Thailand´s Economic Performance in 1985 and Future Prospects

Abstract

Background Ever since Thailand underwent systemadc development during the first National Economic and Social Development Plan in 1960, growth rates have averaged 7.4 per cent per annum. Inflation has remained low, and current account deficits registered only 1.5 per cent of gross domestic product (GDP) over the same period. Barring a few short-term problems, Thailand managed to achieve high growth with stability. Even with the first oil shock of 1973/74, the adverse effect on Thailand was minimal, although inflation rates reached unprecedented high rates. Despite the sharp increase in oil prices, the economy still grew at high rates as a result of enormous export earnings due to high world commodity prices. Although the current accounts were in deficit, international reserves remained high and external debt was relatively low. The Thai economic problems began to emerge after the second oil shock as industrial nations pursued restrictive adjustment policies in order to combat inflation. World-wide economic recession followed. International interest rates started to go up and have become increasingly volatile. World commodity prices fluctuated widely and showed declining trends. Demand for these commodities weakened considerably while supply, on the whole, remained abundant. Thailand, whose major exports have been primary commodities, could thus not avoid being affected. The growth in the value of exports averaged only 13.2 per cent per annum during 1979-84, compared to an annual average of 24.8 per cent achieved during 1973-78. The declining trend in exports not only made current account deficits as a proportion of GDP increase from 3.1 per cent during 1973-78 to 6.0 per cent during 1979-84, but also resulted in a decline of average annual growth rates from 8.0 to 5.7 per cent over the corresponding periods. The worsening current account balance rendered it necessary to borrow increasingly from abroad. Both the government and public enterprises borrowed extensively over the past decade. The private sector also borrowed relatively more on a short-term basis, leading to volatile capital movements and making it difficult for the authorities to administer domestic rates as well as exchange rates and international reserves effectively. The economy faced a current account deficit problem partly because of the volatile world environment and partly because of the overspending of the country as a whole. Domestic savings have not been sufficient to finance investment. Private sector savings which were 20.2 per cent of GDP in 1973 declined to only 15.6 per cent of GDP in 1984, while public sector savings also declined from 3.2 to 2.5 per cent of GDP over the same period. Since the second oil shock of 1979, the government has carried out various measures to alleviate the problems of current account and balance of payments deficits, such as measures to promote exports and adjustment of the exchange rate regime. Nevertheless, against the background of a volatile and unfavourable world environment, the country