report on thailand developing economy

7/28/2019 Report ON THAILAND DEVELOPING ECONOMY

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University of Dhaka

A Report on

Economy ofThailand


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Date of Submission: o5/06/2013

A Report on

Economy of Thailand

Course no. & name: F-402

Submitted to:

M Masud Rahman

Professor and Chairman

Department of Finance

University of Dhaka

Submitted by:

Group: 13

Sec-B

BBA 16th batch

Dept. of Finance

University of Dhaka


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Group members are

Name Roll

K. M. Najmus Sakib 16-020

Md. Rased Mosarraf 16-62

Md. Kamrul Islam 16-090

Rajib Kumar Deb 16-106

Mahmudur Munna 16-182


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Letter of Transmittal

5th June, 2013

M Masud Rahman

Professor and ChairmanDepartment of FinanceUniversity of Dhaka

Subject: Submission of a report on Economy of Thailand.

Dear Sir,

We are presenting a report on Economy of Thailand. In this report we haveexamined detail study of economic condition of Thailand. In making the study, wehad to take help from the various sources of internet and class lectures of our courseteacher. We acknowledge the contribution of our course teacher heartily. We havetried to use our academic knowledge in real life.

We are pleased to be granted this vital opportunity and grateful for your versatileassistance. We hope that our work will please you. We will be available in the

presentation for further explanations.

Sincerely,

__________________

Md. Rashed Mosarraf

On behalf of The Group


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Executive Summary


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Table of Contents

Title Page No

Letter of Transmittal

Executive Summary

Origin of the report

Thailand Economy Profile

Period 1: 1985-1996

Period 2:1997-2000

Period 3: 2000- Present

Conclusion

Appendix

Bibliography


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Origin of the Report:

Formal report writing is a mandatory requirement of the Finance and Development course

of the BBA program. This report was assigned to give the students a better understanding of

their studied theories and real life application of it.

Objectives

To know Thailand economic condition.

To know monetary and fiscal policy of Thailand.

To know their polices which improve their economic condition.

To know other macro economic variables of Thailand.

To enhance our subject knowledge.

Methodology

To collect data for this report we use secondary information. We get all the information fromWorld Bank and Bank of Thailand websites.

Limitations of the Report:

Research work is very much comprehensive. It is an accumulation of both information and

creative thinking. It requires a great effort and long sound planning to make a report. It is true

that we got help from many highly qualified people. But still we faced some problem. As we

are really new in this field and it is our first report in our life; we felt lack of experience in

every stage of our work. And there was not enough time for this project. But we tried our

level best to overcome this. We tried to present the data available accurately. Still there might

be some problems with the presented data & our interpretation. But all these errors are totally

unintentional. At the end we are very happy to present this report to the readers and its

success will depend on the positive response of the readers.


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Thailands Economy Profile

Economy The Economy of Thailand is a newly industrialized economy. It is aheavily export-dependent economy.

Currency Thai baht ().Fiscal year 1 October-30 September.

GDP THB 11.375 trillion (USD 366 billion).

GDP growth 6.5%. (2012)

GDP per capita THB 167508 (USD 390). (2012)

Inflation (CPI) 3.02%. (2012)

HDI 103rd, 0.682 (medium).

Gini 0.484 (income) (2011) and 0.375 (expenditure) (2011).Labor force 39.41 million. (2012)

Unemployment .7%. (2012)

Population below

poverty line

13.15% (2011).

Main industries Automobiles and Automotive parts (11%), Financial Services (9%),Electric appliances and components (8%), Tourism (6%), cement,auto manufacturing, heavy and light industries, appliances, computersand parts, furniture, plastics, textiles and garments, agricultural

processing, beverages, tobacco.

Export USD 226155.8 million. (2012)

Export goods Textiles and footwear, fishery products, rice, rubber, jewelry,automobiles, computers and electrical appliances.

Main export

partners

China 12%, Japan 10.5%, U.S. 9.6%, Hong Kong 7.2%, Malaysia5.4%, Singapore 5%, Indonesia 4.4%.

Import USD 217, 818.9 million. (2012)

Import goods Capital goods, intermediate goods and raw materials, consumergoods, fuels.

