid physical, social, environmental and cultural
changes from the outside world.
The above philosophical statement has lent itself to several interpretations by various
groups of people. First of all, we can dismiss outright the extreme interpretation that
self-sufficient economy means complete self-reliance economy or autarky. An
autarchic system is a system whereby a country intends to rely on itself or its people
to produce all it can without depending on others. It may want to do that voluntarily
(cutting off contacts with outside world) or has to do that by necessity (because it is
incapable of generating contacts with outside world). In His Majesty the King’s own
words, “…This self-sufficiency does not mean that every family must grow food for
themselves, to make clothes for themselves; that is too much. But in a village or subdistrict there should be a reasonable amount of sufficiency. If they grow or produce
something more than they need they can sell them. But they do not need to sell them
very far; they can sell them in nearby places without having to pay high transport
costs”.
Some people have attempted to link this new economy with the so-called ‘Gandhian
Economy’ along the line proposed by Mahatma Gandhi of India. Gandhian economy
is an economy based on family-level or village-level small-scale enterprises and
traditional methods. It may be appropriate to India at that time when the people were
poor and technology was limited. But in the modern time, this may be too restricted
as the families may have to do many things by themselves using simple tools and
41
machinery (like using traditional spinning wheels to make cloth). Perhaps the basic
idea of Gandhi’s simple life--the life not too encumbered by modern needs and
modern technology, could make the life of Indian people happier. But in a much
more open world of today, this self-sufficiency a la Gandhi is too extreme.
We also often hear and see people trying to understand this new economy using the
knowledge and applicability of Buddhism. In Buddhism, life, especially spiritual life,
is enhanced by the cutting down of excessive wants or greed. True happiness may be
attained when a person is fully satisfied with what he or she has, and is at peace with
himself or herself. To strive to consume more would lead to unhappiness if and when
the consumption is not satisfied or falls short of expectation. Self-sufficient economy
in this context would be an economy fundamentally conditioned by basic needs, not
greed, and restrained by conscious efforts to cut down consumption. This is probably
acceptable insofar as it does not go so far as to reject welfare gains from consumption
together.
On looking back, it was discovered that His Majesty had talked about this issue of
‘Sufficiency Economy’ since 1974. In his usual birthday speech in December 1974,
he wished that everyone in Thailand had ‘sufficient to live and to eat’ (Por You Por
Kin). This was indeed a precursor to what we are now talking about in the sufficiency
economy. His Majesty had followed up this issue by saying it again that “…The
development of a country must be by steps. It must start with the basic sufficiency in
food and adequate living, using techniques and instruments which are economical but
technically sound. When this foundation is secured, then higher economic status and
progress can be established”.17 This is very good and very clear because it has shown
that His Majesty did not deny economic progress and globalisation which some
people have interpreted his Sufficiency Economy to lead away from. Indeed the
world globalisation (or in Thai, Lokapiwat’)
is used in the statement on Sufficiency Economy that His Majesty has endorsed. The
notion that Sufficiency Economy is anti-globalisation should be put to rest forever.
Still there are attempts from various segments of the Thai population to separate or
dissociate this New Economy from the realm of mainstream economics that stresses
economic rationality and efficiency in resource allocation. It is very obvious that His
Majesty’s Sufficiency Economy is not the type of economy that one can find in an
ordinary mainstream economics textbook, but it would be inaccurate to interpret that
this New Economy is the antithesis of the mainstream economics in every respect.
Not so. I think we can still understand this new Sufficiency Economy within the
framework of mainstream economics (of economic rationality and efficiency in
allocative choices). The difference is not in the type, but in the degree or magnitude
of economic behaviour. His Majesty had used the word ‘Middle Path’ or ‘Middle
Way’ to describe the pattern of life that every Thai should lead, the life dictated by
moderation, reasonableness, and ability to withstand shock. Can we find something in
mainstream economics that best captures the spirit of this philosophy?
17
Information from Apichai Puntasen, ‘The King’s Sufficiency Economy and Its Interpretation by
Economists’, paper prepared for the 1999 Year-End Conference organised by the Thailand
Development Research Institute (TDRI), Pattaya, 18-19 December 1999.
