Reflections on the Thailand crisis.
Reflections on the Thailand crisis.
Thailand made serious policy mistakes but they will learn from these. Many of Thailand's problems were attributed to 'bad governance'. Here is chapter review of a recent book on the Asian crisis.
Thailand's prospects in the aftermath of the Asian crisis
Before the economic crisis hit Asia the World Bank cited Thailand as the fastest-growing economy of the decade. The International monetary Fund predicted that Thailand's economy would grow to be the world's eighth largest by 2020. By late1996, however, the crisis was unfolding. Many of Thailand's problems were attributed to 'bad governance'. Good governance can be defined as "the existence of mechanisms and legal frameworks that ensure transparency, accountability, financial prudence and good management and accounting practices, and sound policy. Political reform is hailed as the key component of establishing good governance. There now exists a strong awareness of the potential damage corruption and scandal can inflict. The passage of the new constitution in 1997 marks the beginning of Thailand's attempts at political reform. There have also been calls for reforms in the country's education system, public sector and development strategy. In the aftermath of the crisis the economic adjustments and the conditions imposed by the IMF (namely, reduction of current account deficit together with fiscal and monetary discipline) will probably increase unemployment and depress wages. These conditions will contribute to a medium term rise in living costs. Several steps already taken to rehabilitate the economy and financial sector should have positive effects on trade and business. Already the inability to attract long term capital inflows and the problem of a lack of mature and liquid debt markets is being addressed. The establishment of a liquid government and corporate bonds market is hailed as a step in the right direction. The private placement of new debt issues or syndicated loans will help to mitigate Thailand's appalling credit rating. Encouraging the use of debt instruments is hoped to make firms less dependent on bank loans and the stock market for their financing. The strengthening of bankruptcy rules will enforce non-viable companies to close. Furthermore new legislation dealing with debt-ridden businesses will offer them an opportunity to recover. Meanwhile companies are beginning to restructure out standing loans and expenditures and to recapitalise. Many companies exhibit strong future prospects but are currently lacking liquidity. Times of hardship force companies to become more competitive and efficient. Some companies are restructuring by for example introducing new products, undergoing mergers or acquisitions or increasing efficiency. Industrial deregulation and policy shifts may also act to increase the attractiveness of certain sectors. Certain companies may benefit from the weak exchange rate whilst strong cash flow firms may emerge even stronger. Furthermore some companies are beginning In an effort to seduce back foreign investors the Financial Restructuring Authority (FRA) and Asset Management Corporation (AMC) are giving favorable treatment to foreign creditors. In the effort to encourage foreign banks to take over ailing institutions the government has shown willingness to share the cost of writing off bad loans. However, deep rooted problems still remain and need to be addressed. The removal of foreign exchange controls has boosted investor confidence and has led to gains in the stock market and currency value. Even though the situation is still volatile the opportunities for foreign investors looks promising. Analysts tend to advocate investing in depressed markets with selective investment being the key. The enhancement of supervisory and regulatory systems as well as auditing and accounting standards creates opportunities for foreign accounting firms. Good investment options tend to be companies restructuring for recovery and increasing their competitive edge. In Thailand R&D expenditure dropped from 0.22 % in 1987 to .18 % in1993. This has hindered higher technology production or information intensive production. Changes however are taking place with the establishment of a technical development fund and tax benefits. These unfortunately are open to abuse. With weaknesses in human resource development Thailand still remains highly dependent on imported technology. A possible overhauling off the education system will open up further opportunities. It is certain that amongst the current difficulties there are bargains to be found in both the stock market and real sector. It is likely that the country's industrial and agricultural base will be strong enough to initiate a turn around once the problem of equity has been eased. Surviving companies are set to benefit from a better-regulated business environment. Chemicals, agriculture and export orientated companies are all in good positions.
This is a review of a chapter on Thailand, in the book of: T. Van Hoa & C. Harvie (2000) The causes and Impact of the Asian Financial Crisis. Best Regards,
Paul A. Renaud