Foreign reserves USD 177.8 billion (29 March 2013).

FDI inflow $9.6 billion.

Revenues THB 1,977.5 billion (Fiscal Year 2012).

Expenses THB 2,148.4 billion (Fiscal Year 2012).Economic aid None.

Source: Economy of Thailand, Wikipedia.


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Period from 1985 - June 1997

Monetary policy:

To reduce market liquidity the Bank of Thailand used open market operations by intervening

in the repurchase market through selling government bonds. The fiscal surpluses implied that

the stock of government bonds was rapidly declining. To resolve that problem the central

bank issued its own bonds in 1987, 1988, 1990 and 1991 and again in 1995 and 1996 to

absorb excess liquidity. From 1987 to the end of 1995, the Bank of Thailand issued a total of

33 billion baht in bonds, only a small fraction of the foreign borrowing by financial

institutions.

Exchange rate policy:

The basket regime was adopted from November 1984 until June 1997. The value of the baht

was initially either pegged to gold, a major currency, or to a basket of currencies. During this

period, the Exchange Equalization Fund (EEF) would announce and defend the value of the

baht against the U.S. dollar daily. Given the environment at the time, a fixed exchange rate

was deemed to be the best monetary policy regime which would support long term economic

growth. Thailand implemented a macro stabilization program during the period 198487. The

program combined a large devaluation of the nominal exchange rate in late 1984 with tighter

financial policies. Its main features were as follows:

1. The Baht was devalued by nearly 15 percent in nominal effective terms and thenpegged against an undisclosed basket that weighted heavily the US Dollar. As the

Dollar lost value vs. the Yen during the second half of the 1980s, the Baht, in turn,

continued to depreciate in nominal terms vs. other East Asian currencies.

2. Monetary policy was tightened significantly starting in 1985. Real credit growth

declined significantly in 1985 and 1986 as compared to the previous three years 5

while real interest rates increased to their highest levels in the 1980s.

3. Fiscal policy, however, was adjusted only with a one-year lag with the adoption of

the1985/86 budget in late 1985. Following a period of large deficits and no clear trendfor the fiscal stance, between 1985/86 and 1987/88 the central governments fiscal

balance went from a deficit of 5.3 percent of GDP to a surplus of 0.7 percent.

GDP growth:


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In 1988 the GDP growth rate was 12%.Then there was economic boom in the country. Over

the ten years between 1987 and 1996, the average annual GDP growth rate was 9.4 percent;

the growth rate of real exports was 14.5 per cent, while inflation was contained at 4.7 per

cent. The high level of investment and the rapid growth had been supported by large inflows

of foreign capital: in the period 198796, annual capital inflows were on average equal to 8.7per cent of GDP.

Unemployment rate:

From 1988 to 1996, there was booming situation in the economy of Thailand. As their

productivity, GDP and FDI were increased, their unemployment rate was decreased.

Foreign direct investment:

Capital inflows started to increase rapidly after 19856, reaching very high levels in the

1990s. Figure 1 shows the pattern: average annual inflows exceeded 10 per cent of GDP in

the period 19906. The sharp rise in capital flowing in through .financial institutions after

1992 was the result of the financial liberalization that took place during the early 1990s.

Financial liberalization started with the lifting of the ceilings on interest rates, which began in

1989 and was completed in 1992 when domestic interest rates were fully free. The

liberalization also opened new lines of business, particularly for finance companies. The most

important part of the reforms was the liberalization of transactions on the current and on the

capital account of the balance of payments and the establishment of offshore banking with the


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Bangkok International Banking Facility (BIBF) in 1993. Between 198896, according to data

from the Bank of Thailand, Thailand received a staggering cumulative amount of US$ 100.3

billion, about 55 percent of 1996 GDP, or 9.4 percent of GDP on average p.a. After

stabilizing at about 8 percent ford in 199294, there was a second local maximum in 1995

when flows again surpassed 12 percent of GDP.

