Economic Boom (1986-1995)

Sharp fall in world oil prices  less burden on deficits and inflation Boom (1986-1995) Decade of unprecedented high economic growth: average 9% p.a. (over 10% in 1988 -90) Sharp fall in world oil prices  less burden on deficits and inflation

Lower world interest rates  less debt service burden Boom (1986-1995) Lower world interest rates  less debt service burden Japanese Yen revaluation (Plaza Accord in 1985)  influx of FDI from Japan and NIEs

Boom (1986-1995) High rise in manufactured exports + income from tourism and labor export + less oil import bill  reduce current a/c deficits up to 1989, but the gap widened afterwards

“Structural adjustment” policies (loans from World Bank and IMF): Boom (1986-1995) “Structural adjustment” policies (loans from World Bank and IMF): Promotion of exports (esp. manufacturing) and investment in provincial areas

“Structural adjustment” policies: Boom (1986-1995) “Structural adjustment” policies: Fiscal austerity and debt control Tariff reductions Reduce oil and transport subsidies; oil price float

“Structural adjustment” policies: Boom (1986-1995) “Structural adjustment” policies: Privatization of state enterprises Liquidation Share selling (Thai International Air) Concessions to private sector in telephone, ports, expressways, power, water,… Tax reform: VAT introduced

More export-oriented manufacturing: Boom (1986-1995) More export-oriented manufacturing: Relocation from Japan and NIEs: textiles, electronic, shoes, toys, watches, lenses, car parts Exports of electronic, transport equipment and computer parts surpass textiles and agro-based

More export-oriented manufacturing: Boom (1986-1995) More export-oriented manufacturing: Still highly dependent on imported materials, components and machines (60%-90% of value)

Boom (1986-1995) Financial liberalization in early 1990’s (aim: regional financial hub replacing Hong Kong): Abandon interest rate ceilings Deregulate capital flows and exchange control

Boom (1986-1995) Financial liberalization in early 1990’s (aim: regional financial hub): Offshore banking (BIBF) promoting freer flow of international funds Allow both banks and non-banks to borrow abroad

Boom (1986-1995) High economic growth + massive capital inflows led to speculation in real estate and stock market  “bubble”

Short-term capital flows were more important than FDI Boom (1986-1995) Peter Warr: during the boom, more than half of output growth was accounted for by increases in capital stock (both domestic and foreign) Short-term capital flows were more important than FDI

Boom (1986-1995) Peter Warr: Bank of Thailand’s fixed exchange rate and sterilization policy  high interest rate, real appreciation of Baht, attracting short-term capital inflow (exceeding reserves from 1994 on)