Thailand

One of the most vibrant economies of the world, Thailand (“Land of the Free”) has witnessed rapid transformation from an agrarian-based economy to a globalized industrial one. The economic growth of Thailand since the mid-1980s has been remarkable. With a growth rate of 10 percent per year, Thailand became one of the Asian Tigers by 1991, along with Singapore, Taiwan, South Korea, and Hong Kong. A member of the “newly industrializing countries,” Thailand has marched ahead with the new mantra of liberalization. The capital, Bangkok, has transformed a great deal. Social mobility became common, and the employment boom in the decade starting from 1985 resulted in much of the population flocking from rural to urban areas, bringing with them a growth of urbanization. Foreign direct investment (FDI) increased in Thailand. Thai currency, the baht, was attached to the America dollar, and it became cheaper for Japanese corporations to invest, as the value of the dollar went down against the yen.

The Rise and Fall of the Thai Economy

Thailand's trade with Japan grew phenomenally. In the beginning of 1994, the Stock Exchange of Thailand (SET) reached a high of 1,753.73. Foreign funds began to surge into Thai financial institutions and banks. Private capital inflows flooded the financial market of Thailand. There was an influx of offshore banks from Japan and the West. The Thai official policy had encouraged FDI. The government also gave all-out support for joint venture investment initiatives. The Thai financial environment for investment had become ripe, with a modernized capital city, excellent communication and transportation facilities, comparatively reasonable real estate rates, and availabile labor force.

Very soon, the bubble began to burst, and cracks appeared beginning in late 1996. Thailand, a model for economic development, was hit by the crisis leading to currency depreciation, unemployment, inflation, and foreign debts. The Asian economic crisis commenced on July 2, 1997, with Thailand becoming the epicenter of the crisis. The floating of the baht by the Bank of Thailand started a chain reaction. The repercussions were swift across the money market of southeast Asia. The situation in the financial sector became so critical that 56 finance companies had been shut down by the end of 1997.

With an index of 481.92, the SET reached its nadir in 1999. The economic growth rate of Thailand was 5.9, minus 1.7, minus 10.2, and 4.2 for 1996, 1997, 1998, and 1999, respectively. The exchange rate of the baht to the American dollar fluctuated from 24.3 (June 1977) to a low of 52.5 (January 1998). The credit rating of Thailand had gone down, and consequently [Page 1575]investment plummeted, with a capital outflow from the private sector amounting to a staggering sum of 645,096 billion baht. The International Monetary Fund (IMF) secured $17.2 billion in loans for Thailand. There was a huge scaling down of expenditures in the government and private sectors. About 2 million people lost their jobs, leading to lowering of the standard of living.

The Thai economic crisis also witnessed a major change in the ownership of companies and financial institutions. Foreign firms and local businesses began joint ventures. There was a considerable increase of shares of foreign companies in Thai banks. Thailand endured the 1997 financial crisis, and recovery began after the government initiated a series of economic reforms pertaining to lending practices, incentives, and corporate governance. The economic recovery was gradual. The Thai government launched an ambitious program of reforms, by which domestic demand was stimulated. Support was accorded to domestic firms, but simultaneously, open markets and foreign investment were promoted. By 2001, Thailand had recovered from the crisis, and its gross domestic product (GDP) was 5.2 percent the following year.

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