Export and Import:

During this period both export and import increased as a result of financial liberalization I

financial sector

Monetary targeting regime (July 1997 - May 2000):

Exchange

After the adoption of the floating exchange rate system on 2 July 1997, Thailand received

financial assistance from the International Monetary Fund (IMF). While the IMF program, a

monetary targeting regime was adopted. Under this regime, the Bank targeted domestic

money supply using the financial programming approach in order to ensure macroeconomic

consistency as well as to reach the ultimate objectives of sustainable growth and price

stability. The Bank would set the daily and quarterly monetary base targets, on which its

daily liquidity management was based. Daily liquidity management was essentially aimed to

ensure against excessive volatility in interest rates and liquidity in the financial system. Since

2 July 1997, Thailand has adopted a managed-float exchange rate regime, replacing the

basket-peg regime which had been in operation since 1984. The value of the baht has since


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then been largely determined by market forces. The banks primary concern is large and

persistent departures of the exchange rate from its fundamental values, rather than short term

fluctuations

Under the managed float, the Bank of Thailand

Does not target a fixed level for the exchange rate, Short-term volatility is not a major

concern unless it continues to persist and become a threat to stability.

Stands ready to intervene in the case of excess volatility, particularly resulting from

speculative capital flows, in a manner consistent with the Banks inflation targeting

framework.

Exchange rates can overshoot. In this case, intervention may help in limiting the

extent of overshooting, thus avoiding the disruptive impact and the need for costly

real economic adjustment

The Bank of Thailand aims to ensure that the value of the baht is allowed to fluctuate under

the following conditions;

(1) The Bank of Thailand stands ready to intervene in the foreign exchange market

such that volatility of the exchange rate is at a level that the economy can tolerate,

(2) Maintaining national competitiveness, as measured through the Nominal Effective

Exchange Rate (NEER), which comprises currencies of important trading partners -

and not just the US Dollar, and

(3) Any intervention does not go against economic fundamentals which would

otherwise lead to further imbalances.

Monitoring exchange rate developments

Certain qualitative indicators are also monitored so as to analyze what causes excessivemovements or market instability, whether they stem from speculative flows or real trade andinvestment flows. For example, flows of nonresidents into all financial markets, flows oflarge exporters/importers, liquidity condition in the Offshore swap market, options marketand option-implied volatility, market long/short and strategic positions, significant technicalor stop-loss levels, bid offer spreads, etc.To monitor foreign exchange rate movements, nominal effective exchange rate (NEER) andreal effective exchange rate (REER) are both used as important pieces of information to makesure that our medium and long-term competitiveness compared to the rest of the world are in

check.

Developments in the foreign exchange market after the float

Offshore financial institutions have long been major players in the Thai FX market since

there are no regulations on foreign exchange trading in the spot market. Offshore players

have always accounted for a significant share of FX market volume until recently (September

2003) when restrictions were imposed on Non-Resident Baht Accounts (NRBA) and short-

term liquidity management following a surge in capital inflows which were deemed

speculative in nature. Since September 2003 when measures to deter short-term speculative

inflows were in place, non-residents have been considerably less active in the Thai Bahtmarket. Its share has fallen to less than 20%.


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Despite some restrictions on speculative players which cause reductions in market turnovers,

the foreign exchange market is still thriving. The daily turnover of interbank and customer

transactions in the spot and forward markets average around USD 1 billion, which is quite

substantial compared to other financial markets.

Intervention

Exchange rates can overshoot. In this case, intervention may help in limiting the extent of

overshooting, thus avoiding the disruptive impact and the need for costly real economic

adjustment. Besides, it would enable the private sector to gradually adjust to the changing

environment more efficiently. It is important, therefore, for the Bank to take these into

account and intervene if conditions warrant.

The Bank intervenes in the foreign exchange market mainly via outright spot transactions bybuying/selling Thai Baht against US dollar, the currency most widely traded. The FX swap

transactions are sometimes used in conjunction with the outright intervention to influence theliquidity condition in the offshore market in order to make it more costly to fund theirspeculative positions.Intervention has taken place in the spot market with both onshore and offshore counterpartieswhen necessary to maintain stability in the market.

