1. Thailand’s Structural Challenges and Outlook by Chalongphob Sussangkarn Thailand Development Research Institute Presented at the American Chamber of Commerce Luncheon 23 January 2002, JW Marriott Hotel, Bangkok.

2. Sustained Development Success Prior to Crisis Satisfactory Development over Many Decades though not a Super Star Real GDP Growth averaged 7.4% per annum between 1960-1990 Real Per Capita GDP growth averaged 4.8% during same period Proportion of Population under the Poverty Line declined from 60% in 1960 to about 20% in 1990 Good Coverage of Basic Education and Primary Healthcare Although many remaining problems, such as economic disparities, social and environmental problems, Overall Development considered Satisfactory

3. Success Factors Prior to Crisis Stability Macroeconomic Stability Social Stability Quality Agricultural Resources Basic Education Women Economic Participation and Contributions Dynamism of Private Sector and Broad base of Entrepreneurship

4. Success Factors Prior to Crisis (2) Efficiency Continual Economic Restructuring Open Development Strategy forcing Internal Efficiency Hospitability Good External Relations at the National Level and at the Personal Level Middle Path Society although somewhat Chaotic

5. The Path to Crisis Over Confidence and Insufficient Awareness of Risks Over confidence from the past Success, both within the country and from outside (East Asian Miracle) Rapidly changing Comparative Advantages, and inadequate strategies to technologically upgrade the economic structure Thought the country could be competitive in sectors without any real comparative advantage, eg. Regional Financial Center Lack of risk management and financial discipline, whether at the macro or micro management levels

6. The Path to Crisis (2) Stability became the Critical Problem Failure in Macroeconomic Management; Inability to adapt to the rapidly changing global financial markets Rapid build-up of Short-term External Debt to finance the Investment-Saving Gap Lack of Information and Understanding of the risks from Short-term External Debt

7. After the Crisis Aggregate Recovery, though slowing down recently Production Level still below pre-crisis peak putting a constraint on debt-restructuring and new investment Many remaining problems, such as NPL, lack of liquidity for the real sector, and production restructuring Large Fiscal Burden for the Public Sector with concerns for ballooning public debt As a result of the exchange rate depreciation, the economy is now even more dependent on external trade Large Impacts from the World Economic Slowdown, Electronic Down Cycle and Terrorist Crisis. However, diversity of the economy helps to cushion impacts a little

8. Recent Adverse External Environment Signs of adverse external impacts came very early in 2001, Jan and Feb export growth negative Export growth even more negative in second half. For whole year negative growth of about 7.0% (in US$) Further compounded by terrorist crisis Export growth very important for the economy since the 1997 crisis, however impacts cushioned by depreciation of Baht in 2001 and diversified structure of Thai exports

10. Depreciation of Regional Currencies Against US$ in 2001

11. Shares of Export by Sector

12. Further Constrains on Restructuring Slower growth makes it more difficult to restructure Production Level still below pre-crisis peak putting a constraint on debt-restructuring and new investment Many remaining problems, such as NPL, lack of liquidity for the real sector, needed production restructuring and excess capacities Very weak private investment With declines in external demand, more pressures to rely on Fiscal Stimulus from the Public Sector Constraints from ballooning public debt and effectiveness of fiscal stimulus due to low multipliers

14. Note: NPB are ratio of loans that are non-performing even though they may be off financial institutions’ balance sheets, such as transferred to AMC.

17. Fixed Price Multipliers from Expenditure Increases

19. Short-term Economic Outlook -2.12.31.8Tourism Income Growth (Baht) % 2002B2002A2001 2.94.24.9 (% of GDP) 3.284.985.52Current Account (Billion US$) 1.55.18.5Import Value (Baht) Growth % 1.74.9-1.6Import Value (US$) Growth % -1.74.03.1Export Value (Baht) Growth % -1.83.8-7.0Export Value (US$) Growth % 0.8 2.01.6 Inflation -0.51.31.6 Services 0.53.90.9 Industry 2.0 1.9 Agriculture 0.22.51.3Real GDP Growth 2002A some export and tourism recovery, 2002B declining export and tourism income

20. Critical Challenges Greater competition while being sandwiched between the lower cost and the higher technology producers Rapid emergence of the Information Economy, Lack of adequate education and knowledge for most of the population, and High investment cost to build up a knowledge based society Low fundamental competitiveness in high technology sectors (weak education and R&D systems) leading to low competitiveness rankings

21. Export Structure (Billion US$)

22. Thailand’s Rankings

23. Weaknesses (IMD: Bottom 10 of 49)

26. Strengths (IMD: Top 10 of 49)

28. Large Economic and Social Disparities By Education By Sector By Income

30. Shares of Workforce by Education

31. Shares of Agriculture in GDP and Employment

32. Income Shares by Quintiles

33. Future Directions Take account of the country’s strengths and weaknesses and concentrate on activities with more permanent competitive advantages in shaping the country’s development Competitive in Food Based Sectors, this also promotes broad-based development Competitive in some Service Sectors, particularly Tourism, though management of tourism resources the key to sustainability Competitive as a regional production location (geographic and social advantages), though need foreign partnerships and adequate supporting policy and infrastructures

34. Future Directions (2) Also need to forge various regional and global alliances to enhance competitiveness and manage risks and volatilities Push for fairer and pro-poor rules for agricultural trade at the global level ASEAN integration critical to avoid being marginalized in a world of big players, eg. EU, NAFTA or FTAA, China, India East Asian integration in trade a long-term possibility, and greater East Asian monetary cooperation vital to lessen impacts of global financial volatilities

35. Medium Term Outlook