42
I propose to use my own understanding of optimisation in economics to explain this
New Economy. How? It is possible to see the Sufficiency Economy as consisting of
two states of affairs. One is the inevitability of facing the globalised world where
economic efficiency and competition are the rules of the game, and the other is the
need to have economic security and capability to protect oneself from external shock
and instability. In the first state of affairs which is the basic tenet in mainstream
economics, we must always realise that there are opportunity costs involved with all
decisions that we make. We can still gain from specialisation and division of labour
because the opportunity costs of doing everything by ourselves will be higher. The
laws of comparative advantage and gains from trade still work in today’s world. But
it would be foolish to go all out to specialise without basic security, especially food
and personal living security (shelter and clothing). This is when the second state of
affairs in the new Sufficiency Economy comes in because it concerns the basic
capability of the people in the country to look after themselves or take care of
themselves. The optimisation principle applies when we seek to answer the question:
How much of our time and energy should be devoted to the first and second state of
affairs? In other words, how much resources should we allocate to producing for
trade based on comparative advantage principle, and how much for basic security?
The best mix between the two allocations would represent the optimal state of affairs.
On the allocation of time for what economic purposes, His Majesty had suggested that
we did not have to put all our efforts to an attempt to be a ‘tiger’. If I may be
permitted to link this portion of His Majesty’s statement to the point I made about allout specialisation, one can see that there is conformity between the two concepts. The
same conformity can be seen also in His Majesty’s further statement that the use of
only one quarter of those time and efforts would be sufficient to attain self-sufficient
economic status. His Majesty’s suggestion has indeed provided a starting point in my
optimisation procedure. We need to study whether this one quarter time and efforts
represents the optimal mix between the attainment of the first and second state of
affairs. Some countries may need more, some less, but the relevant economic
question is how we can get the optimal mix of resource allocation that satisfy
economic growth and basic needs and security at the same time.
Under the above economic framework, we can see that there is no conflict between
what His Majesty has propounded and the possible interpretation under mainstream
economic principles. One should notice the last clause in the Philosophy of
Sufficiency Economy that His Majesty had approved. It says that ‘…(all the Thais)
must posses integrity, honesty, and appropriate knowledge so as to be able to lead the
life with patience, perseverance, diligence, wisdom and prudence, to maintain balance
and be ready for the rapid material, social, environmental, and cultural changes from
the outside world”. I would like to use the word ‘balance’ here to mean the optimal
mix that I alluded to above.
43
Table 2: Household Income and Poverty Incidence, 1962/63
to 2000
Household income
per capita (baht per
year)
Poverty incidence
(%)
Household income
per capita (baht per
month)
Poverty incidence
(%)
1962/63
1967/68
1975/76
1981
1986
1,601
2,490
4,206
9,008
10,233
57
39
33
24
29.5
1988
1990
1992
1994
1996
1998
1,051
1,413
1,887
2,321
3,008
3,448
32.6
27.2
23.2
16.3
11.4
12.9
Sources: NSO, Socioeconomic Surveys, various years.
44
Table 3: Incidence of Poverty, Whole Kingdom, New Series, 1988 to 1998.
Period
Percentage Poverty
of the poor gap ratio
Severity of Number of
poverty
poor in
index
million
Percentage
1988
1990
1992
1994
1996
1998
32.6
27.2
23.2
16.3
11.4
12.9
10.4
8.0
6.8
4.3
2.8
3.2
4.6
3.3
2.8
1.7
1.1
1.2
17.9
15.3
13.5
9.7
6.8
7.9
Percentage change
1988-1990
1990-1992
1992-1994
1994-1996
1996-1998
-16.6
-14.7
-29.6
-30.2
13.2
-23.1
-15.0
-37.0
-34.7
14.1
-28.3
-15.2
-39.9
-34.6
7.9
-14.5
-11.8
-28.5
-29.6
15.8
19.7
10.8
22.5
2.6
16.5
1.0
22.3
6.4
Crisis index (for 1998)
Expected value (for 1998)
Additional information on poverty
incidence
1999
2000
Percentage change
1998-1999
1999-2000
14.6
14.2
10.1
-2.7
Source: NESDB, "Poverty and Inequality During the Economic Crisis in Thailand", Newsletter of
the Indicators of Well-Being and Policy Analysis Project, vol. 3, no. 1, January 1999; and Somchai
Jitsuchon and Jiraporn Plangpraphan, 'An Inquiry into the Proper Measurement of Poverty in
th
Thailand', paper presented at the 26 Annual Conference of the Federation of ASEAN Economic
Associations, in Bangkok, 20-21 December 2001.
