Thailand’s and the Pacific Rim Economic Policies

Early July 1997, the world awoke to heightened fears of a worldwide economic meltdown, the IMF crisis. This was a financial contagion that threatened to wipe out the entire Asian economy and had its origin in Thailand. A decade later questions have been asked whether the recovery of the Asian economies and in particular Thailand can be attributed to the post-IMF crisis economic policies. This paper aims to analyze the economic policies in Thailand as a member of the Pacific Rim’s greater economic pact.

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The Pacific Rim is a conglomeration of 41 economies that border the Pacific Ocean. Its headquarters is based in Honolulu, Hawaii in the United States of America. The rim is a blend of diversity in manpower, capital, agriculture, technology, natural resources, and culture. Notable members include China, Japan, Russia, and the USA. (Nemetz, 1990). Estimates from the World Bank project that the Pacific Rim will be the fastest-growing economic region in the world into the next decade, with a growth rate of 4.3% compared to 3.5% for the rest of the world. The rim had a combined GDP of $ 22,510.0 billion in 2002. The US alone had a real GDP of $10,000 billion accounting for a 44.4% share of the region’s total output (Phonqpaichit, 2002).

Thailand is greatly an export-oriented economy with a GDP of $ 627 billion, hence the second-largest economy in South East Asia after Indonesia. Thailand’s human capital is rooted in agriculture with most exports into the neighboring economies of Cambodia, Laos, and Myanmar. Over years, Thailand has been referred to as a tiger economy whose average growth rate from 1986 to 1996 stood at 9.4%. Being a free enterprise system, the economy of Thailand has plenty of human and natural resources. It has an open foreign economic policy with fiscal and monetary conservatism. Through privatization that has been affected over the years, the government has disposed numerous state-owned corporations into the hands of the private sector (Phonqpaichit, 2002).

In 2007, 11.4% of the GDP was as a result of output in agriculture and forestry. Mining of lead, tungsten, gypsum, lignite, and natural gas not forgetting tin has propelled Thailand to world dominance. Currently, the country is the second leading exporter of gypsum behind Canada. Manufacturing, which accounted for 34.5% of GDP in 2004, is also thriving with emphasis on automobiles and electronics industries. Today Toyota and Ford corporations are manufacturing cars for the entire ASEAN market from plants in Thailand. The proportion of energy consumption lies at 0.7% of the world’s total translated to 3.4 quadrillion British thermal units by 2004. Investments in the tourism, banking, and financial services sector account for an excess of 6% of the total GDP making it the highest contributor to Thai’s economy compared to other Asian countries. The government has continually attempted to strengthen the financial market through the Financial Sector Reform Master Plan, introduced in 2004 to give tax breaks to financial institutions that facilitate mergers and acquisitions (IMF/World Bank, 2007).

Phonqpaichit, (2002) maintains the 1997 Asian economic crisis occurred at the backdrop of heavy investments and reliance on capital inflows from developing countries, and high-interest rates. Propped by large cash inflows and asset prices the 8-12% growth rates experienced in Thailand and other Asian tigers were hailed a miracle. The crisis revolved around the shortage of foreign exchange that collapsed the forex and equities markets in Indonesia, Thailand, and other Asian countries, arbitrary capital allocation in the inadequately developed financial sectors of the then crumbling economies, and the role and replenishment of IMF fund and their effect on the economies of the United States and the world. The Asian economic catastrophe started via two phases of currency depreciation. Preceding was a steep plunge in the Thai baht’s value, ringgit, peso of Malaysia and Philippines respectively, and the rupiah of Indonesia. Upon settlement of these currency movements, all other Asian currencies followed suit in the downward spiral that characterized the second phase. Speculation is rife that China’s emergence as an economic force to reckon with led to the plunge. Contrary to that economists believe that the meltdown was a result of indistinct lender-borrower liaison incentives. With the rise of asset prices to un-mitigated levels, individuals began to default on debt advanced leading to the withdrawal of credit from the affected economies after the asset prices started plunging since the rise was unsustainable in the long run. The ensuing panic from credit institutions led to a contraction of credit commonly know as credit crunch by lenders who were unwilling to expose themselves to risks. The result was a mammoth size collapse of the entire financial system starting with the money markets to interest rates and finally the capital markets.

