Regions and Countries

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p. 24 of 47 BACK | NEXT Developing Asia and the Pacific The global economy Newly industrialized economies Central Asian republics, Azerbaijan and Mongolia People’s Republic of China Southeast Asia Cambodia Indonesia Lao People’s Democratic Republic Malaysia Myanmar Philippines Thailand Viet Nam East Timor South Asia The Pacific

Thailand

Economic performance

Economic growth: GDP grew by 5.9 percent during the first half of 2000, but slowed markedly during the second half. For the whole year, the GDP growth rate is likely to be 4.2 percent, the same level achieved in 1999. The recovery during the first half of 2000 was mainly because of strong export performance, the lagged effects of earlier fiscal stimulus, and an accommodating monetary policy. The slowdown was mainly attributable to external and domestic factors, including the steep rise in world oil prices, the slowdown in the US economy, and the national election in January 2001. The manufacturing production index (MPI) increased by 10.7 percent in 2000. However, the industry capacity utilization rate decreased to 55.9 percent in 2000 from 60 percent in 1999.

Employment: The high unemployment rate caused by the financial crisis eased in 2000. According to the latest survey, the unemployment rate declined to 3.2 percent (or 1.1 million people) in 2000, from 4.2 percent (or 1.4 million people) in 1999.

Inflation: Following a year of historically low inflation of 0.3 percent in 1999, consumer price inflation increased by 1.6 percent in 2000, largely because of rising world oil prices and depreciation of the baht (B) against most major currencies. However, the core inflation rate, which is the 12-month increase in consumer prices, excluding food and energy, remained relatively low at 0.7 percent, well within the Bank of Thailand’s inflation target range of 0–3.5 percent for 2000–2002.

Fiscal balance: The Government maintained an expansionary fiscal stance to boost domestic demand, provide liquidity, and establish a social safety net for minimizing the impact of the financial crisis on the poor. For FY2000 (ending 30 September), the government cash deficit was B116 billion (2.4 percent of GDP), down from B135 billion (2.9 percent of GDP) in FY1999.

External sector: The external sector continued to be the main engine of growth, with exports increasing by 19.6 percent and imports by 31.3 percent in 2000. The current account balance continued to be in surplus at $10 billion in 2000. International reserves remained at a comfortable level of $32.7 billion at the end of 2000, or more than two times the short-term debt, and providing about six months of import coverage. Total external debt decreased from $96.3 billion at the end of 1999 to $81.3 billion in November 2000, with the maturity profile shifting toward long-term debt. The share of short-term debt to total external debt declined from 52 percent in 1995 to 18 percent in November 2000.

Domestic policies: The Government launched two economic packages in August and October 2000. The August package focused on supporting rural and community development, and the October package aimed at strengthening the economic and social foundation for long-term sustainable growth. In 2000, overall monetary and liquidity conditions were supportive of economic recovery. To spur domestic demand, the Bank of Thailand maintained a low interest rate policy, keeping the key policy rate (the 14-day repurchase rate) at 1.5 percent per annum. On an end-of-period basis in 2000, the increase in money supply (M2) and M2A (including finance and security companies) was 3.6 percent and 2.2 percent, respectively, compared with 2.1 percent and 1.3 percent at the end of 1999. With high liquidity in the money market, interest rates dropped to low levels, with the interbank rate reaching 1.7 percent in the fourth quarter 2000. The prime (minimum lending) rate declined from 8.2–8.5 percent during the last quarter of 1999 to 7.5–8.2 percent in the same period in 2000. The deposit rate (one-year fixed deposit) declined from 4.0 to 4.2 percent in the fourth quarter of 1999 to 3.5 percent in the fourth quarter of 2000. However, commercial banks remained cautious in new lending. The growth in commercial bank credit to the private sector declined by 10.2 percent at the end of 2000. Financial sector reform is progressing. Nonperforming loans declined to 18.0 percent of total loans in December 2000 from a peak of 47.7 percent in May 1999, but remained relatively large at around B858 billion (about $20 billion).

ADB operations

Operational strategy: ADB’s interim operational strategy for Thailand, which was prepared in May 1999, incorporates major shifts in priorities in response to the financial crisis. It includes three objectives: (i) reduce poverty and improve the quality of life, (ii) engage in macroeconomic structural adjustment, and (iii) strengthen competitiveness to promote efficient and sustainable growth. All ADB projects—except those involving national systems—are to be concentrated in Thailand’s northern, northeastern, and southern areas. These areas are relatively less developed and are where the majority of Thailand’s population lives, including most of the target groups living below the poverty line. This geographic focus will lessen growing disparities within the country and maximize the impact of the poverty reduction program. The strategy further suggests that ADB assistance be focused on the agriculture/rural development, social (education, health, and social welfare), and financial sectors. ADB’s approach links activities in Thailand with those in neighboring countries through subregional economic cooperation initiatives.

Policy dialogue: Policy dialogue with the Government in 2000 led to an ongoing poverty reduction and social protection assessment by the National Economic and Social Development Board and ADB. The assessment will include extensive discussions with stakeholders and facilitate the poverty reduction efforts of the Government and funding agencies. The findings will be discussed at a high-level forum, after which ADB’s strategy and program for Thailand will be prepared. These activities are also expected to culminate in a poverty partnership agreement between the Government and ADB, which will set targets for reducing poverty and establish mechanisms for monitoring progress.

ADB will target agriculture/rural development and education. Technical assistance grants may be provided to support reforms in Thailand’s financial sector, principally in developing capital markets, restructuring specialized financial institutions, and improving the financial framework for small and medium enterprise development. ADB will also engage the Government and civil society in promoting governance, decentralization and multilevel planning, strategic planning, monitoring and evaluation, and management of natural resources and the environment.

Loans and technical assistance: No new loans were approved for Thailand in 2000, primarily because of concerns over the level of public debt in the wake of Thailand’s stabilization and structural adjustment program. In March 2000, ADB approved a $25.0 million equity investment in the Small and Medium Enterprises Investment and Restructuring Fund. The Fund, which has a target of $100.0 million, will invest in promising businesses in need of expansion capital. ADB approved technical assistance grants totaling $2.6 million for six projects, one of which was financed by the Government of Switzerland.

Project implementation: Since joining ADB in 1966, Thailand has received 83 loans, of which 13 were active at the end of 2000. Contract awards totaled $29.2 million, bringing the cumulative figure to $4.1 billion. The contract award ratio was 7.5 percent, lower than the ADB-wide average of 21 percent. Disbursements during the year totaled $130.5 million, bringing cumulative disbursements to $3.9 billion. The disbursement ratio was 18.3 percent, lower than the ADB-wide average of 20.5 percent.

The overall portfolio performance in Thailand is generally satisfactory, comparing favorably with ADB-wide averages for postevaluation findings, project completion report ratings, project performance report ratings of active projects, and cost overruns. Although implementation slowed during the financial crisis, sufficient counterpart funds were provided to avoid any hindrance in implementation from this aspect. Nevertheless, the 2000 country portfolio review indicated the need to shorten the time required from loan approval to loan signing, eliminate delays in contract awards caused by slow recruitment of consultants and slow prequalification of contractors and bid evaluations, and maintain implementation schedules to decrease the need for loan extensions. To help eliminate delays at project start-up, the Government has agreed to improve the implementation readiness of all new projects and minimize the conditions for loan effectiveness.

In April 2000, ADB approved the establishment of a resident mission in Thailand, to be operational by August 2001.

   

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