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THAILAND’S CAPITALISM: DEVELOPMENT THROUGH BOOM AND BUST

Thailand’s Economy

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THAILAND’S CAPITALISM:DEVELOPMENT THROUGH BOOM AND BUST

Prime Minister Yingluck Shinawatra King Bhumibol Adulyadej

Geographical Location:

About Thailand:

Currency: Baht (1 USD = 32.1102 THB)Religion: 95% of the population practice BuddhismPopulation: 65 million+Language: ThaiSports: Muay Thai is the national sport

Capital: BangkokReign of Kingdoms: 1238-1782Constitutional Monarchy:1932From Siam changed to Thailand:1939

Thailand is the only Southeast Asian nation that has never been colonized.

Thailand was once the largest exporter of rice in the world

Thailand is the second in the best quality of life in ASEAN

THAILAND’S ECONOMY

Content:

I. Pre-Boom period (1960-1986)

II. Boom period (1987-1996)

III. Asian Financial Crisis period (1997-1999)

IV. Post-crisis recovery period (2000-present)

Pre-Boom period (1960-1986)

o The era of Import-substitution Industrialization began.(Conservatism)

o The manufacturing sector started to develop due to the protective measures being implemented by the gov’t, like the high tariff rates to further encourage domestic Investment and giving incentives to private investments.

o Agricultural taxation and the extraction of household savings into the commercial Banking sector assisted by providing capital for industry.

o The Thai gov’t also strengthened the banking sector by means of protective measures—no foreign banks could enter branch banking, and could offer only limited services. The gov’t makes policies and encouraging their people to save for the financial sector to increase their profitability.

o As a result of these measures Large conglomerates were created, Commercial banks is at their apex. It also resulted to the 15-20 families dominating the commercial banks. These families also invested in Thailand’s developing Industry like in cement, textiles, and garments. So, due to the protectionism policies of the gov’t these families almost controlled the economic sectors of Thailand so in other words these families are Building Oligopolies in a range of the economic sectors.

o Employment risen because of the Industrialization taking place. Between 1960-1979 three million Thai’s were employed.

o Industrialization policies protects the big conglomerates. And because the people are already having jobs and the gov’t encouraging them the labor force to save money in banks, funds being deposited by the people in the banks grew rapidly, allowing the banking families to expand their economic control.

o And due to this changes in Thailand; Thailand was called the “5th Tiger” along with Korea, Singapore, Taiwan, and Hong kong

60's 70's 80's mid 90's0%

5%

10%

15%

20%

6%

11%

16% 16%

Export Expansion

Export Expansion

Boom period (1987-1996)

o Export–Oriented Industrialization Policy began.

o Due to the shift of the gov’t from Import-Substitution Industrialization(ISI) policy to Export-Oriented Industrialization(EOI) policy the gov’t focused on export expansion. From 6% annual growth in the 60’s to 11% in the 70’s and rising to over 16% in the 80’s and maintained it up to the mid 90’s. Rapid industrial growth was seen export manufacturing grow from 1% in the 60’s to 75% in the 90’s. The agriculture sector has grown too but less rapidly than manufacturing.

o A total of 11 million people were employed during this period.

o Growth in capital in this period were driven by the private sector both with the domestic and foreign, but 2/3 of this are domestic capitals.

o The Economy of Thailand became more larger and diverse specially in banking, due to the entry of foreign banks in Thailand, Because Thailand is already practicing liberalization.

o Agriculture reliant rural areas/provinces in Thailand has the most poverty incidence while in the industry clustered center Bangkok has the least poverty incidence in the country. So they encouraged industrial activity in to the rural areas to enhance the trickle-down effects in these areas.

1976 1981 1986 1988 1992 1994 19960

5

10

15

20

25

30

35

40

rural poverty incidenceurban poverty incidence

1960 1970 1980 1985 1990 19950

5

10

15

20

25

30

12.5

17.5

20.721.9

27.228.2

GDP in selected Sectors(%)

Manufacturing

Banking& Insurance

Wholesale & Retail Trade

Services

Asian Financial Crisis period (1997-1999)

o The Asian Financial Crisis occurred

o There was an over-capacity and over-production in a range of sector including electronics, household appliances, auto construction, textiles & garments, footwear, electricity generation, real estate, and heavy Industry. Despite this, “hot money” poured into unproductive areas and sectors with over-capacity. These factors eventually brought a “price collapse”.

o On July 1997 Devaluation marked the beginning of Economic downward spiral.

o Thailand accepted the US$17 billion support package (loan) from IMF for reform and restructuring in Thailand.

o Businesses started to close. Bankruptcies, mergers, and acquisition were seen. There are about 5000 companies that closed during 1998.

o Massive reorganization of ownership and control, including the transfer of assets to other Asian (particularly Japan).

o Also the Americans and the Europeans saw the opportunity in these tragic times in Thailand they offered debt-for-equity swaps, takeovers, investments in devalued companies, and buy-outs of Thai partners.

o Reductions in Unproductive gov’t spending and more cost-effective spending on health, education, the poor, and the unemployed are the actions of the gov’t to mitigate the effect of the crisis.

o Survival became the aim of the businesses. Only 4 out of the 15-20 pioneer banks in Thailand that started in 1957 make it through and retained their ownership over their banks.

Post-crisis recovery period (2000-present)

o Financial Restructuring- for big commercial banks they urged them to dispose of their nonperforming-loans (NPLs) and increase their capital bases.(private sector-driven approach) Behind this approach are historical factors, such as traditional sentiments that do not welcome government intervention in the financial market due to the continued rule of the oligopolies. For small- to medium-sized banks, it promoted nationalization and mergers with foreign banks.

o Foreign Capital Dependence- Thailand is Welcoming many foreign companies and promoting economic strategies that depend on foreign capital is one of their strategies.

o Promotion of Exports- The manufacturing industry, represented by automobiles, computers, and related parts, is certainly the core of Thailand’s export sector. It is the engine that drives Thailand’s economy. (export-driven strategy)

END