45
Table 4: The Distribution of Income in Thailand
Gini
index
1975/76
1981
1986
1988
1990
1992
1994
1996
1998
1999
2000
0.426
0.442
0.496
0.489
0.515
0.536
0.521
0.516
0.509
0.531
0.525
Quintile1 Quintile2 Quintile3 Quintile4 Quintile5 Quintile5/
Quintile1
6.0
5.5
4.5
4.6
4.3
4.0
4.0
4.1
4.2
3.8
3.9
9.7
9.3
7.9
8.0
7.5
7.1
7.3
7.5
7.7
7.1
7.2
14.0
13.7
12.3
12.4
11.7
11.1
11.7
11.8
11.9
11.4
11.4
21.0
21.1
20.3
20.6
19.5
18.8
19.7
19.9
19.8
19.4
19.9
49.2
50.4
55.0
54.5
57.0
59.1
57.2
56.7
56.3
58.2
57.6
Source: Somchai Jitsuchon and Jiraporn Plangpraphan, 'An Inquiry into the
th
Proper Measurement of Poverty in Thailand', paper presented at the 26
Annual Conference of the Federation of ASEAN Economic Associations, in
Bangkok, 20-21 December 2001.
8.1
9.2
12.2
11.9
13.2
14.9
14.2
13.8
13.3
15.2
14.9
46
Box 3: Does the government have a strategy or approach which refers to poverty
reduction?
In 1995, Thailand took part actively in the World Social Development Summit in
Copenhagen. Five years later in 2000, those countries that attended the 1995 Summit
were invited back to Geneva to report on the progress of the work done on social
development in those countries in the past 5 years. In Thailand, the question that
appears in the title of this box was asked to the Thai authority, and below is the
answer to that question:
The alleviation of poverty has been one of the objectives of the National Economic
and Social Development Plans since the First Plan in 1961. But it was not until the
Fifth Plan in 1981 that a special Development Plan for Rural Poverty was conceived
and appended to the main Plan, giving poverty alleviation a special attention that
never existed before. One year before that, the government under General
Tinsulanond had set up the Rural Job Creation Program (RJCP), a public works
program that combined rural employment generation and the construction of rural
infrastructure. In 1987 another kind of public works-cum-employment program, the
Green Esarn program, was instituted, this time directed at the poorest northeast region
(Esarn is Thai for northeast). These, the RJCP and the Green Esarn programs, were
the most prominent of the poverty alleviation programs. These were terminated in
1991 and 1992 and were replaced by a new rural development program called the
Tambon Development Program, a Tambon being a government administrative unit at
the sub-district level. In 1994 the Tambon Administrative Organisation (TAO) law
was passed enabling the establishment of TAOs throughout the country in both rural
and peri-urban areas.
It is difficult to say how effective these programs have been. The evidence suggests
that both the RJCP and the Green Esarn programs were pretty ineffective in directly
reducing rural poverty. But rural development expenditures increased rapidly in the
early 1990s, and the incidence of poverty in Thailand (by reference to a poverty line
of a dollar a day) which rose from 8 per cent in 1975 to 10 per cent in 1985, then fell
to less than 2 per cent in 1995 and (by reference to national poverty lines) fell from 33
per cent in 1988 to 11 per centin 1996. However income distribution in Thailand
appears to have remained very unequal and poverty remains high in the Northeast
region.
Little attention was paid to distributional issues from the 1950s to the 1990s and there
seems to have been an increase in inequality in the three decades up to 1992 offset to
some extent by a reduction from 1992 to 1996. Income distribution remains highly
unequal in Thailand with the Gini coefficient in 1996 being 0.50, high by Southeast
Asian standards. Thus the reduction in absolute poverty has been due entirely to the
rapid growth of the economy. The real GNP growth rate averaged just under 4 per
cent per annum between 1960 and 1985 and 9 per cent per annum between 1985 and
1996. With research in Thailand suggesting that a 1 per cent increase in real per
capita GDP leads to a decrease in poverty incidence of more than 1 per cent, it is not
surprising that poverty incidence has fallen in spite of the rise in inequality. .