Thailand witnessed the devaluation of its baht under uncertain economic circumstances in response to the devastating effects of the crisis. In response to these and many other internal and external crises, Thailand has over the years drawn an economic roadmap that has acted as a guide to prosperity. (Phonqpaichit, 1998). During the tenure of Thaksin Shinawatra, a brand of economics called thaksinomics was popularly touted as the blueprint for economic recovery. Thaksinomics is a populist economic plan drawn to target the country’s poor who form the majority of the population. It was used by the Thai Rak Thai party under Thaksin in a bid to uplift the post-Asian crisis economy from the ruins. Thaksinomics entailed a four-year debt suspension for farmers and an express order to banks owned by the state to increase loans to farmers and SMEs at low-interest rates. It also aimed at subsidizing vehicle fuel prices to cushion the world oil price shocks on consumers. A 30 baht universal healthcare scheme was initiated to facilitate universal coverage at 30 bahts in state hospitals but this eventually failed. OTOP program (one tambon one product) policy was initiated to encourage rural small and medium enterprises. Privatization of state-owned enterprises was also a venture of thaksinomics besides investments in public infrastructure.

Proponents of this economic policy argue that the financial reforms initiated after the Asian economic meltdown have in a broad sense created a demand-driven economy, unlike the previous export-dependent economy that was susceptible to external shocks. In addition, Thailand has repaid all its debts owed to the IMF incurred during the meltdown four years before they were due, all during this period. Opponents, however, fault these policies saying consumer indebtedness has risen tremendously over this period. That the economic policies are nothing but a bunch of traditional Keynesian fiscal stimulus policies (Lee, 2004).

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Contemporary economic policies in Thailand have been divided into fiscal, monetary, and commercial, and international economic policies. Fiscal policies are a set of government policies aimed at influencing aggregate demand or the level of economic activity through government expenditure or changes in government tax levels. This is outlined as the implications of the budget on economic activity. Thailand’s fiscal economy aims to address the following issues that include speeding up the stimulus on the economy and curb the economic meltdown at the same time raising the country’s income levels. These calls for the maintenance of the prevailing fiscal policy on deficits with emphasis on clear guidelines for a given time window within which a stable budgetary policy will be drafted and implemented once the economy has picked up and run. To solve the possible crises, the Thai government is keen on drafting a detailed budget based on the country’s requirements and growth objectives. Through a thorough and transparent budgetary process, accountability in payment and allocation of vote heads will be monitored to ensure that the overheads follow the correct accounting procedures from allocation to evaluation all within the slated timeframe. Resource reallocation based on the budgetary recommendation will be executed to balance the economy by injecting funds to potentially profitable ventures with an immensely positive impact on the economy while rationing funding to investments of least concern. These aim at stimulating the aggregate demand, opening up new job opportunities, and acting as an evaluation tool for the budget. Advancing the tax regime has been the objective of the government in ensuring that development initiatives succeed. Of particular importance is the support of the economic sector by raising output in line with the longer-term macroeconomic policies. Financial prudence and the stimulation of savings and investments by supporting new enterprises is an agenda that cannot be overruled by any growth-oriented economy. A total overhaul of the tax regimes and possible harmonization to cut collection costs and enhance accountability to curb graft is top of the agenda in the Thai economic recovery program. The Thai government aims to preserve a sensible, closely monitored fiscal policy geared towards pushing for a steady development plan consistent with the overall economic goals. It is prepared to execute receptive, reliable, and lean guidelines on the administration of debt and assets in the government quarters. This is to limit government debt and channel expenditure into socioeconomic ventures whose purpose is to generate new earnings and encourage investments in the private sector (Phonqpaichit, 2002).