Sterilization

The Bank is committed to the inflation targeting framework in which the 14-day repurchaserate is used as the operating target. Therefore, sterilization is part of the appropriatemanagement of liquidity in the money market.The Bank conducts daily open market operations to equilibrate banks reserves supply and

demand in order to maintain the policy rate. A daily liquidity forecast gives guidelines for theamount of injection/withdrawal needed, taken into accounts exogenous factors such aschanges in currency in circulation and government expenditures and receipts as well as theother operations of the Bank including the FX operations. In general, a combination ofmonetary instruments, namely, Repos, Bank of Thailand bond issuance and FX swaps is usedfor sterilizing the FX intervention.

To help safeguard against potential instability and speculative activities in the currencymarket, the Bank imposed a few measures on certain types of foreign exchange transactionsas follows.

January 29, 1998: non-residents who do not have any underlying trade orinvestment activities in Thailand are allowed to obtain Thai baht credit facilities from theiron-shore counterparties up to a combined outstanding amount of THB 50 million per entity.


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Asian crisis and its impact on Thailand (1997-1998)

The Asian financial crisis was a period offinancial crisis that gripped much of Asia

beginning in July 1997. The crisis started in Thailand with the financial collapse of the Thai

baht after the Thai government was forced to float the baht. Thailand's booming economy

came to a halt amid massive layoffs in finance, real estate, and construction that resulted in

huge numbers of workers returning to their villages in the countryside and 600,000 foreign

workers being sent back to their home countries. [31]The baht devalued swiftly and lost more

than half of its value. The baht reached its lowest point of 56 units to the US dollar in January1998. The Thai stock market dropped 75%.

Thai Financial Crises: Causes

Weaknesses in domestic macro-economic fundamentals

Weakness in the Financial System

Financial liberalization and the volatile international capital flows

Speculative Attacks and the Floatation of Baht

Unstable political and social institutions

Thai Financial Crises Impacts:

Highly depreciated baht because the lack of confidence in Thai economy

Massive increase in external debt burden created due to high dependency on foreign capital

and deeply depreciated baht that made the country effectively bankrupt even before thecollapse of its currency. Foreign debt-to-GDP ratios rose from 100% to 167%.
http://en.wikipedia.org/wiki/Financial_crisishttp://en.wikipedia.org/wiki/Thailandhttp://en.wikipedia.org/wiki/Thai_bahthttp://en.wikipedia.org/wiki/Thai_bahthttp://en.wikipedia.org/wiki/Floating_currencyhttp://en.wikipedia.org/wiki/Financial_crisishttp://en.wikipedia.org/wiki/Thailandhttp://en.wikipedia.org/wiki/Thai_bahthttp://en.wikipedia.org/wiki/Thai_bahthttp://en.wikipedia.org/wiki/Floating_currency


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Thai Financial Crises Recovery

On 11 August 1997, the IMF unveiled a rescue package for Thailand with more than $17

billion, subject to conditions such as passing laws relating to bankruptcy (reorganizing and

restructuring) procedures and establishing strong regulation frameworks for banks and other

financial institutions. The IMF approved on 20 August 1997, another bailout package of $3.9

billion.

IMF intervention for crisis recovery:

Stop further capital outflows as well as regain the market confidence during the shock

turn around the foreign reserve position

Financial Sector Restructuring

This policy aimed to strengthen the banking system by closing possible loopholes on

facilitating new credits by hurting as least people as possible

Monetary policy taken for recovery:

Then the Bank of Thailand took a contractionary monetary policy by increasing domestic

interest rate that aim is to stabilize the exchange rate and high rate of rollover the short-term

foreign debt adopt new exchange rate policy to be managed float.

Unemployment rate:

Financial crisis in 1997 to 1998, the rate of unemployment was increased. In that time

unemployment was increased to 3.5%.


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Period 2000 to present

Monetary policy:

After the IMF program, the Bank of Thailand made an extensive reappraisal of both the

domestic and the external environment and concluded that the targeting of money supply

would be less effective than the targeting of inflation. The main cause for change was that the

relationship between money supply and output growth became less stable over time,particularly since the financial crisis.

