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Annual Report 2001

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Thailand

Economic performance

Thailand’s economy grew by 1.8% in 2001 as exports continued to weaken. The manufacturing production index (MPI) subdued as a result of the global slowdown. While MPI for export-oriented industries (exporting more than 60% of total production) shrunk by 11.4%, the MPI for the domestic-oriented industries expanded by 13.2% in 2001. Major declines were noted in the production of electrical and electronic appliances, and food. The industrial capacity utilization rate slightly dropped to about 54% in 2001, compared with 55.9% in the previous year. The services sector posted a 2.6% growth during the year, while agriculture sector growth dropped to 1.5%. On the demand side, private consumption expenditure grew by 3.5% in 2001, while the government consumption expenditure increased slightly at 1.9% in 2001. Private investment demand increased by 5.1%, while trade balance declined from $5.5 billion to $2.5 billion. Of a total labor force of 34.9 million, 34.2 million or 97.9% were employed in 2001. The unemployment rate during the same period at 3.4% was largely unchanged from the previous year (3.6%), reflecting strengthened domestic demand. CPI inflation remained almost unchanged at 1.6% in 2001. For FY2001, the Government registered a budget deficit of 136.1 billion baht or about 2.7% of GDP. In 2001, the trade surplus narrowed to $2.5 billion as merchandise exports contracted by 6.9% (in dollars). The decline in exports was across the board, reflecting the impact of the global economic slowdown and causing a substantial decline in current account surplus to $6.2 billion in 2001, from $9.3 billion in the previous year. Even with the narrowing of the current account, estimated tourism revenues recorded an increase of 3.6% in 2001. Gross official reserves rose slightly to $33 billion at end-December 2001 from the previous year.

ADB operations

Operational strategy: A new country strategy and program (CSP) is being prepared. The CSP Update, presented to ADB’s Board of Directors in August 2001, called for a reevaluation of ADB’s strategy and program in response to the constitutionally mandated steps toward decentralization, and the objectives of the newly formulated Ninth National Economic and Social Development Plan (2002–2006). The CSP Update observed that as a consequence of the crisis, the incidence of poverty in Thailand rose, and that serious long-term challenges, such as gaps in the country’s competitiveness, remained. In this context, the CSP Update noted the importance of supporting inclusive social development, promoting rural development, and deepening the competitiveness of Thailand’s economy. ADB’s strategy in Thailand will also continue to emphasize the benefits of subregional economic cooperation. ADB’s ability to meet Thailand’s development objectives will depend on an effective partnership with the Government. However, effective operations will also depend on support ADB will receive from target communities. ADB’s strategy will complement and support initiatives that have originated from within the Thai society itself.

Policy dialogue: Through technical assistance to the National Economic and Social Development Board, ADB supports poverty reduction strategies articulated in the Ninth National Economic and Social Development Plan. As part of ADB’s strategy formulation process, a participatory poverty study for Thailand is being undertaken. ADB also helps strengthen governance in Thailand by supporting constitutionally mandated accountability mechanisms. Support for capital market development focuses on specialized financial institutions. In the financial sector, ADB continues to assist in examining options for pension reform. In the agriculture and environment sectors, ADB supports Thailand’s initiatives for cost recovery of irrigated water, leading to the integrated management of water resources at the national level.

Loans and technical assistance: No public sector loans were approved in 2001. In October 2001, Thailand’s foreign currency borrowing ceiling was $2.2 billion, the lowest ceiling in 8 years. The reduction seemed, in part, to reflect concerns over the rapid accumulation of public sector debt and, in particular, foreign currency debt since the crisis in 1997. ADB approved an equity investment of $25 million in a private equity fund to help Thai companies recover from the Asian financial crisis of 1997–1998. Also in 2001, ADB approved seven technical assistance grants worth $2.7 million: one for preparing the North-Northeast Region area development project, and six were advisory assistance for a participatory assessment of poverty in Thailand, an independent inspection of the Samut Prakarn wastewater management project, developing an agriculture sector strategy and policy, planning for sustainable urbanization, strengthening accountability mechanisms, and supporting an international conference on Monetary Outlook on East Asia in an Integrating World Economy.

Project implementation: Since joining ADB in 1966, Thailand has received 83 loans, of which 10 were active at the end of 2001. Contract awards totaled $20 million, bringing the cumulative figure to $4.1 billion. The contract award ratio was 6.4%, lower than the ADB-wide average of 14.8%. Disbursements during the year totaled $139.0 million, bringing cumulative disbursements to $4.0 billion. The disbursement ratio was 26.5%, higher than the ADB-wide average of 20.5%.

During the country portfolio review, the Government agreed to promote implementation readiness for new projects by assigning government counterpart staff to work more closely with ADB missions. The Government also agreed to consider allowing unutilized counterpart funds to carry over to the following fiscal year to ensure availability of project funding.

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