47
But there are sharp regional imbalances. In 1994, 18 billion baht (or 2 per cent of the
then national income) directed at the poor would have been sufficient to bring them
up to the nationally-defined poverty line. Over half of this (10.4 bn baht) would have
had to have been directed at the poor in the Northeast region to push them above the
poverty line. For, in spite of the Green Esarn program and even though poverty
incidence fell between 1988 and 1996 more sharply in the Northeast region than in
any other region, in 1996 poverty incidence in the Northeast was 19 per cent, still
eight percentage points above the national average. In 1996 the Northeast region,
together with the North region, accounted for over three-quarters of the poor although
the two regions contained only a little over half of Thailand’s population. It is likely
that to reduce poverty in the future will require programs targeted specifically at the
poor since, at the end of the 1990s, the percentage shortfall of the poor from the
poverty threshold (the Income Gap ratio) was rising, suggesting that it would be
harder to push the remaining poor over the poverty threshold.
Thailand is relatively under-urbanised relative to most middle income countries, with
60 per cent of the population being rural, although it needs to be emphasised that 60
per cent of the rural population live within 75 kms of an urban centre of at least
75,000 people. But more than four-fifths of the poor are in rural areas so that if
programs targeted at the poor are to be implemented, they need to be mostly directed
at the rural poor, though not necessarily at agriculture, since most rural incomes come
directly from non-agricultural sources.
As noted above, successive governments in Thailand have shown little willingness to
adopt measures which will redistribute income towards the poor. However there are
indications that there is now a greater political willingness to shift economic policy in
such a direction. The 8th Five Year Plan (covering the period from 1997 to 2001) has
been widely regarded as a social reform document in Thailand with a strong focus on
the poor and under-privileged and the 8th Plan was accompanied by the introduction
of a new Constitution in October 1997. This aimed to combine greater transparency
and accountability with greater decentralisation (including the powers to borrow
money) to local governments, although there are reports that the decentralisation of
power is proceeding slowly.
It is worth noting that this drive for reform withstood the strains arising from the
financial crisis of 1997/1998. In 1997 real GNP fell by 0.4 per cent and then in 1998 it
fell by more than 9 per cent. The crisis was caused principally by financial
liberalisation and exacerbated by the (initially) too restrictive terms imposed by the
IMF which were later relaxed. But instead of the onset of the crisis giving rise to a
coup d’etat, some measures were taken to protect the unemployed and vulnerable
groups. In spite of this, another million people sank beneath the poverty line and
poverty incidence rose from 11 per cent in 1996 to about 13 per cent in 1998. The
ultra-poor (those more than 20 per cent below the poverty line) were particularly
badly hit by the rising price of food and it has been estimated that within a year of the
onset of the crisis, the number of ultra-poor rose by almost a quarter. The incidence of
poverty in the Northeast rose from 19 per cent to 23 per cent. Nevertheless the impact
of the crisis was not as severe as initially feared as the government of Thailand and its
donors, under pressure from civil society organisations, undertook a major social
reform agenda. As a result of the crisis the pressure for poverty alleviation measures
has grown rather than diminished.
48
An area where there is considerable uncertainty about the effects of the crisis is
migration, but it is clear that much of the strain was borne by international migrants as
well as by internal migrants returning to their villages from the urban areas. In the
mid-1990s it was estimated that the number of foreign workers (mainly from
Myanmar, Lao PDR and Cambodia) in Thailand was well over a million, most of
these being illegal immigrants. At the onset of the crisis, the government of Thailand
set a target of repatriating 300,000 workers by June 1998. Conversely it is not clear
what the effect of the crisis was on the 150,000 Thai citizens working legally overseas
and the many more illegal Thai emigrants.
Source: Amara Pongsapit, Leader of the National Team to the follow-up meeting of
the World Social Development Summit, in Geneva, June 2000.
