Solid Freeform Fabrication Laboratory Yoon, Chan April Powder delivery system Kingdom of Thailand: Strategies to Achieve Sustainable Economic Growth Tetsuya Uetake, Hye jin Lee

Overview: Economic Crisis in late 1990s  There were financial liberalization and abolition of interest ceilings in the early 1990s.  The interest rate kept high.  High interest rate attracted a massive capital inflow.  The US dollar appreciation led Thai baht to be overvalued.  The series of events put downward pressure on Thai baht.  A fixed exchange rate was replaced with a floating one.  A huge amount of capital flowed out of the country.  There was the dramatic depreciation.  Economic recession and the IMF reforms.

Overview: Recent Events in Thailand ( )  Tsunami severely hit southern coast provinces.  Political unrest in southern areas  Prolonged drought, leading rice crop to fall.  Military coup occurred, exiling the former Prime Minister Thaksin Shinawatra.  Restrictions on foreign investment by the Bank of Thailand.

Recent Macroeconomic Trends: GDP  The GDP growth rate has decelerated.  There was a slowdown in C and I due to negative internal events and rising interest rate.  The high interest rate raised the value of the baht.

Recent Macroeconomic Trends: Unemployment & Inflation Year 1998  The unemployment and inflation have been stable.  There is a tradeoff between inflation and unemployment.

Recent Macroeconomic Trends: Exchange Rate  In 1997, Thailand introduced a floating exchange rate system and the baht depreciated dramatically.  However, since then, the baht has appreciated because of high interest rates, economic growth, etc.

Recent Macroeconomic Trends: Current & Capital Accounts  Before the economic crisis, capital account was in surplus because of high interest rate.  After the economic crisis, there was a huge net capital outflow, which led to a capital account deficit.  However, in 2004, the capital account became surplus because of recent high interest rate and increasing imports.

Recent Macroeconomic Trends: Current & Capital Accounts (2)  The dramatic depreciation in 1998 caused a large increase in exports (24%) and decrease in imports (8%).  Exports have increased since 2000, but slower than the imports, which caused a current deficit in 2005.

Recent Macroeconomic Trends: Interest Rate  Before the economic crisis, the interest rate was much higher than other Asian countries.  The money supply increased between 1997 and 2004, which led to a decrease in the interest rate.  Since 2004, the interest rate has increased due to high country risk.

Problems with Current Thai Economy  Bath appreciation  Current account deficit  Short-term investment  Decelerating GDP growth

Recommendations: Short-rum policy (1)  Assumption of a small open economy  Relatively high interest rate  Above the balance of payment  Floating exchange rate

 Expansionary monetary policy will stabilize both interest rate and exchange rate, and increase output. Recommendations: Short-run policy (2)

 Increase saving rate 35.4% (1995) → 28.8% (2005) Maintain government budget surplus From 1997 to 2002 : deficit → 2003: surplus  Establish legal institutions and capital market Stabilize the politics : the military coup in 2006  Invest in human capital Focus on education Policy Recommendation: Long-run (1)

Human capital Policy Recommendation: Long-run (2)

Policy Recommendation: Long-run - Solow Model (3) - Solow Model Capital per effective worker, k Output per effective worker, y Investment Break-even Investment s 0 f(k) f(k) ( δ +n+g)k k 0 y 0 s 1 f(k) y 1 k 1

Achieve Sustainable Economic Growth Policy Recommendation: Conclusion Thank you Question?