Thanks
to the fine tuning of its economic policy, the Thai past government's
impact on the country's performance was significant. Under the so-called
"dual track" strategy, the government adjusted its
support according to the international business environment: when
exports slow down, public spending aims at boosting domestic consumption;
when the recovery comes, authorities tightened their expenditures
and tackled more structural reforms. This policy was made possible
by Thailand's remarkable fiscal position. The enlargement of the tax
base along with the mechanical growth of fiscal revenues (thanks to
the recovery) allowed the government to put an end to the budget deficit
as soon as 2005.
The current government's poclicy seems to be quite
similar. It is trying to boost the local economy with "stimulus packages".
Making the most of the ongoing
regional integration process
Thailand
has adopted a very practical approach to deal with globalisation.
The Kingdom is already fully participating in the global trade and
is taking an active part in the World Trade Organization (WTO) discussions.
In order to strengthen its commercial position, Thailand has at
the same time initiated several ambitious regional projects, which
have begun to yield results:
- As
a member of the Association of the South-East Asian Nations
(Asean), Thailand was the first to remove its tariff barriers in
accordance with its commitments. The Asean Free Trade Area (Afta)
has become a reality making the current unprecedented surge of intra-regional
trade flows possible.
- Thailand
has undertaken to narrow the economic gap with its neighbours from
the Greater Mekong Sub-region (Burma, Chinese Province of
Yunnan, Laos, Cambodia and Vietnam). As a consequence, several hundred
of bi-or multilateral projects have been listed. They concern all
kind of industries and the involvement of foreign exporters or investors
is sought.
- Simultaneously,
Thailand aims at enhancing its trade with the world's leading economies.
A free trade agreement (FTA) with China has been in force
since October 2003. Similar FTAs are also being negotiated with
the USA, Japan, Australia and India.
On
top of the unique quality of life it provides and the remarkable
stability of its political and social situation, Thailand has thus
consolidated its attractive position in Asia. It offers the double
advantage of being a large market in itself (with more than 60 million
people with an average income of 2500 $ per capita) and an advantageous
gateway to the whole Asian market, especially the Chinese one.
Risk analysis : what has changed since
the crisis ?
Because
of its scale and the number of countries concerned, the '97 crisis
was a turning point for Asian economies. Few countries, however,
have been able to recover as Thailand did, with such high growth
rates four years after it was shaken by such a severe shock (10.5%
recession in 1998 and a baht depreciation of more than 50%). To
understand how such a fast recovery has been possible, one has to
keep in mind that the Asian crisis was basically a financial one.
Whereas the banking sector had been badly stricken, the industrial
one had been negatively impacted only insofar as it was exposed
to an exchange risk.
In
this respect, the situation has indisputably changed, resulting
in a considerable reduction of the risk of a systemic crisis:
- Since
the '97 crisis a mixed foreign exchange regime has been established.
The Thai baht has since been floating against other currencies,
its value being determined by the market. The evolution of the exchange
rate is however relatively protected against speculative attacks
thanks to substantial market interventions of the central bank and
a stricter regulation on capital flows (transactions which are not
backed by a trade or investment operation are restricted).
- Establishing
a low interest rate environment, the loose monetary policy of the
central bank since 1998 has allowed private operators to redeem
their former foreign currencies denominated liabilities in baht.
As a consequence, Thailand's external debt shrank from 93% of the
GDP in 1998 to 31% in late 2004 (this ratio is deemed very attractive
by international financing institutions). The debt redemption effort
was particularly carried out by the private sector which now makes
the companies much less exposed to the foreign exchange risk. In
order to proclaim Thailand's renewed economic health, the government
also decided in July 2003 to pay back 2 years in advance the 14
billion US$ loan extended in emergency by the International Monetary
Fund (IMF) in 1997 to face the crisis.
- The
situation of the banking sector is much healthier. A lot of
companies have been foreclosed or merged, limiting the number of
major players to 13 commercial banks. As profits are returning,
further prospects of strategic alliances and mergers are all the
more rebounding since state-owned banks are about to be privatised.
Half of the non-performing loans (NPL) outstanding (about 16 billion
US$), which have hampered the financial sector until 2001, were
purchased by a public asset management company (TAMC). By swapping
those NPL for Government Bonds in bank balance sheets, TAMC will
ensure a transfer of the accumulated loss of the banking sector
to the State Budget and spread the actual cost over 10 years.
- The
financing options for companies have been diversified. Until
the crisis companies were virtually using no other financing than
standard bank loans. Today they can directly tap capital markets
(the stock exchange or the bond market), which have expanded at
a fast pace since 1997.
A supportive
macroeconomic framework as well as a successful upgrading of microeconomic
structures have paved the way for an exceptional improvement of
Thailand's risk assessment, so that international rating agencies
(Standard & Poor's, Moody's) have been regularly revising the
Kingdom's rating upwards for 2 years. Thailand did not only successfully
manage the aftermath of the 1997-98 slump; its strategy to end the
recession is widely regarded as an example to follow by emerging
countries.
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