Emerging Trends in the global economy indicate the likelihood of Thailand’s economy growing by 4.1% to 4.6%, lower than the earlier predicted figures of between 4.6% and 5.1%. This is attributed to the shocks in world oil prices. Despite the struggling economy, a growth rate of approximately 3.3% is sufficient to improve industrial and agricultural production. Export promotion and investments in the tourism sector have bore fruits. However, global oil prices remain a major threat to the stabilization of the current account plunging it to a possible deficit of 2.2-2.8% given the anticipated inflation rates of 4.5%. This should tip the fiscal balance and offset the government spending at 1.25 trillion bahts. The bulk of the revenue generated comes from taxes. Thailand uses expansionary fiscal policy to stabilize the global economic slowdown from spilling over into its economy. Using a contingency fund of 58 million baht the government employs a fiscal stimulus in response to shocks in exports. Coupled with populist policies aimed at uplifting the country’s poor, the government has established a revolving fund system called the village fund besides a debt moratorium for farmers accounted for in the government-guaranteed debt section whose interest payable is included in the annual budget (Greenwood, 1987).

By May 2002, the public debt to GDP ratio stood at 54.8% prompting the government to declare its financial objectives for the subsequent years. It set a ceiling for public debt obligations not to cross the 65% mark. Budgetary debt servicing and appropriations meant for that would not rise beyond 16%. These would culminate in a balanced budget for the fiscal years that followed. Considerable steps carried in fiscal reform recommended disposal of state assets to the private sector and thorough fiscal decentralization that included a broadening of the tax base and import duty. Other legal reforms are targeted to address budgetary procedures and the administration of public debt obligations. Success has been seen in the implementation of the fiscal policy measures that included taxes, budget, foreign debts, and credit rating assessments (Lee, 2004).

The monetary policies used in Thailand are geared towards the growth and sustainability of the economy. Efforts to expand the capital markets ridding it of speculators and unfair trade practices are slowly bearing fruit positively impacting investors. Conventionally Thailand has had a passive monetary policy given its record of using credit control for growth support and balance of payments evaluation. The open economy allowed for an influx of foreign currency that affected the exchange and interest rates thus raised demand for products and leading to a slump in savings. The Thai government aims to put into operation exchange rate guidelines that aid the course of income generation and economic thrift. These would support the subsistence economic sectors and help home industries compete favorably in the world markets (Phonqpaichit, 2002).

The long-term objective of the government concerning monetary policy is to aid economic recovery and development by putting in check the possible monetary implications that surround the restoration of state financial institutions back to profitability. Through the development of the money and capital markets into a thriving avenue for the expansion of investments and savings, several monetary adjustments are made. The taxes on capital gains on investments would be revised to ease the mobilization of funds. Corporations that have satisfied the Securities Exchange Commission guidelines for listing on the bourse can now benefit from the unlimited access to funds fully making use of the country’s thriving capital market. With every effort begin made to lower the transaction costs incurred in business, the development of alternative sources of capital is a priority of the government. Fully exploring the debt market provides immense prospects for greater access to funding without downplaying the crucial tasks performed by other sources of financial capital in economic development. When done in a lockstep fashion, this would accelerate the growth of the general business sector encouraging savings and practices of portfolio balance among investors in the economy (Nemetz, 1990).

Commercial and international economic policies have transformed Thailand from an export-oriented economy to an all-around self-reliant economy. With the development of a universal marketing network system capable of translating and satisfying consumer needs, Thailand can now boast of unrestricted access to the global economy. To boost commerce, Thailand strives to strategize on how to respond to international trade competition. Through the incorporation of modern marketing techniques and development of information, systems to evaluate market feedback and ensure the product and service networks are interlinked and run smoothly to enhance global competitiveness. To reap unrestricted access to the global market Thailand has rebranded itself as a regional economic hub specializing in agricultural and industrial products. The advent of the internet has boosted e-commerce and availed numerous opportunities frog growth in employment and the economy at large. Tourism has benefited from this campaign aimed at export promotion marketing and dissemination of data to solve international trade shortcomings.

