1 - The Resilience of the Thai Economy

Summary

INTRODUCTION

The Asian currency crisis that followed Thailand's decision to float the baht in July 1997 has become a chapter in the history of Thailand's economic development. We have learned a great deal about what went wrong and what could have been done to prevent the crisis. Pundits warn that history might repeat itself and that we might experience another crisis in the near future, because Thailand has not completely restructured the economy to prepare for the next crisis. Economists are sceptical about the benefits of the pork-barrel spending of the government and fearful of enlarging public debt. It is argued in this chapter that there exist certain mechanisms in the structure of the Thai economy that would lessen the impact of the next economic crisis, if any, whether the shock is internal or external. It is impossible to rule out various shocks in the future such as oil price hikes, realignments of major currency values, or some other kind of crisis contagion. This chapter argues that these shocks would not have a long-lasting impact and that they would simply reduce Thailand's economic growth temporarily below a stable growth path. The Thai economy is resilient enough to regain its pre-shock growth path in a few years' time, just like it worked itself out of recession in 1998.

This chapter provides an analysis of the underlying changes in the structure of the Thai economy that help Thailand to recover immediately after a year of economic crisis. Some of the structural changes have been adopted after the crisis along the lines of the second-generation reforms; some of them have been developed over several decades through appropriate policy implementations similar to policy prescriptions by the Washington Consensus. The next section explores the relationship between growth, price stability, and the sustainability of current account by analysing the trend of the saving-investment gap.