Information about Asia and the Pacific Asia y el Pacífico
Chapter

I. Introduction

Author(s):
David Robinson, Ranjit Teja, Yangho Byeon, and Wanda Tseng
Published Date:
September 1991
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Information about Asia and the Pacific Asia y el Pacífico
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Thailand’s economic performance over the past several decades is an excellent example of successful development, combining adjustment with growth. The achievements of the 1980s continue this record. Early in the decade, like many other developing countries, Thailand was hit hard by the global recession and the downturn in commodity prices. However, a prompt and pragmatic policy response restored macro-economic balance and poised the economy to take full advantage of the improved international environment by 1986. Since then, spurred by rapid increases in investment and exports, Thailand has experienced a sustained economic boom that is spectacular even by the standards of a region renowned for its economic dynamism. While Thailand’s recent success can be attributed to many factors, three in particular predominate: a commitment to an outward-oriented, market-based economic system; a development strategy centered on the private sector; and a tradition of cautious financial policies.

The success of Thailand’s recent economic performance has, however, led to increasing strains on the economy, manifested in the emergence of infrastructure bottlenecks, a sharp increase in the current account deficit, and a pickup in inflation. The challenge facing policymakers now is how best to sustain the momentum of the economy while keeping demand pressures in check. This in turn will require measures to reduce a variety of structural impediments to growth. In particular, the need for substantial infrastructure! investment in both physical and human capital is widely recognized, and, to support this, a strengthening of domestic savings is required. The deregulation of domestic markets is seen as essential to improve economic efficiency and enhance the potential for growth, particularly in the areas of tax reform, liberalization of the financial system, and tariff reduction. At the same time, policymakers have increasingly stressed the need to improve the quality of growth, which has been adversely affected by both environmental problems and a deterioration in income distribution. This paper addresses some of these current policy issues.

The next section provides an overview of Thailand’s postwar economic development, outlining the reasons for its economic success and the main policy issues facing the authorities. The paper then focuses on the role of fiscal policy, reviewing the fiscal adjustment of the 1980s and considering the implications of infrastructural investment and tax reform for fiscal policy in the 1990s. Next it discusses plans for liberalization of the financial sector designed to boost domestic savings to support future growth, to enhance its ability to compete in international markets, and ultimately to develop Thailand as a regional financial center. The paper then examines the need for tariff reform to reduce the level and dispersion of effective protection and improve the efficiency of investment. The final section sets Thailand’s economic development in a regional context, assessing both the commonality of experience in Thailand, Indonesia, and Malaysia, and the role that the region has played in these three countries’ recent economic success.

Box 1. A Profile of Thailand

Thailand, literally the “Land of the Free,” is situated in the western part of the Indochinese peninsula, bordered by Myanmar, the Lao People’s Democratic Republic, Cambodia, and Malaysia, The Thai people migrated southward and westward from China around the tenth century A.D., although archaeological evidence indicates that the area has been inhabited almost continuously for the last 20,000 years. With an area of about 513,000 square kilometers—a little smaller than France—the country can be divided broadly into four regions: the cool and mountainous North, comprising a series of steep mountain ranges incised by steep valleys and rivers; the semiarid Northeast; the fertile central plain, chiefly consisting of the Chao Phraya River delta; and the densely forested southern isthmus. The climate is tropical and cool, with high temperatures and humidity: the rainy season is June-October, the cool season, November-February, and the hot season, March-May.

Since 1932, Thailand has been a constitutional monarchy. The monarch, currently King Bhumibol Adulyadej, is the head of state and commander of the armed forces. The head of government is the Prime Minister, appointed by the king on the advice of the National Assembly. The military has traditionally played a major role in Thailand’s political life: in February 1991, the civilian government headed by Prime Minister Chatichai Choonhaven was overthrown in a military coup and replaced by the military-dominated National Peacekeeping Council (NPC). In early March, the NPC appointed an interim government headed by Prime Minister Anand Panyarachun and consisting primarily of civilians, in advance of elections scheduled to be held in the first half of 1992.

Thailand has a population of about 56 million, with population growth averaging about 2 percent a year during the 1980s. Almost one half of the population is Thai, with sizable Lao, Chinese, and Malay minorities: 99 percent of the population is Buddhist, while the remainder includes Moslems, Hindus, Sikhs, and Christians. Despite heavy rural to urban migration, only 19 percent of the population lives in urban areas, of which almost half live in and around Bangkok, now the fourteenth largest city in the world.

