In 1982, Thailand’s economy was ranked the 44th strongest globally, valued at $37 billion according to Country Economy. Now, 40 years later, Thailand has the 29th most robust economy in the world in 2022, with a Gross Domestic Product (GDP) value of $495 billion. For some, an increase like this is an economic success; however, if the economy is not ranked within the top 10, has it been that successful?
What happened during the 1980s in Thailand?
To be ranked as the 29th most robust economy in the world, Thailand undertook a journey involving a period of economic boom, which is a time of high GDP growth rates. Despite that, in the early 1980s, Thailand struggled economically due to a global macroeconomic shock: the 1979 oil crisis. This resulted in a –4.92% annual change in economic growth in 1979, which occurred because of a fall in the rate of the production of goods and services that can be attributed to the high inflation rate of 9.90% as a result of the rising oil prices. However, this period was quickly reversed into an export-driven boom after stimulating demand for Thai exports, which arose from the result of a reduction in the prices for Thai goods and services: a consequence of the devaluation of the Thai Baht (THB) in comparison to the United States Dollar (USD). When the Thai baht decreased in value, foreign countries could buy more THB with the same value of their currency previously, hence why Thai exports were so cheap. This extension in demand for Thai exports subsequently supported an economic boom in the late 1980s, leading towards the start of the 90s. Furthermore, during 1986-1990, there was vast quantities of speculation in the increasing value of speculative goods and services[i] such as stocks and properties; consequently, the value of these assets increased dramatically, which encouraged further investment from Thai citizens and foreign countries and thus increased their GDP value further. From 1986-1990, Thailand experienced immense growth in real GDP, averaging 11% per year. Within this period, their economic growth rate was at its pinnacle in 1989, with a 13.89% increase in GDP. Thus, it was a hugely crucial economic period with a significant increase in GDP and can be regarded as a success. This increase was then carried out at a slower but constant rate throughout the early and mid-1990s until 1997 when economic growth turned negative.
What was the effect on Thailand during the Asian Financial Crisis (1997-1999)?
In 1997, the growth rate in Thailand was –2.75%, after years of consistent positive growth. A financial crisis that caused this started in Thailand, where the 1997 THB was under heavy speculation surrounding the devaluation of the currency. To defend the currency, the government used all its official foreign exchange reserves[ii] to purchase surplus THB, which was protected. THB needed government protection as the government refused to devaluate it due to the negative consequences that could arise from it. After the reserves were fully utilised in July 1997, the Thai government had no foreign exchange currencies to defend the THB. Therefore, this eventually resulted in the official devaluation of the currency relative to the USD. The currency’s value fell from 26 THB for 1 USD, where it was pegged, to 53 THB for 1 USD by January 1997. This led to further issues, and in 1998, growth was at an astonishing –7.63%, resulting from a severe lack of spending within the economy due to the diminishing value of Thai assets, which thus decreased the overall wealth of Thai citizens, disallowing increased expenditure on goods and services. The weak spending power of consumers and the decreased aggregate demand within the economy led to producers supplying fewer goods and services. However, during the crisis, financial aid was provided by the International Monetary Fund, the World Bank, the Asian Development Bank, and governments around the globe, totalling $118 billion for Thailand and other Asian countries. This was designed to support Thailand and Asia in regaining stability and implementing growth back into the economy because the crisis in Thailand splurged across the whole of Asia, leaving countries such as the Republic of Korea and Indonesia in a poor economic state due to close relations with Thailand. In 1999, growth was at 4.57% as a result, highlighting economic stability and an end to the crisis. After a briefly unsuccessful period, Thailand had a successful recovery for the next ten years, allowing growth to occur consistently every year, thus guiding their economy upwards within the global ranks.
What was the effect of the Global Financial Crisis on Thailand?
