Transcript Short-term Economic Outlook

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.
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
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
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
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
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
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
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$)
• Further compounded by terrorist crisis
• Export growth very important for the economy since
the 1997 crisis, however impacts cushioned by
depreciation of Baht in 2001 and diversified structure
of Thai exports
Ratio of Export of Goods and Services to GDP
80%
75%
01/Q1
00/Q1
99/Q1
98/Q1
97/Q1
96/Q1
95/Q1
94/Q1
40%
35%
30%
93/Q1
70%
65%
60%
55%
50%
45%
Depreciation of Regional Currencies
Against US$ in 2001
Indonesian Rupiah
17.8%
Philippines Peso
13.3%
Korean Won
12.2%
Japanese Yen
11.3%
Thai Baht
10.0%
Taiwan Dollar
7.6%
Singapore Dollar
3.8%
Shares of Export by Sector
1997
Labor Intensive
22.2%
Technological
38.4%
IT Related
24.1%
Other Technological 14.3%
Food
20.3%
Others
19.1%
Total
100.0%
1998
21.7%
40.8%
27.0%
13.8%
18.7%
18.8%
100.0%
1999
21.2%
42.0%
27.4%
14.7%
17.4%
19.3%
100.0%
2000 2001(Jan-Nov)
19.7%
20.3%
44.0%
42.9%
28.3%
26.5%
15.8%
16.3%
15.1%
15.4%
21.2%
21.5%
100.0%
100.0%
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
Real GDP (Million Baht: 1988 Prices)
(Seasonally Adjusted)
800,000
750,000
700,000
650,000
600,000
550,000
94/Q1
95/Q1
96/Q1
97/Q1
98/Q1
99/Q1
00/Q1
01/Q1
Ratios of Non-Performing Loans (NPL)
and Non-Performing Borrowing (NPB)
50
45
40
35
30
% 25
20
15
10
5
0
98/Q1
99/Q1
00/Q1
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.
01/Q1
NPL
NPB
Capacity Utilization: Excluding Liquor
80
70
60
50
40
30
20
10
0
95/Q1
96/Q1
97/Q1
98/Q1
99/Q1
00/Q1
01/Q1
Seasonally Adjusted Real Private Investment
(Million Baht: 1988 Prices)
300,000
250,000
200,000
150,000
100,000
01/Q1
00/Q1
99/Q1
98/Q1
97/Q1
96/Q1
95/Q1
0
94/Q1
50,000
Fixed Price Multipliers from Expenditure Increases
GDP Multiplier
Public Sector Expenditure
0.91
Private Consumption
0.93
Private Investment
0.35
Merchandise Export
0.90
Tourism Income
1.08
Total Final Demand
0.88
Ratio of Export and Import to GDP
(Goods and Services: Nominal Values)
80%
75%
70%
65%
60%
55%
50%
45%
40%
35%
30%
93/Q1
94/Q1
95/Q1
96/Q1
Export
97/Q1
98/Q1
Import
99/Q1
00/Q1
01/Q1
Short-term Economic Outlook
2001
2002A
2002B
1.3
2.5
0.2
Agriculture
1.9
2.0
2.0
Industry
0.9
3.9
0.5
Services
1.6
1.3
-0.5
Inflation
1.6
2.0
0.8
Export Value (US$) Growth %
-7.0
3.8
-1.8
Export Value (Baht) Growth %
3.1
4.0
-1.7
Import Value (US$) Growth %
-1.6
4.9
1.7
Import Value (Baht) Growth %
8.5
5.1
1.5
Tourism Income Growth (Baht) %
1.8
2.3
-2.1
5.52
4.98
3.28
4.9
4.2
2.9
Real GDP Growth
Current Account (Billion US$)
(% of GDP)
2002A some export and tourism recovery, 2002B declining export and tourism income
Critical Challenges
• Greater competition while being sandwiched between
the lower cost and the higher technology producers
• Rapid emergence of the Information Economy, Lack of
adequate education and knowledge for most of the
population, and High investment cost to build up a
knowledge based society
• Low fundamental competitiveness in high technology
sectors (weak education and R&D systems) leading to
low competitiveness rankings
Export Structure
(Billion US$)
1988
1992
1996
2000
Food
6,432
9,114
12,449
10,547
Labor Intensive
4,693
9,425
11,762
13,774
Technological
2,439
8,827