Thailand is generously endowed with natural resources. About 40 percent of the total land area is cultivated, and some 29 percent is under forest. Rice remains the staple cash crop, although its dominance has declined in recent years: other major crops include maize, sugar, tapioca, rubber, tobacco, bananas, pineapples, and kenaf (a jutelike fiber). Until the ban on commercial logging (see Box 4), Thailand was also a major producer of timber, particularly teak. Thailand’s mineral resources include tin, brown coal, iron, and manganese, with substantial deposits of sapphires, rubies, and other gems. There are also considerable reserves of natural gas (which now accounts for nearly one third of Thailand’s energy needs) and, to a lesser extent, crude oil.

Thailand’s per capita income of $1,454 (1990) places it in the ranks of lower middle-income countries. Although 60 percent of the population still earns its living from agriculture, growth in recent years has increasingly come from industry and services, which now account for more than 80 percent of GDP. Manufacturing output, formerly dominated by agroindustrial production and textiles, has become increasingly diversified, with especially rapid growth in the production of construction materials, transport equipment, electrical appliances and components, and machinery and equipment. The financial sector, although still relatively underdeveloped, has expanded rapidly; and, with the number of foreign visitors more than tripling, to over 5 million during the 1980s, Thailand has also become an important tourist destination.

Table 1.Social Indicators
GDP per capita (current U.S. dollars, 1990)1,454
Population and vital statistics
Total population (in millions; 1990)56.08
Population growth (annual growth; in percent)21
Urban population (percent)19
Life expectancy at birth (years)
Overall67
Female69
Crude birth rate (per thousand)21
Crude death rate (per thousand)6
Infant mortality rate (per thousand;1987)11
Labor force (1989)
Total labor force (in millions)30.3
Employed work force (in millions)29.2
Agriculture (percent of total)60.1
Manufacturing (percent of total)10.4
Public health and education
Population per physician (7988)4,985
Population per nurse (1988)1,692
Adult literacy rate (percent; 1985)91
Primary school enrollment (percent; 1985)95
Sources: Data provided by the Thai authorities; and World Bank, Social Indicators of Development, 1990.

Over the period 1980–90.

Sources: Data provided by the Thai authorities; and World Bank, Social Indicators of Development, 1990.

Over the period 1980–90.

Table 2.Summary Data, 1985–90
198519861987198819891990

Preliminary
Growth and inflation (percentage change)
Real GDP3.54.99.513.212.010.0
Real domestic demand1.11.49.114.010.413.3
GDP deflator0.72.94.56.25.26.8
Investment and savings (percent of GDP)
Gross domestic investment124.021.823.928.831.537.8
Gross national savings19.420.923.728.630.231.4
Statistical discrepancy–0.6–1.50.32.52.32.2
Foreign savings4.0–0.60.62.73.68.6
Unemployment rate (percent)5.65.94.33.63.8
Terms of trade (percentage change)–5.610.7–1.0–1.8–3.9–2.0
Consolidated central government (percent of GDP, fiscal-year basis)2
Revenue and grants16.416.016.517.618.720.1
Expenditure and net lending21.720.818.716.915.315.3
Overall surplus or deficit–5.4–4.8–2.20.73.34.8
Foreign borrowing (net)1.81.10.30.6–0.2–1.6
Domestic financing (net)3.63.71.9–1.33.1–3.2
Public sector surplus or deficit (percent of GDP, fiscal-year basis)2–6.0–4.8–1.61.24.34.8
Money and credit (end of year, percentage change)
Total domestic credit8.46.117.615.619.826.9
Private credit10.54.922.626.429.533.0
Total liquidity (M2)10.313.420.218.226.326.7
Balance of payments (billions of U.S. dollars)
Exports (f.o.b.)7.18.811.615.919.922.9
Imports (c.i.f.)–9.3–9.3–13.2–19.8–25.3–32.7
Current account–1.50.3–0.3–1.6–2.4–6.9
(percent of GDP)(–4.0)(0.7)(–0.7)(–2.8)(–3.6)(–8.6)
Overall balance (billions of U.S. dollars)0.51.30.71.64.32.2
Reserves (end of year, billions of U.S. dollars)
Gross official reserves3.03.85.27.110.514.3
(in months of imports of goods and services)3.94.84.74.35.05.3
External debt (end of year, billions of U.S. dollars)17.418.219.920.922.729.2
(percent of GDP)46.543.640.835.132.935.8
Debt service (percent of exports of goods and services)27.524.819.814.913.010.9
Exchange rate
Exchange rate (baht/U.S. dollar, end of year)26.726.125.125.225.725.3
Real effective exchange rate389.984.377.176.180.078.8
Source: Data provided by the Thai authorities.

Including stockbuilding.

Fiscal year ended September 30.

International Monetary Fund, Information Notice System index (1980 = 100).

Source: Data provided by the Thai authorities.

Including stockbuilding.

Fiscal year ended September 30.

International Monetary Fund, Information Notice System index (1980 = 100).

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