Steven 20123102
Class 1 2013-01-05

Economy of Thailand

The economy of Thailand is a newly industrialized, highly export-dependent economy. In 2011, Thailand’s exports account for more than 60% of its total GDP. Also in 2011, The World Bank has upgraded Thailand’s income categorization from a lower-middle income economy to an upper-middle economy. Thailand develops successfully over the last decade, with constant economic growth and strong poverty reduction. Due to well-developed infrastructure, open foreign investment policy, strong manufacturing industry, and principles of free trade. Thailand becomes one of the most resilient economies.
The agricultural sector plays an important role in the economic development of Thailand. The Thai government has opened its market to international trade. During the 1980s, the agriculture used up nearly 70% of the employment. From 2003 to 2011, Thailand’s agricultural percentage of the GDP has increased from 10.3% up to 12.1 %, with a little decreasing both from 2006 to 2007 and from 2008 to 2009. Thailand’s agricultural development has started since 1960s when large amount of new land and unemployed labor became accessible. According to the Food and Agriculture Organization of the United Nations (FAO), Thailand was the second largest exporter of agricultural products among Asian countries in 2004, with a 27.1% share of world’s rice export.
Due to numerous government policies, agriculture in Thailand has been growing prosperously. In 1966, the Thai government established the Bank for Agriculture and Agriculture Cooperatives, aiming to supply credit. In 1975, the central bank of Thailand required that a minimum of 5% of all bank loans should be allocated to agriculture. This minimum value also increases to 13% by the mid-1980s. Also, since the mid-1997 Asia financial crisis, Thai government has been signing bilateral free trade agreement with both developed and developing countries. The government also removed some tariff and non-tariff measures and created a more open market so that the free trade agreement can fully expand international market and stimulate domestic economic growth.
The agriculture development in Thailand is indisputably successful, but unavoidably, agri-business also faces various problems: the degradation of the quality of soil; the productivity of small farmers; the availability of seed and irrigation; the pollution of waters et cetera. What is more urgent is that small farmers are becoming worse-off under free trade because they lack in the access to market. Thus, government policies should focus mainly on technological development of agriculture as well as rural infrastructures. Small farmers need to have easier access to modern agricultural technology to produce efficiently with high quality. Furthermore, government should enact policies that will ensure a fair distribution of income and a social welfare system that will benefit especially small farmers. Other than agricultural sector, both manufacturing and service sectors are the two main branches in Thailand’s gross domestic product. Its secondary sector (manufacturing) accounts for 39% of Thailand’s GDP. From 2003 to 2011, Thailand’s manufacturing sector grows constantly up to 35% in 2011. The growth in the manufacturing sector is stimulated by the large export demand. Since the labor cost the China begins to rise, many companies moved their factories to Thailand, which also stimulates Thailand’s economy.
After the 2008 financial crisis, thanks to Thailand’s large manufacturing sector, Thailand’s economy was able to rebound, growing by 8.1% in the year of 2010 with GDP rising above pre-crisis level. Other than manufacturing sector, the services sector grows substantially, accounting for nearly 40% of the national employment. Also, the service industries in Thailand provided more than 2.6 million jobs from 2002 to 2007.
The success that appeared in both manufacturing and service sectors was due to government’s effective policies. Over the past two decades, Thailand’s manufacturing sector has made significant progress due to its technology development and government initiatives. Moreover, the government advocates a free enterprise system and welcomes foreign investments. Some of the investors who can meet the governmental requirements can even enjoy certain privileges.
Thailand also has become a center of automobile manufacturing in the Southeast Asia, which also stimulate the domestic steel production. However, as the service sector becomes the most important contributor to the total GDP, employing over 11 million people, the service industry has its own problems. Only a small amount of those people are formally trained, which leads to the decline the service quality. Large amount of those lower to middle level employees have less access to higher education due to financial limitations.
Thailand successfully rebound after the 2008 financial crisis, but the flood that happened during June to November 2011 has significantly impacted Thai’s economy. The output had decreased 11% quarter by quarter in the same year. This flood has affected 60 if the 76 provinces, impacting nearly 8 million people. The flood also severely influenced Thailand’s manufacturing industries, forcing many big industrial estates to close. All nine of the Japanese car manufacturers’ car production was forced to suspend by supply shortage. The Federation of Thai Industries estimated that the damage and the loss have cost nearly $46 billions of dollars. The close of factories led to short in export supply. Thai’s promising economic growth in 2011 was also stalled because of the flood.
Surprisingly, Thai’s economy expanded unexpectedly as the factories and productions were revived, as the GDP increased by 0.3%. Thailand’s economy still remained solid after the flood due to high global need for Thailand’s supply and high foreign investments. Also, the fully recovered tourism stimulated Thai’s economy. Government certainly played an important role in the post-flood recovery.
The Bank of Thailand had eased the interest rate down to 3% in order to facilitate the recovery after the flood. The government further allocated nearly 12.6 billion USD worth of loans to help the damaged industries. Moreover, the Thai government implemented what’s called the Reconstruction and Future Development Strategy Framework to create confidence, competitiveness and a sustainable future.
The government plans to invest more than $72 billion USD on constructing many large-scale infrastructures in 2012 to 2016, which ranks first among ASEAN countries in terms of project value. Also, Thailand welcomes the active participation of Japanese companies in future Public-Private Partnership (PPP) projects. The recent flood gives Thailand an opportunity to restructure its economy, thus making Thailand a more attractive investment destination.
Thailand’s economy becomes more disaster-resilient and disaster-responsive after the flood. In the post-flood, second quarter of 2012, the unemployment rate is only 0.85%. Thailand thus becomes the third lowest unemployment rate country of the world. The government now focuses on an environment-friendly economy through more efficient use of land, technological innovation, competitive improvement of its key sectors et cetera. The World Bank has recognized Thailand as one of the most successful development success stories. Thailand’s strong and resilient economy is now expanding considerably.