Vital signs returning to Thailand tiger

Vital signs returning to Thailand tiger

By Peter Janssen

BANGKOK (DPA): Bangkok's notorious traffic seems to be back, the stock market is up and wealthy Thais are once again heading abroad for their vacations, but nobody is talking "boom time" yet.

Thailand's economy, the first tiger to catch the Asian financial flu that has plagued the region since mid-1997, is showing signs of a mild recovery.

Two years after the Thai currency was floated on July 2, 1997, the baht has stabilized between 36-37 baht to the dollar, compared to its post-devaluation low of 56 to the greenback in January 1998.

The Stock Exchange of Thailand (SET) has almost doubled its value in recent months, with the index reaching a high of 545.91 on June 22 compared to its low point of 313.65 on Feb. 11.

Thailand's current account should reach a surplus equal to 8.6 percent of gross domestic product (GDP) this year, compared to an 8 percent deficit in 1996. Foreign reserves have risen to US$30 billion, compared to $800 million two years ago, and foreign debt has dropped to $82 billion compared to $93.4 billion in 1997.

Inflation is down from 8 percent last year to minus 0.5 percent this year.

So much for the good news.

Thailand's export sector, the kingdom's economic engine of growth for the past decade, is sputtering at best. During the first five months of 1999 exports inched up 0.2 percent to reach $22.33 billion, compared to the same period in 1998.

Thai Finance Minister Tarrin Nimmanhaeminda is conservatively projecting a 1 percent increase in GDP this year, compared to the 8 percent contraction of 1998.

Tarrin acknowledged in a recent speech that the main challenges ahead for Thailand are to attract new foreign investments, encourage consumption at home and maintain its International Monetary Fund-inspired reform agenda.

In an effort to kick-start the economy, the government on March 30 launched a $3.5 billion economic stimulus package that aimed to boost consumer spending and create almost half a million jobs.

Many feel the plan, while perhaps stimulating short-term consumption, has failed to address Thailand's long-term problems of declining competitiveness and flagging production.

"I don't buy it," said Nimit Nontapunthawat, chief economist of the Bangkok Bank. "You cannot expect an increase in consumption without an increase in real income."

With exports slack and excess capacity in nearly all sectors, hopes that new investments will bail Thailand out of its recession also seem far-fetched.

During the first five months of this year new applications for investment privileges at the Board of Investment (BOI) amounted to 67.7 billion baht ($1.8 billion), about half of the 125.6 billion baht worth of applications during the same period in 1998.

Most direct investment since 1997 has been the buying up Thai equity in existing companies. The BOI, which relaxed regulations on foreign majority holdings in promoted firms back in 1997, says that some 267 joint ventures have bought out their Thai partners.

The relaxation on 100 percent foreign ownership of BOI- promoted firms may have actually strengthened some "Thai" industries.

For instance, 100 joint ventures in Thailand's automobile parts and components sector are now majority Japanese owned.

"Either we could have let them fail or let the Japanese take them over," said BOI Assistant Secretary General Chakramon Phasukavanich, one of the main players behind Thailand's effort to become the "Detroit of the East".

"If you don't have the parts and component industry how is an automobile industry possible? When the Japanese take over they have to keep the company alive, they have to export back to Japan or to a third country," notes Chakramon.

Thailand's automobile sector exports were one of the few bright spots in the picture this year. During the first five months of 1999 Thailand's automobile industry exports amounted to 16 billion baht ($432 million), a 40 percent jump over the same period last year.

But except for the automobile sector and Thai banks, other industries have been slow to restructure, partly because debt restructuring has proven a slow process and partly because of the difficulties of mass layoffs in a country which has no social security system to cushion joblessness.

The process may accelerate once Thailand's new Bankruptcy Court, launched on June 18 as part of the reform package, gets into gear and corporate debtors face a higher likelihood of losing their assets if they don't pay back debts.

Competitiveness on the world market remains Thailand's main challenge two years after the crisis broke. The country's wages are much higher than China's, its education system remains backward and its political system is inefficient and lacking in long-term economic vision, beyond the next general election, said economist Nimit.

"This recession will be a long one," he predicted. "What we need is some long-term, heavy spending on infrastructure like the U.S.'s Tennessee Valley Authority during the Great Depression."