20,821
30,753
Average Growth
1988-92 1992-96 1996-00
Food
9.1%
8.1%
-4.1%
Labor Intensive
19.0%
5.7%
4.0%
Technological
37.9%
23.9%
10.2%
Thailand’s Rankings
IMD
WEF
Growth Competitiveness
Current Competitiveness
2000
2001
35/47 38/49 (36/47)
30/58 33/75 (31/58)
40/58 38/75 (35/58)
Weaknesses (IMD: Bottom 10 of 49)
Government Efficiency
Central government debt - real growth
49
The educational system appropriate for a competitive economy (Survey)
47
Secondary school enrollment
47
Qualified engineers are not sufficient (Survey)
42
Technology transfer between companies and universities (Survey)
48
Weaknesses (IMD: Bottom 10 of 49)
Business Efficiency
International competence of domestic managers (Survey)
49
Transparency of financial institutions (Survey)
43
Cash flows of companies (Survey)
45
Credit flow to businesses (Survey)
44
Overall productivity: GDP (PPP) per person employed
45
Risk from relocation of production (Survey)
44
Weaknesses (IMD: Bottom 10 of 49)
Infrastructure
Availability of qualified information technology employees (Survey)
49
Inadequate new information technology for business (Survey)
48
Development of e-commerce (Survey)
47
Number of main telephone lines per 1000 inhabitants
46
Interest in science & technology by youths (Survey)
46
Science is not adequately taught in schools (Survey)
46
Total expenditure on R&D Percentage of GDP
46
Strengths (IMD: Top 10 of 49)
Economic Performance Rank
Unemployment rate Percentage of labor force
4
Employment Percentage of population
5
Cost-of-living index
8
Consumer price inflation Average annual rate
10
Strengths (IMD: Top 10 of 49)
Government Efficiency
Effective personal income tax rate (% of GDP per capita)
Employer’s social security contribution rate (% of GDP per capita)
Collected total tax revenues (% of GDP)
Collected capital and property taxes (% of GDP)
Flexibility of Labor regulations (Survey)
6
6
8
9
10
Business Efficiency
Working hours Average number of working hours per year
10
Infrastructure
National culture is open to foreign influence (Survey)
Discrimination does not pose a handicap in society (Survey)
4
8
Large Economic and Social Disparities
• By Education
• By Sector
• By Income
Gross Secondary Enrollment Ratio
80%
70%
60%
50%
40%
30%
20%
10%
0%
1965
1970
1980
1990
1999
Shares of Workforce by Education
1990
1995
2000
2005
2010
Primary and Below
83.8%
77.9%
68.0%
59.3%
50.5%
Lower Secondary
5.9%
8.9%
12.8%
15.3%
15.9%
Upper Secondary
4.7%
6.1%
8.7%
11.8%
15.5%
Tertiary
5.4%
7.0%
10.5%
13.6%
18.1%
Total
100.0% 100.0% 100.0% 100.0% 100.0%
Shares of Agriculture in GDP and Employment
GDP
Employment Ratio GDP/Emp
1971
28.2%
78.9%
35.7%
1975
31.5%
73.0%
43.1%
1980
25.4%
71.0%
35.8%
1985
16.8%
68.4%
24.5%
1990
12.4%
63.5%
19.5%
1995
11.2%
52.0%
21.5%
1999
11.2%
48.6%
23.0%
Income Shares by Quintiles
1962/3
1975/6
1981
1990
1999
Richest 20%
49.8
49.3
51.5
56.5
58.2
Next Richest 20%
21.6
21.0
20.6
20.1
19.4
Middle 20%
12.1
14.0
13.4
11.9
11.4
Next Poorest 20%
8.6
9.7
9.1
7.4
7.1
Poorest 20%
7.9
6.1
5.4
4.1
3.8
Ratio Top 20% to Bottom 20%
6.3
8.1
9.5
13.9
15.2
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
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
Medium Term Outlook
2003
2004
2005
2006
Real GDP Growth
3.8
4.2
4.2
4.7
Inflation Rate
1.8
1.7
1.8
2.0
Total Investment Quantity (% Increase)
5.3
7.8
7.6
7.4
Merchandise Export Growth
4.0
4.0
4.3
5.1
Merchandise Import Growth
5.5
6.6
6.7
7.0
0.54
-1.19
-2.98
-4.58
0.4
-0.9
-2.1
-3.1
4.25
2.71
1.14
-0.11
3.4
2.1
0.8
-0.1
Trade Balance
% of GDP
Current Account Balance
% of GDP