With the exit from the IMF program, it became necessary for authorities to identify a new

policy anchor which would be appropriate for Thailand. The Bank of Thailand announced

the adoption of inflation targeting in May 2000, with a main objective of maintaining price

stability. Given the institutional reforms required for an inflation targeting framework to

operate successfully, it was envisaged that inflation targeting would help rebuild confidence

and credibility of the central bank and monetary, going forward

Under the inflation targeting framework the Monetary Policy Board (MPB) was first

appointed on 5 April 2000 and vested with the power to decide monetary policy by the

Governor. At present, however, the Monetary Policy Council, comprising 7 members - 3

from the Bank of Thailand and 4 external members - is responsible for deciding on the

direction of monetary policy.

GDP growth:

After 1999 the GDP growth rate continued to increase. At the time of global financial crisis

in 2008 economic growth (GDP) decreased to negative level. In 2011 devastating flood hadoccurred in Thailand. About one third of the country experienced flooding,


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including two key manufacturing provinces producing automobiles and

electronic components, bringingdown annual GDP growth from 7.8 percent in

2010 to 0.1 percent in 2011 after contracting by an astounding 11 percent in

the last quarter of the year (which corresponds to an annualized rate of about

50 percent seasonally adjusted data). The Thai government responded to the

floods with a broad set of policies, including fiscal stimulus, an infrastructure

investment plan, and the BOT cut policy rates by 50 basis points to further

support the recovery.

Global financial crisis and its impact on Thailand

The Thai economy was affected by the Global Financial Crisis (GFC) through shocks to

value chain (trade channel) and financial channel. Contraction in global demand led to

declines in export, manufacturing production and capital utilization accordingly, which thenled to declining in the countrys consumption and investment. On the other hand, interest rate

gap between Thailand and advanced economy became widening caused massive capital

inflows and Baht appreciation, which brought about the severe impact to labor intensive

production sectors of the country, while the sectors with high import content benefited from

this incident. Baht had appreciated by 10% against the US Dollar in 2010.

Figure 1: Transmission Mechanism of 2008-2009 Global Financial Crises to the ThaiEconomy


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Adopted fiscal and monetary policy for recovery of GFC:

The Thai government has imposed three types of policy to rebuild confidence, gain economic

recovery, and stimulate new economic growth. First, two phases of stimulus package, with

the combination of tax measures, are implemented at different periods of time. The fiscal

stimulus packages have included short-term expenditure measures namely Stimulus Package

1 (SP1) which amounted THB116.7 Billions aiming to reduce impact of the GFC, long-term

investment plan (Stimulus Package 2 (SP2)) which amounted THB 1.43 Trillion aiming to

improve the countrys competitiveness and tax measures. In 2009, the Thai government

imposed -5.6% budget deficits to GDP due to these measures. Tightening fiscal policies such

as increase in VAT rate and the reduction of current government expenditure were imposed.

After imposing the tight fiscal policy at the early stage of crisis management, the government

refused to increase the VAT, but rather stimulated the domestic demand as well as introducedthe fiscal finance policy as an alternative channel of micro credits. Second, the quasi fiscal

policy is implemented as a fast-track policy to create liquidity for business sector. Lastly, the

monetary policy is introduced as another tool to stimulate the economic growth. Figure 8

shows that, in 2009, the government ran 5.6% budget deficit to GDP while the Bank of

Thailand has reduced policy interest rate (RP 1 day) from 3.75% to 1.25%.

Figure: Government Budget and Interest Rate Policy Trends

Unemployment rate:

Growth from 1985 to 2011, unemployment rate in Thailand decreased gradually. But in 1998

and after the global financial crisis the unemployment rate increased to the some extent. But

at present the unemployment rate is at 0.7% of the total labor force of Thailand.

Reason of low unemployment:

1. Low wages.

2. Under unemployment.


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3. Low insurance facility.

The Human Development Index-ThailandThe HDI represents a push for a broader definition of well-being and provides a composite

measure of three basic dimensions of human development: health, education and income.

Between 1980 and 2012 Thailand's HDI rose by 1.5% annually from 0.490 to 0.690 today,

which gives the country a rank of 103 out of 187 countries with comparable data.

Fig: HDI ranking 2012 (Source-UNDP website).