49
Table 5: Percentage of Average Monthly Income of Household by Type of Income
Type of Income
Total Income
Current Income
7
Money Income
Income in kind
Other Money
1/
Receipts
1975-76
100
98.9
1981
100
98.5
1986
100
99
1988
100
98.7
1990
100
97.2
1992
100
98.5
1994
100
98.9
1996
100
98.5
1998
100
98.2
1999*
100
98.5
2000
100
98.7
72.9
70.7
73.2
73.9
76
77.4
79.6
80.5
79.7
80.2
80.3
26
27.8
25.8
24.8
21.2
21.1
19.3
18
18.5
18.3
18.4
1.1
1.5
1
1.3
2.8
1.5
1.1
1.5
1.8
1.5
1.3
1/
Such as insurance proceeds, lottery winning and other windfall receipts.
*
Data collection period was from June - September 1999
Sources : The 1975-1976 1981 1986 1988 1990 1992 1994 1996 1998 1999 and 2000
Household Socio-economic Survey, National Statistical office
50
Table 6: Percentage of Average Monthly Income of Household by Source of Income
Source of
1975-76
1981
1986
1988
1990
1992
1994
Income
(Value : Baht)
1,928
3,378
3,631
4,106
5,625
7,062
8,262
Total Income
100
100
100
100
100
100
100
/TR>
Wages
28.3
26.7
33.7
34.4
36.3
39
41.2
and Salaries
Profits,
20.6
17.1
17.6
15.7
17.3
18.5
19.1
Non-farm
Profits
19.3
20.8
15.4
15.9
15.7
12.6
11.1
from Farming
Property
0.8
0.9
0.9
0.9
1.1
1.5
1.1
Income
Current
3.9
5.2
5.6
7
5.6
5.8
7.1
Transfers
Income
26
27.8
25.8
24.8
21.2
21.1
19.3
in-kind
Other
1.1
1.5
1
1.3
2.8
1.5
1.1
Money
1/
Receipts
1/
Such as insurance proceeds, lottery winning and other windfall receipts.
*
Data collection period was from June - September 1999
Sources : The 1975-1976 1981 1986 1988 1990 1992 1994 1996 1998 1999 and 2000
Household Socio-economic Survey, National Statistical office
1996
1998 1999*
2000
10,779
100
12,492
100
12,729
100
12,150
100
39.9
40.2
41.1
42.4
19.9
18.5
19.2
18.5
11.9
11.2
9.4
9.6
1.6
1.9
1.9
1.5
7.2
7.9
8.6
8.3
18
18.5
18.3
18.4
1.5
1.8
1.5
1.3
51
Expenditure Type 1975-76
1/
1981
1986
1988
1990
1992
1994
1996
1998
1999*
2000
Food
46.1
44.1
38.9
36.5
36.2
34.8
33.7
32.2
35.1
33.3
32.2
Non-food
Total
Consumption
2/
Non-Consumption
53.9
100
96
4
55.9
100
93.4
6.6
61.1
100
92.1
7.9
63.5
100
91.4
8.6
63.8
100
90.9
9.1
65.2
100
90.2
9.8
66.3
100
89.7
10.3
67.8
100
87.8
12.2
64.9
100
86.3
13.7
66.7
100
87
13
67.8
100
86.9
13.1
Total
100
100
100
100
100
100
100
100
100
1/ >1/
Excluded alcoholic beverages and tobacco products
2/
Such as taxes, gifts and contributions, insurance premiums, lottery tickets and other gamblings, interest, etc.
