Bhanupong Nidhiprabha

The Global Financial Crisis and Resilience of the Thai Banking Sector

The Thai economy is vulnerable to external shocks because of its high exposure to trade and capital flows. Despite its adverse consequences on the real sector of the Thai economy in 2009, the global financial crisis had little impact on the Thai financial sector. The healthy performance and resilience of Thai financial institutions can be attributed to the financial reforms undertaken after the Asian financial crisis and the favorable macroeconomic environment.

Effectiveness of Thailand's Macroeconomic Policy Response to the Global Financial Crisis

This paper investigates Thailands macroeconomic policy responses to the global financial crisis in 2009. Empirical evidence found in this paper indicates that fiscal policy is relatively less effective than monetary policy. Tax reduction is more powerful in stimulating output than government spending. Maintaining undervalued exchange rates does not create the output expansion effect. Sustained economic recovery requires growth in the world trade volume and enhanced business confidence.

The Hard Road Ahead for Thailand's Economic Recovery

Globalization leads to the increasing complexity of production networks through foreign direct investment, which transmits demand shocks from the rest of the world to the Thai economy. Short-term fiscal stimulus would not be able to shorten the length of recession unless consumer confidence is restored. Violation of established social obligations and contracts erodes business sentiment and eventually would lead to a negative long-term impact on economic growth. The duration of the recession and the speed of a recovery hinge on the governments ability to restore confidence during uncertain times.

Lessons from Thailand's Fiscal Policy

If rules of fiscal sustainability are observed, available fiscal space permits effective countercyclical fiscal programs. The importance of automatic fiscal stabilizers should not be underestimated. The discretionary impact of increased public spending and tax cuts can be amplified if implemented when consumer confidence investor sentiments are high. There is no evidence to support non-Keynesian effects of fiscal policy in Thailand. Unwarranted fears of unsustainable public debt and ultra-conservative fiscal policy has cost the country a lost opportunity for achieving high growth. After the military coups in 2006 and 2014, the Thai economy experienced the lowest economic growth among ASEAN countries. The budget spent on economic services was diverted into defense, increases in public sectors wages, and income transfer payments. The opportunistic political budget model predicts higher fiscal spending by incumbent democratic governments before an election to gain votes. In the case of Thailand, such spending comes after military coups, akin to a military business cycle spending.

The Buffeting of Thailand by the Unholy Trinity of Avian Inºuenza, Tsunami, and the Oil Price Shock

The analysis of three recent shocks to the Thai economy suggests several lessons for economic management. The adverse consequences of the external shocks dissipate when economic agents adjust their behavior to the new environment. Appropriate policy responses are crucial in shortening the duration of an economys deviation from its pre-shock growth path. Any intervention, either in energy or exchange rate markets, to maintain fixed prices will inevitably be costly and ineffective. Any attempt to cover up a brewing crisis will destroy public confidence, aggravate the situation, and deepen the crisis. Therefore, transparency in economic management is essential.

The Rise and Fall of Thailand's Export-Oriented Industries*

In the past three decades, with the exception of the Asian financial crisis in 1997–98, the Thai economy was propelled by the rapid growth of manufactured exports. There were 18 years of a double-digit export growth, averaging 20.5 percent per year. In 2009, Thailands exports collapsed after the 2008–09 global financial crisis, but rebounded sharply in the following year. Thailands exports growth significantly slowed down in 2011 and 2012. From 2013 to 2016, Thailands exports experienced negative growth. The global recession and Chinas slowdown contributed to the dismal export performance. There was also a supply factor responsible for the negative growth, however. The dwindling level of foreign direct investment (FDI), caused by Thailands political turmoil and pessimistic business sentiment, has diminished export capability and competitiveness. The fall of Thailands export-oriented industries can be attributed to the countrys inability to attract FDI inflows. Some industries that are able to secure continuous flows of FDI remain competitive, whereas others that cannot will progressively retreat from the world market.

Thailand and New Regionalism

The world economy has been increasingly integrated through trade, investment and financial markets over the last three decades. The degree of synchronization of economic activities in the world has become more pronounced. Consequently, developing economies have been adversely affected by fluctuations of the world business cycle. Nevertheless, there is no doubt that high economic growth in developing countries can be attributed to outward-oriented policy which relies on export growth as a driving force. Pro-trade and pro-investment policy has led to continued expansion of industries and increased inflows of foreign direct investment in developing countries. High growth also enables developing countries to successfully reduce their poverty levels.

Economic Growth, Monetary Policy, and Dollarization in CLMV Countries

In the CLMV countries, namely, Cambodia, Lao PDR, Myanmar, and Vietnam, dollarization is a long-term problem that requires long-term solutions rather than quick fixes through forced de-dollarization. The benefits of de-dollarization in enhancing the effectiveness of monetary policy are exaggerated. In the early stages of transitional development, dollarization has promoted exchange rate and price stability, and financial re-intermediation in the CLMV countries. Trade expansion, financial deepening, and consequent economic growth can be attributed to an environment of exchange rate and price stability provided by dollar anchoring. When macroeconomic stability, banking culture, and regulations are firmly established, a gradual de-dollarization process can take place, thereby improving the effectiveness of monetary policy in the long run.

Thailand's Macroeconomic Policy after July 1997

The Bank of Thailand could have eased its monetary policy to prevent a slowdown in 2001. An expansionary monetary policy or budget deficit financed by money creation can spur growth in Thailand during recession, provided the Thai central bank does not intervene in the foreign-exchange market. The baht-dollar exchange rate cannot be disengaged from the yen-dollar rate by central bank intervention in the long term. Monetary policy seems to be more effective than other policy alternatives during the current debt deflation episode in Thailand.