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Life expectancy at birth is provided by the UN Department of Economic

and Social Affairs; mean years of schooling are based on UNESCOs

Institute for Statistics (UIS) educational attainment data and Barro

and Lee methodology; expected years of schooling are provided by

UIS; and GNI per capita by the World Bank and the InternationalMonetary Fund. For a few countries, mean years of schooling are

estimated from nationally representative household surveys, and for

few countries GNI was obtained from the UN SNA(School Nutrition

Association) Main Aggregates database..

Table A: Thailands HDI trends based on consistent time series data, new

component indicators and new methodology.

Life expectancyat birth

Expectedyears of

schooling

Mean yearsof schooling

GNI percapita (2005

PPP$)

HDI value

1980 65.5 7.9 3.7 2,199 0.490

1985 70.1 8.6 4.1 2,582 0.532

1990 72.5 8.4 4.6 3,891 0.569

1995 72.3 9.6 5 5,593 0.608

2000 72.5 10.6 5.4 5,411 0.625

2005 73.2 12.3 5.9 6,350 0.662

2010 74 12.3 6.6 7,343 0.686

2011 74.1 12.3 6.6 7,359 0.686

2012 74.3 12.3 6.6 7,722 0.690


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Conclusion


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Appendix

Appendix no:1

Year GDP growth (annual%)

Foreign directinvestment, net inflows

(BoP, current US$)

UnemploymentRate (% of total

labor force)

1985 4.647237795 163200658 3.70000005

1986 5.533828594 262504153.8 3.5

1987 9.518950062 351932497.4 5.80000019

1988 13.28811275 1105370110 3

1989 12.19050516 1775449345 1.39999998

1990 11.16716153 2443549743 2.20000005

1991 8.558261314 2013985971 2.70000005

1992 8.08338859 2113021867 1.39999998

1993 8.2510453 1804040985 1.51994 8.9871847 1366440825 1.29999995

1995 9.23748041 2067936429 n/a

1996 5.90134481 2335837475 1.10000002

1997 -1.3713735 3894755071 0.89999998

1998 -10.50997279 7314804931 3.4000001

1999 4.4476363 6102677671 3

2000 4.75007032 3365987583 2.4000001

2001 2.167264271 5067170388 2.5999999

2002 5.31757375 3341612007 1.79999995

2003 7.13997532 5232270340 1.52004 6.3440735 5860255943 1.5

2005 4.60469895 8055353138 1.29999995

2006 5.092898713 9454930945 1.20000005

2007 5.044316148 11326925416 1.20000005

2008 2.4843004 8538342442 1.20000005

2009 -2.32984859 4853961111 1.5

2010 7.81051239 9103993910 1

2011 0.077086894 7780007829 0.69999999


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Appendix no: 2

Year Exports of goods and

services (current US$)

Imports of goods and

services (current US$)

Inflation, consumer

prices (annual %)1985 9030266869 10091466324 2.43173123

1986 11033549034 10157503567 1.84167597

1987 14601717494 14318700014 2.5

1988 20357574111 21214461327 3.80487805

1989 25231064624 27083484695 5.35714286

1990 29129276486 35545809870 5.86399474

1991 35329436930 41756457099 5.7098526

1992 41206839597 45675755593 4.13914575

1993 47453534682 52752822875 3.31219168

1994 56094978119 63084058014 5.04774898

1995 70305504407 81632738838 5.81818182

1996 71417456082 82833927219 5.80510555

1997 72442634974 70306573640 5.62579747

1998 65860573590 48088404966 7.99472875

1999 71490260222 56073603469 0.284726459

2000 81953034439 71358172960 1.59196917

2001 76088350937 68589774464 1.62690887

2002 81447793591 72957609874 0.69730898

2003 93686920895 84013600222 1.80434995

2004 114062470127.91 106227162361.174 2.75914926

2005 129738091153.428 131712104146.932 4.54036922006 152514492371.047 145287260440.315 4.63747436

2007 181341466240.997 160625061561.727 2.27563283

2008 208371010977.598 201384462061.699 5.4

2009 180251066039.002 152439960566.765 -0.85388994

2010 227335959123.516 203641137800.333 3.31100478

2011 265972379368.812 250290800447.335 3.80928121


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Bibliography

1. World Bank database.

2. UNDP database.

3. IMF database.

4. Bank of Thailand database.

report on thailand developing economy

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