I found fair bit of information if Thailand's eco, as for Australia's eco, much can be found in
www.abs.gov.au
A new economic model for East Asia?
I HAD almost forgotten the term `Asian Flu' or `Bahtulism' when my colleague asked me about the recent boom in the Thai economy. Yes, Thailand's economy is booming, faster than most Asian economies (except for China), with rising consumer spending and gross domestic product (GDP) growth almost hitting 7 4108n first-quarter 2003.
Not too many people thought this country would be able to weather the turmoil in 1997, considering the damage it went through during the Asian crisis also known as the Asian Flu or Bahtulism (Paul Krugman's term).
Things are really picking up now for Thailand's economy. Its first- quarter annual GDP growth of 6.7% was beyond analysts' expectations. The government is looking at an overall growth rate of 6% this year and for the next few years.
The major stock market index (SET) was up 38.5% year-to-date at the end of July. Even at that level, equity market valuations still look attractive with price-earnings ratio (PER) of 6.8 for 2003 and 9.7 for 2004 (Multex estimates).
Interest rates have been driven down to 1.25%, the lowest since the Asian crisis, and hard-currency reserves climbed to US$40 billion.
Consumer confidence is high, evidenced from a drastic rise in car purchases in recent months.
How different things are compared with the situation in 1997 and 1998, when the economy almost went bust following the devaluation of the bath on July 2, 1997. When the currency went into a tailspin following a loss of confidence, foreign exchange reserves fell to US$30 billion in July 1997 from US$37 billion in April that year.
However, the US$30 billion worth of foreign reserves did not include the off-balance sheet activity from the foreign exchange swap contracts of US$23.4 billion as of August 1997. In other words, the country was on the brink of bankruptcy.
GDP plunged 10.5 4108n 1998 compared to an average growth of 9.1% between 1990-1995. The number of unemployed surged to 1.1 million people in 1998 from 293,000 in 1997 and its currency fell to an average of 41 baht per US dollar in 1998, from an average of 25 per US dollar in 1997.
How did this dramatic economic turnaround occur, especially when other economies are still struggling to achieve 3%-4% growth annually? One of the most talked about factors is Thailand's new economic policy, introduced by Prime Minister Thaksin Shinawatra, dubbed as `Thaksinomics'.
Like Reaganomics (Reagan's economic policy) in the 1980s, Thaksinomics is no less controversial. While Thaksinomics initially came under tremendous criticism, the recent rapid economic recovery has reduced much of the condemnation.
Thaksinomics actually refers to the so-called `dual track' economic strategy introduced by Thaksin's administration in early 2001. It is a strategy that combines the traditional element of the East Asian Economic Model (EAEM), which emphasises mass manufacturing spearheaded by foreign direct investment (FDI) - dubbed as the First Track - and a more domestic focus on local enterprises leveraging indigenous skills and resources, known as the Second Track. The government's intention is to put more emphasis on the Second Track of the Dual Track strategy.
The First Track involves securing jobs and export income for the reason that Thailand has in the past been highly dependent on mass manufacturing.
The Second Track, on the other hand, will focus on efforts to avoid a direct competition with China. With the intention to increase dependence on the domestic economy, Thaksin envisions domestic consumption to rise to 6010014f GDP from the current level of 55%. At the same time, exports as a proportion of GDP should fall from 60% to 50%.
At a glance, it seems ironic for an open economy like Thailand to reduce its share of exports to GDP given the fact that the country's economic miracle in 1990s was primarily driven by the external sector. However, the main argument goes like this: most developed countries have smaller proportion of exports to GDP than many East Asian economies. Therefore, they are less vulnerable to external shocks like the current slowdown of the US economy.
This is important because since the Asian crisis, many external shocks have slowed the process of economic recovery - the Sept 11 incident, Bali bombing, SARS epidemic, to name a few. Secondly, a boost in domestic demand will be a short-term solution in sustaining economic growth at a decent rate. This will help the country to `buy time' to formulate potent strategies for the long term.
At the same time, a domestic focused policy itself can structurally change economic activities when businesses climb the value added chain.
This will, in turn, support the First Track.
In other words, the Thaksin Dual Track strategy aims to balance the previous `flying geese' single track EAEM strategy that only emphasised FDI via multinational corporations (MNCs) driven by cheap-labour mass manufacturing, which brought East Asian economies down to their knees during the Asian crisis.
It is argued that the combination of both tracks would provide a more balanced growth for the economy, which in turn would give an image of prudent macroeconomic management. It gives an impression that it would be possible to reduce foreign dependence without sacrificing long-term growth as shown by most developed countries (US and EU exports are 30% and 35% of GDP respectively).
As expected, the First Track strategies are very much focused on boosting private consumption through increasing disposable incomes. This includes one million baht worth of village fund for each of the 70,500 villages and 40,000 communities in the country. For 2003, the government has targeted an additional disbursement of 30 billion baht for this purpose.
The government also provides a debt moratorium for small farmers where payment for interest on their outstanding loans to the Bank for Agriculture and Agricultural Cooperatives (BBAC) are suspended for three years. At the same time, the government undertakes an effort to upgrade land rights to be used as bank collateral.
The urban poor also benefit from the incentives brought about by the government. For instance, small loans for street-side vendors are provided through Government Savings Bank (GSB). The GSB provided individual loans worth 30,000 baht each for a total amount of 10 billion baht in 2002.
The government also provides one million homes for the poor that cost it between 300 billion and 600 billion baht. Another incentive is the income tax cuts for low-income earners that would reduce income taxes payable for this group by about four billion baht in 2003.
A special spending package is also granted for retired civil servants.
Currently, the government will pay an amount equivalent to 30 times of salaries to the family of civil servants who pass away. A new ruling permits civil servants to spend half of that amount before their death. It is estimated that the total amount of spending power created from this initiative would be roughly 45 billion baht.
The First Track policies managed to kick-start consumer spending because a low-income population is known to have a high level of marginal propensity to consume (MPC). In other words, lower-income people tend to spend more from each additional income they receive.
However, while strategies of the First Track seem to have been successful in increasing consumers' appetite for shopping, policies of the Second Track do not give a clear picture as to how they would accelerate Thailand's competitiveness in the world market.
Other issues like a reliance on pump-priming and budget deficit have also become major criticisms for Thaksinomics. This will be further discussed in the second part of this article.
Copyright 2003 MALAYSIAN BUSINESS all rights reserved as distributed by WorldSources, Inc.
