Thailand the Struggle for Success - Essay Example

Thailand: The Struggle for Success- Policies and Decisions The following paper discusses the study of Thailand as the case of economic policies as far as the realms of trade, investment and other government policies are concerned. The journey of Thailand through the pre and post financial crises era will also be discussed. The core reason for the crises shall also be touched upon. The Period of Industrialization: 1960-1996 As far as the globalization of Thailand’s economy is concerned, it dates back to nearly as old as 1960s when the world did just get to know about the definition of globalization. This was possible due to the Thai government’s five year policy regarding the import substitution policy to introduce industrialization in its heavy agrarian economy. The import substitution policy was then replaced in the mid-1970s with the policies to boost exports. The impact of this shift in policy meant that not only Thailand now had a strong agrarian and industrialized economy but it also diversified in a sense that its economic structure became export led which had a portfolio as diversified that it included textiles, electronics, chemicals, iron and steel and minerals. One of the reasons for this diversity in the portfolio was the abundance of labor and natural resources. Thus, Thailand took complete advantage from globalization and its economy reported a growth in its average real GDP of 6.6% from 1960 to 1996 (The Brooker Plc p.8-9). This growth is the average growth rate in these years, there were also years in which Thailand witnessed exponential growth rate in terms of GDP and until 1997, Thailand was all set become the regional hub of the business and commerce activities in the region. The impact of 1997 Asian Financial Crises on Thailand: Before 1997 Thailand implemented a policy of fixed exchange rate. Its exchange rate was pegged against dollar. This effectively reduced the transaction costs attached with the inflow and outflow of investments. This obviously resulted in speedy growth as a result of foreign direct investment. Unfortunately the lack of foresight and anticipation on the part of Thai government led to the settlement of an economy which was heavily dependent on this direct investment. This policy saw its negative ambiance when in 1997 the investors lost confidence in the recoveryof their investments and thus began to keep a check on their investments. The trigger down effect led to heavy speculations against baht and the local investors sold baht and bought more dollars. This caused the capital outflows from the country. But the real impact was felt when the government decided to float the exchange rate. Thailand felt a sharp outflow of capital and baht depreciated and the economic crises worsened. The integrated nature of the financial markets resulted in the transmission of the economic crises to the neighboring nations like Indonesia, Malaysia, Philippines and South Korea (Dave, 1998). International Monetary Fund then reacted and proposed some actions in order to recover Thailand from the crises. These policies included raising the interest rates and cutting down on government spending. But these policies could not have a positive impact on the situation. The reason was that raising the interest rates meant that the overall consumption decreased which negatively affected the concept. The Recovery Phase: 2001-2006 From this point onwards the government decided not to have a significant reliance on foreign trade and investment and instead boosted the domestic demand. To implement this, the government reduced the interest rates to encourage consumption. The inflation rate was closely watched over and in this the export led strategy was bolstered. This was effective in the recovery procedure for the Thai economy and it was able to pay off the IMF loans two years before the actual date. After the stabilization of the economy, Thailand practices what is known as a dual track policy which meant that it kept on stimulating domestic demand and also became an active participant in international trade with promoting open markets and foreign investments (Pawin et al, 2005). It also became involved in various trading blocs such as Association of South East Asian Nations (ASEAN) and Asia-Pacific Economic Cooperation (APEC). It is now on the road for developing free trade agreements and strengthening economic cooperation across the globe. For example, it signed a recent trade agreement with Australia and New Zealand to gain access to that continent. Moreover, it is constantly in touch with economies like USA and japan so that it can gain access to their markets and gain benefits of the rising economies. When it comes to economic growth post the financial crises era, Thailand witnessed an economic growth of 6.2% on average between the years 2002 to 2004. This growth can be considered remarkable especially when the financial crises of 1997 are kept in mind along with the 2004 tsunami which caused a major devastation in the Asian countries both physically and economically. The dual track policy has been reaping results with the domestic consumption accounting for 3.4% and investment accounting for 2.9% of the GDP. These may not be huge figures but certainly show that Thailand is now entering into healthier and balanced economic structure. Foreign Investment and Policy: Thailand’s investment policies remain liberal and in accordance with the free trade argument. It allows the foreign investors to own up to 100% of their investments in Thailand in many areas and parts. The 1999 Foreign Business Act (FBA) is the policy responsible for this position. Since 2000 this position has been more liberalized and the investing opportunities have been free from any local or provincial requirements. Also, the land ownership requirements have also been relaxed (Pawin, and Pimchanok 2005 p.60-64). Although there are certain restrictions but it is clearly visible that Thailand is opting for a relaxed investment policy but to keep a check on the any crises that may hit the country, it is also diversifying itself on the domestic demand. The current foreign policy of Thailand is such that it wants to be the economic hub in the region and wants a contribution and integration in the business activities in the region. Not only this, it also wants to have fruitful relationships with the tiger economies so that the political relationships and international friendships can be utilized for the economic returns which can benefit all the trading partners. After The Floods: It becomes essential to highlight the tsunami of 2004 because perhaps no other economy is as dependent on tourism as Thailand. All the beautiful locations of the country were washed away and thus, a major source of revenue and inflow of foreign exchange was cut down by the floods.Not only this, the floods caused the economic activities in the country to come to a halt because repairmen of the physical damage was the first priority of everyone including the government and the private sector. Thailand was committed to regain its status as the top holiday destination as prior to the floods. For this, the government paid special attention to the rebuilding of the infrastructure and the facilities so that the arena could be developed once again. The special emphasis was also on the promotion and advertising campaigns so that the people could be made aware that Thailand was rebuild and it was completely safe to go for a holiday in the country. Conclusion: Thailand’s economy has seen many upturns and downturns in its story of growth. The economic policies have also seen many shades and positions in this regard. The pre financial crises era saw the emergence of export led trade policies with a fixed exchange rate and a heavy reliance on direct investment to boost local production and thus industrialization. But the financial crises of 1997 was an eye opener for the government of Thailand which was brought about by the decision to float the exchange rate in the midst heavy speculation and depreciation of baht. But the government recovered and then balanced out its investment policies on both foreign and local investors eachequally important to balance out the other in the time of crises. Furthermore, the economic implications of the flood of 2004 were also felt negatively by the country but it was able to regain its status as the premier holiday destination of the region. Its aim is to be the regional leader as far as the economic and business activities are concerned with the help of the formation of trading blocs with countries both inside and outside the region. Thus, the impact of foreign policy can also be seen in the advancement of Thailand. References: (2005). Thailand Rebuilds After the Tsunami. PBS News Hour retrieved from http://www.pbs.org/newshour/bb/asia/july-dec05/tsunami_11-21.html. Pawin, T. and Pimchanok, V. (2005). Trade Policy in Thailand Pursuing a Dual Track Approach. ASEAN Economic Bulletin Vol. 22, No. 1 (2005), pp. 60–74 retrieved from http://www.thailandwto.org/Doc/Research/Res/Trade_policy_of_Thailand.pdf. How the IMF helped create and worsen the Asian financial crisis- http://www.essentialaction.org/imf/asia.htm. Dave Farber (1998). THE ASIAN FINANCIAL CRISIS----HOW AND WHY IT HAPPENED. Retrieved from http://www.interesting-people.org/archives/interesting-people/199809/msg00003.html. Foreign Direct Investment: Performance and Attraction- The Case of Thailand. The Brooker Group plc. Retrieved from http://www.imf.org/external/pubs/ft/seminar/2002/fdi/eng/pdf/brimble.pdf Read More