Thailand was not significantly affected by the Financial Crisis as it didn’t have many ties with the US. Nevertheless, Thailand was still involved in 2008 and the surrounding years, with a more indirect and gradual effect due to declining demand from other primarily affected economies. An example of an indirect effect on Thailand was the number of tourists falling due to a decrease in demand for luxury services such as holidays, as 2008 was a time of high unemployment with falling incomes. Thailand’s tourism spending decreased by $3 billion from 2008-2009, highlighting a significant decline in one of Thailand’s largest sectors. Paired with this, the Thai government were sluggish to act on the US crisis due to the 2008 Thai Political Crisis, thus increasing the negative effect on the economy. Also, in 2008, airports in Bangkok were closed, which caused anxiety around the globe, so sectors within the economy suffered due to a lack of demand to visit Thailand, particularly the tourism industry. Overall, it is estimated that the number of tourists fell by 21% in 2008, contributing to a fall in GDP of $10 billion and a 2009 growth rate of –0.69%. However, a fall of $10 billion in GDP for a country like Thailand was not that significant, meaning that, in summary, the 2008 crisis did not induce a severe and harmful effect on Thailand’s economy, and they were quickly able to recover from it. Therefore, although the 2008 period cannot be perceived as successful, it was not necessarily unsuccessful.
What was the effect of the COVID-19 pandemic on Thailand?
The most substantial “unsuccessful period”, considered by most people of the Thai economy, was most likely the pandemic. Thailand’s economy, like the global economy, suffered a fall in GDP, from a value of $543.98 billion in 2019 to a value of $500.46 billion in 2020. This decline started when the Thai government first implemented COVID-related policies in April 2020, including a full-scale national lockdown, curfews, and a 14-day compulsory quarantine for international tourists. Because of this, tourism-related spending in Thailand fell from $64 billion in 2019 to $15 billion in 2020, a 76.14% decline in tourism spending.
Additionally, Thailand’s % drop in GDP was higher than the global % drop, meaning Thailand struggled more economically than many countries during the pandemic. A factor for this was a sudden stop in tourism-related income and an unanticipated decrease in economic activity, such as a fall in exports. To combat the pandemic, the government reacted boldly and used fiscal policy, borrowing 1 trillion THB to spend on health care and assistance to affected households. This negatively affected the economy because the Thai government focused on other sectors of its operation, such as its social duties. The vast quantity of borrowing increased the public debt-to-GDP ratio to 49.6% in 2020 from 41% in 2019; however, the plan has saved countless lives; therefore, from a social perspective, the government acted correctly. This may not have been economically beneficial initially. Still, it was optimistic for a future recovery because these measures had restored confidence in the government and had opened a new path where people were healed and ready to restart economic activity. Overall, Thailand’s economy was heavily attacked by the pandemic, with a much more difficult recovery needed than in 2008.
Where is Thailand now?
With the reopening of the tourism sector and the demand for exports increasing again, Thailand is likely to sustain economic growth until another external shock hits the Thai economy. Overall, the Thai economy has had unsuccessful periods; however, it has been successful in the general 40-year period. This can be shown in the significant increase in the rank of Thailand’s economy and its vast growth in GDP. The only unsuccessful periods Thailand have had came from external shocks, where it is not necessarily just Thailand which has struggled.
Footnotes:
[i] Speculative goods and services - a good or service such as a stock or asset that has a substantial risk of losing value but potential for large increases in value.
[ii] Foreign exchange reserves - cash and other reserve assets such as gold held by a central bank or other monetary authority that are primarily available to balance payments of the country.
Bibliography:
The Financial Crisis in Thailand: Causes, Conduct and Consequences?
IMF ELibrary - Thailand Economic Growth Since 1950
Asian Financial Crisis: Causes, Response, Lessons Learned
Asian Financial Crisis | Federal Reserve History
The Global Financial Crisis | Explainer | Education | RBA
Thailand and the World Financial Crisis - The Globalist
The financial crisis – 10 years on | Bank of England
A decade on from the crisis – Main responses and remaining challenges
Impact of the coronavirus pandemic on the global economy - Statistics & Facts | Statista