*
Data collection period was from June - September 1999
Sources : The 1975-1976 1981 1986 1988 1990 1992 1994 1996 1998 1999 and 2000
Household Socio-economic Survey, National Statistical office
100
100
52
Table 7: Percentage of Average Monthly Expenditure of Household by Expenditure Group
Expenditure
1975-76
1981
1986
1988
1990
1992
1994
Group
(Value : Baht)
2,004
3,374
3,783
4,161
5,437
6,529
7,567
Total
100
100
100
100
100
100
100
Expenditures
Food and
Beverages
1996
9,190
100
1998
10,389
100
1999*
2000
10,238
100
9,848
100
46.1
44.1
38.9
36.5
36.2
34.8
33.7
32.2
35.1
33.3
32.2
1
1.2
1.2
2
1.5
2.7
1.6
2.5
1.5
1.7
2
Tobacco Products
Apparel and
Footwear
2.8
10.1
2.4
7.3
1.8
6.2
1.9
6.2
1.5
5.8
1.7
6
1.2
5.4
1.5
4.8
1.2
3.5
1.3
3.9
1.2
3.8
Housing
16.9
20.6
23.4
24.3
22.4
21.9
21.9
20.3
21.4
22.2
22.2
Medical Care
Personal Care
Transportation and
Communications
4
2.4
7.5
3.3
2.2
7.3
3.5
2.6
9.1
3.4
2.6
9.7
3.4
2.5
12.8
3.4
2.5
12.3
3.5
2.5
14.8
3.7
2.4
15.4
2.8
2.3
13.3
2.7
2.6
13.8
2.7
2.7
14.9
Recreation and
Reading
2.3
2.3
2.4
2.2
2.3
2.3
2.2
2.2
1.7
1.7
1.8
Education
1.6
1.3
1.5
1.3
1.4
1.5
1.8
1.8
2.3
2.7
Miscellaneous
1.3
1.4
1.5
1.3
1.1
1.1
1.1
1
1.2
1.1
Non-Consumption
4
6.6
7.9
8.6
9.1
9.8
10.3
12.2
13.7
13
2/
Expenditures
1/ >1/
Included alcoholic drinks away from home
2/
Such as taxes, gifts and contributions, insurance premiums, lottery tickets, interest on debts and other similar expenses
*
Data collection period was from June - September 1999
Sources : The 1975-1976 1981 1986 1988 1990 1992 1994 1996 1998 1999 and 2000
Household Socio-economic Survey, National Statistical office
2.5
0.9
13.1
Alcoholic
1/
Beverages
53
Table 8: Current Income Share of Households by Quintile Groups of Household and
the Gini Coefficient
Quintile Group
1990
1992
1994
1996
1998
1999*
2000
1
10%
10%
2
3
4
5
10%
10%
5.9
-2.4
-3.5
9.3
13.2
21.2
50.4
-16
-34.4
100
0.429
5.4
-2.2
-3.2
8.9
13.1
20.7
51.9
-16.1
-35.8
100
0.445
5.6
-2.3
-3.3
9.1
13.6
21.3
50.4
-16
-34.4
100
0.431
5.7
-2.3
-3.4
9.2
13.5
21.5
50.1
-15.4
-34.7
100
0.429
5.9
-2.4
-3.5
9.6
13.7
21
49.8
-16
-33.8
100
0.421
5.3
-2.1
-3.2
8.9
13.3
20.9
51.6
-16
-35.6
100
0.444
5.5
-2.2
-3.3
8.8
13.2
21.5
51
-16.4
-34.6
100
0.439
1,330
1,785
2,166
2,890
3,283
3,389
3,321
Total
Gini Coefficient
Per Capita
Current Income
(Baht/Month)
* Data collection period was from June - September 1999
Sources : The 1975-1976 1981 1986 1988 1990 1992 1994 1996 1998 1999and 2000
Household Socio-economic Survey, National Statistical office
54
Table 9: the Gini Coefficient of Household Income Distribution by Region and
Community Type
Region
Bangkok Metropolis and
1/
Provinces in Vicinity
rowSpan=10>
Central
North
Northeast
Year
Total Region
1975-76
0.26
Area
Municipal
Areas
...
1981
1986
1988
1990
1992
1994
1996
1998
1999*
2000
1975-76
1981
1986
1988
1990
1992
1994
1996
1998
1999*
2000
1975-76
1981
1986
1988
1990
1992
1994
1996
1998
1999*
2000
1975-76
1981
1986
1988
1990
1992
1994
1996
1998
1999*
2000
0.283
0.315
0.305
0.356
0.397
0.336
0.383
0.347
0.382
0.362
...
...
...
...
0.395
0.353
0.379
0.346
0.351
0.364
0.356
...
...
...
...
0.401
0.391
0.387
0.386
0.388
0.404
0.39
...
...
...
...
0.337
0.379
0.39
0.391
0.367
0.404
0.395
...
...
...