Trade expansion has been hampered by unfair trade practices that include infringements of intellectual property. The Thai government besides addressing this issue by encouraging value addition through diversification promotes the establishment of a fund to encourage inventions and enjoyment of full property rights. Thailand has openly been in support of free trade in consideration of its national objectives and support of domestic businesses. Besides, it has backed the ASEAN free trade area agreement and further cooperation with neighboring states to mutually benefit from this trade pact. The private sector has been boosted and encouraged to participate in decision-making and provide insight into the problems associated with international trade and funding (Fruin, 1999).

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In comparison to the Pacific Rim countries, Thailand has modestly stood out as a force to reckon with in the greater South East Asian region. Numerous challenges plague the rim countries including trade conflicts occasioned by trade imbalances between the deficit-leaning USA and the surplus-leaning East Asian nations. Free Trade Agreements and Regional Trade Agreements are a source of rifts that separate the west pacific states for the east coupled with disproportionate imbalances in finance and economic might between the USA and the rest of the Rim countries. Exploration of protectionism as the only means of fighting economic turf wars has led to global volatility in finances and trade agreements occasioned by the collapse of the Doha round (Lee, 2004).

Between 2002 to 2004, a selection of some Pacific Rim countries had the following economic data.

INDONESIA 20.50% 4.40%
MALAYSIA 19.80% 9.20%
PHILIPINES 18.50% 13.20%
SINGAPORE 12.20% 4.80%
THAILAND 23.10% 5.20%
VIETNAM 34.50% 9.60%

The graph one

The graph shows trends of increase in wealth and the development of the labor markets.

In measuring the success or failure of Thailand’s economic policies several factors must be considered. Of most importance is the success or failure of the structural adjustment packages (SAPs) introduced by the IMF during the Asian Financial Crisis. The SAPs was a bailout package tied to reforms and was meant to resuscitate the worst affected economies by restoring their entire financial system. However, the IMF failed in its mandate to restore sanity into the Asian markets hence the crisis was wholly blamed on its attempts to force the East Asian states into fast-track capitalism (Phonqpaichit, 1998).

Thailand has beyond doubt recovered from the crisis through the establishment of sound economic policies that affect the core sectors of the economy. With preference made towards the poor who comprise a considerable percentage of the total population, access to funds has been relaxed with the ongoing three-year debt moratorium on farmers. Similarly, in support of small and micro enterprises, the government set up an SME bank to avail funds to SMEs. To ensure that these SMEs thrive in the industry, an advisory package called Thai business was established to provide consultancy in business matters. Another revolutionary idea was the creation of the product, a program that encourages the establishment of informal rural industries (Phonqpaichit, 2002).

In attempts to gain a competitive advantage, Thai businesses have borrowed heavily from Porter’s enterprise positioning theories. The Thai government has created clusters in industries to respond to competitive strategies with an emphasis on mining and agricultural commodities. Heavy investments in infrastructure have eased the movement of goods and services through Laos and Vietnam. Massive research in renewable fuels and in particular, biofuels has spurred Thailand to global prominence as it is the region’s largest producer of gasohol and biodiesel (Fruin, 1999).

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In conclusion, the economic policies of the Pacific Rim countries have greatly affected those of Thailand as a constituent member since the level of interaction cannot be wished away. From regional to free trade agreements, from military pacts to humanitarian partnerships, the economic policies of Thailand are intertwined with the common goal of the rim and ASEAN grouping. With a growth rate of 4.8% into the foreseeable future, Thailand’s economic policy can be touted as nothing but a success.


Fruin, W. (1999). Networks, Markets and the Pacific Rim. USA: Oxford University Press.

Greenwood, J. (1987). Monetary policy in Thailand. San Francisco: FRB.

Lee, H. & Wu, J. (2004). Convergence of interest rates around the Pacific Rim. Taylor and Francis Journal: Applied Economics, 36(12), 1281-1288.

Nemetz, P. (1990). The Pacific Rim: Investment, Development, and Trade (2nd Ed.). Vancouver, B.C: University of British Columbia Press.

Phonqpaichit, P. & Baker, J. (1998).Thailand’s Boom and Bust. Chiang Mai, Thailand: Silkworm books.

Phonqpaichit, P. & Baker, J. (2002).Thailand: Economy and Politics. USA: Oxford University Press.

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