...
...
...
...
...
...
...
0.288
0.242
0.322
0.288
0.323
0.288
0.366
0.275
0.284
0.283
0.274
0.333
0.328
0.329
0.368
0.46
0.391
0.373
0.392
0.38
0.367
0.357
0.284
0.391
0.403
0.296
0.341
0.416
0.398
0.379
0.365
0.334
0.368
Sanitary
Districts
...
Villages
...
...
...
...
...
...
...
...
...
...
0.304
0.31
0.375
0.326
0.381
0.35
0.376
0.342
0.355
0.381
0.292
0.299
0.327
0.362
0.338
0.377
0.4
0.369
0.369
0.432
0.367
0.392
0.363
0.307
0.4
0.383
0.406
0.38
0.437
0.414
0.379
0.38
0.448
...
...
...
...
...
...
...
...
...
...
0.261
0.293
0.336
0.336
0.395
0.323
0.362
0.337
0.353
0.363
0.375
0.278
0.314
0.329
0.34
0.362
0.332
0.354
0.356
0.356
0.398
0.363
0.25
0.269
0.285
0.322
0.3
0.342
0.333
0.347
0.321
0.371
0.338
...
55
Region
Year
Total Region
Area
Municipal Sanitary
Areas
Districts
South
1975-76
...
0.338
0.272
1981
...
0.405
0.251
1986
...
0.346
0.291
1988
...
0.3
0.316
1990
0.371
0.306
0.349
1992
0.377
0.364
0.325
1994
0.402
0.336
0.351
1996
0.367
0.316
0.415
1998
0.382
0.295
0.351
1999*
0.366
0.365
0.349
2000
0.379
0.348
0.357
1/
Includes Nonthaburi, Pathum Thani and Samut Prakan.
*
Data collection period was from June - September 1999
Sources : The 1975-1976 1981 1986 1988 1990 1992 1994 1996 1998 1999
and 2000
Household Socio-economic Survey, National Statistical office
Villages
0.297
0.276
0.314
0.32
0.362
0.341
0.396
0.343
0.381
0.331
0.352
57
Table 10 : Comparative Analysis of the Thaksin Government’s Urgent Policies (Bold prints indicate policies which are discussed in details in this
paper)
Name of Policy
Methodology
Progress
1. Grace period for farmers’ debt
repayments
The government grants a grace period for both interest and
principle payments for 3 years for individual small farmers to
relieve their debt burden as part of a comprehensive reform of
the traditional farm economy to be more viable and selfsustaining in the long term.
Up to the end of February 2002, a 3-year grace period for
94,328 million Baht debt repayments has been granted to
2,360,000 farmers as a part of a comprehensive reform package
of the traditional farm economy. Suspension of debt repayments
has been extended to other small farmers who are customers of
local co-operatives.
2. The Village and Urban Revolving
Fund
Establish the Village and Urban Revolving Fund, funded
with one million baht per each village or community as a
loan facility available for individuals and households within
the community to borrow for local investment and
supplementary vocations.
By early March 2002, 71,578 Village and Urban Revolving
Funds (69,960 villages and 1,668 Urban Communities) have
been set up. One million baht has been transferred into each
account. This outcome amounts to 95.6% of the government’s
target of 74,881 Funds.
The government concurrently promotes a "One Village One
Product" project to enable each community to develop and
market its own local product or products based on traditional
expertise and local know-how. The Government has provided
the necessary technological and managerial assistances to
assure that the products meet international standards and market
demand. It also helps market them to both domestic and
international outlets or through the internet at
www.thaitambon.com
The “One Village One Product” project was promoted to enable
each community to develop and market its own product by
making use of local know-how. The project has been
successfully implemented in 75 provinces nationwide.
Establish a People’s Bank to ensure better and improved access
to banking facilities and resources for low income citizens to
enhance their capabilities to increase their income from self
employment and thus reduce their dependencies on organized
and punitive money market sources.
The Government has set up the People’s Bank. From June 25th ,
2001 to the end of January 2002, 281,756 unemployed and
persons on low income have received loans of 15,000 Baht per
person or a total loan of 3,740.8 million Baht. The Bank’s
objective is to enhance the people’s capacity to generate their
income from self-employment and thus reduce their dependence
on illegal money-lending markets. So far, only 0.6% of debtors
have failed to repay their loan. The Administration has
increased the 15,000 Baht loan per person to 30,000 Baht loan
per person from January 2002 onward.
Methodology
Progress
3. The People’s Bank:
a microcredit program run by the
GSB
Name of Policy
58
4. The Bank for Small-and Mediumsized Enterprise
Establish the Bank for Small-and Medium-sized Enterprise in
order to promote existing and increasing the number of
entrepreneurs in a systematic manner with a view to expand the
national productivity base, to increase employment opportunity
and to create income, to promote exports, and to serve as the
mainstay for future national economic growth and stability.
5. National AMC Policy : Thai Asset
Management Corporation (TAMC)
Establish a National Asset Management Corporation (which
was named the ‘Thai Asset Management Corporation’ or
TAMC) in order to solve the problem of Non-Performing Loans
(NPLs) in the commercial banking system swiftly,
systematically, comprehensively and to enable the financial
system to resume their normal credit functions.
6. Privatization of state enterprises
Utilize State Enterprise as key vehicle to mobilize domestic
resources from Thai investors to promote revitalization and
development of the Thai economy through selling shares of a
holding company incorporated by grouping a number of state
enterprises with strong income potentials, employing
professional management, and freeing it from political
interference as one alternative. Another alternative is to list
individual state enterprise directly in the Stock Exchange of
Thailand at the appropriate time.
The Government plans to establish the Bank for Small-and
Medium-sized Enterprises of Thailand. The proposed law for
establishing the bank is being discussed by the parliament. It is
expected to be voted on and accepted on its first reading in
2002. When passed, the bill could lead to a better functioning of
the bank and actively promote Thai small- and medium-sized
entrepreneurs.
The National Asset Management Corporation began its
operations in October 2001. Since then the TAMC has accepted
multiple lots of loans (around 4,600 accounts) from state-owned
financial institutions and private financial institutions, with
book value totaling almost 700,000 million baht – significantly
lower than their original target of 1,100,000 million baht.
As of March 31st, 2002, it reported a completion of 100,216
million baht (177 cases) of debt restructuring, 55.4% of which
are cases with multiple creditors.
The Government has established the National State Enterprise
Corporation to launch the structural reform of Thailand's state
enterprises by selling shares of state enterprises to the state
enterprise employees and the public. State enterprises with
outstanding performance such as Internet Thailand Public
Company Limited and PTT Public Company Limited are listed
in the Stock Market of Thailand. There are also long-term
plans to privatize the Telephone Organization of Thailand and
the Communications Authority of Thailand in the future.
7. ‘30-baht’ Universal Health
Insurance Scheme
Provide universal health insurance with a view to reducing the
overall cost to the country and the people in acquiring
healthcare capping each hospital visit at 30 baht. All Thai
people will be guaranteed that equal access to a nationally
acceptable standard of health care.
From April 1st , 2001 onward, this universal health insurance
scheme has been extended to cover 75 provinces and the 38
districts of the Bangkok Metropolis. Currently, around 44
million Thais have been registered under the scheme, which
also applies to private hospitals in 39 provinces
59
Name of Policy
Methodology
Progress
8. Drug suppression and prevention
Accelerate efforts to establishing drug rehabilitation centers
concurrently with implementing effective drug suppression and
prevention measures.
The Government has accelerated efforts aimed at drug
prevention and suppression. Laws and the new social order
have been stringently enforced to ensure that drug production
bases, as well as national and transnational networks for drug
trafficking will be severely suppressed. In cooperation with
local health centers and military barracks, the Administration
has set up rehabilitation centers and the "Vivatpolamuang"
vocational training center for drug addicts.
9. Prevention and suppression of
corruption
Encourage full and open public participation in the
prevention and suppression of corruption.
The Government has encouraged the public to undertake a
participatory role in prevention and suppression of
corruption especially malfeasance by government
officials. Close collaboration among different
organizations such as the Office of the National Counter
Corruption Commission, Non-Government Organizations
and trade unions of state enterprises, especially in the area
of information sharing and submission of complaint
ensures effective prevention and suppression of
corruption.