What Should We Learn from the Crisis
Experiences of Individual Countries?
What Are the New Challenges?
Dr. Bhasu Bhanich Supapol
Fiscal Policy Research Institute, Thailand
ADBI-REITI Symposium on “Ten Years After:
Learning from the Asian Financial Crisis”
ADBI Institute, Tokyo
29 June 2007
Fiscal Policy Research Institute
Outline
„
Overview of the Thai Economy: 10 years after
the crisis
„
Thailand’s crisis management strategy and
consequences
„
Additional factors contributing to the recovery
„
The challenges ahead
2
Fiscal Policy Research Institute
Thailand: Real GDP
4,500
Phase I
Phase II
Crisis Management
Recovery Management
4,000
(B illio n B ah t)
3,500
3,000
2,500
2,000
1998
-10.5
1,500
GDP
1,000
Inflation
500
-0
8.1
2006
GDP
4.6
Inflation
4.6
C/A
12.8
C/A
- 2.5
Debt/GDP
69.9
Debt/GDP
33.0
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
3
Fiscal Policy Research Institute
THA: GDP (USD) vs. GDP (REER adjusted)
250.0
Billion US D
200.0
Phase I
Phase II
Crisis Management
Recovery Management
150.0
100.0
GDP
1998
-10.5
Inflation
50.0
2006
8.1
GDP
4.6
Inflation
4.6
C/A
12.8
C/A
- 2.5
Debt/GDP
69.9
Debt/GDP
33.0
0.0
1990
1992
1994
1996
1998
GDP (REER adjusted)
2000
2002
GDP (USD)
2004
2006
4
Fiscal Policy Research Institute
Thailand’s Monetary policy and management phases
- Stabilizing the exchange rate Monetary
aggregates
%
30
Fixed exchange rate
25
20
Inflation
targeting
Baht/USD
Phase II:
Expansionary monetary policies
Phase I:
60
55
• Reduced interest rates
Tight monetary policies
• Financial sector restructuring
• High interest rates
• Restore confidence
• Closure of fin. inst.
50
45
• BIS CAR
40
15
35
10
30
5
25
0
20
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Interbank Rate
Exchange rate (Baht/ USD)
5
Fiscal Policy Research Institute
Supporting the recovery – the conduct of fiscal policy
Phase I.: Bubble
1,200,000
Phase II.: Deficit to stimulate
Demand
Phase III:
Balance
Expenditure
1,000,000
Revenue
Supply
Management
800,000
• Poverty
600,000
Demand Management
200,000
Fiscal
Balance
• Competitiveness
• Govt. Reform
Fiscal Deficit
400,000
• Quality HR/Social
Fiscal
Finance
0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 p
-200,000
6
Fiscal Policy Research Institute
Thailand : Key Policies in Demand Management Phase
„
Refuse to increase tax (VAT to 10%) for fiscal balance but
reduce some specific tax rates to stimulate demand
„
Restoring fiscal discipline – Fiscal Sustainability Plan
„
Fiscal finance policy – due to excess liquidity in the financial
„
Stimulating the real estate sector (not allowing the market
„
market and dysfunction of the banking sector
¾ Choices: External borrowing vs. Excess liquidity
¾ Choices: Consumption spending vs. Loans for investment
Village Fund/ People’s Bank/ SME Loans/SML funding
price to sink to the bottom)
¾ TAMC homes for civil servants, Fee reduction for of real estate
deed transfers
Expanding the export bases via FTAs
7
Fiscal Policy Research Institute
Additional factors contributing to the recovery:
(1) External factors
Annual Global GDP Growth Rate (% YoY)
World GDP and Inflation
8.00
%
World GDP
7.00
World Inflation
6.00
5.00
4.00
3.00
2.00
1.00
0.00
1996
1997
Imports of China from the various regions
1998
1999
2000
2001
2002
2003
2004
2005
2006
China’s Trade
Billion USD
100%
1200
80%
1000
60%
Total exports
Total imports
800
Asia accounts
for approx.
60%
20%
0%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Asia
Africa
Europe
Latin America
North America
Oceania
600
400
200
0
8
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
40%
Fiscal Policy Research Institute
Factors contributing to the recovery:
(2) Internal factors
„
Sudden drop in capacity utilization after the crisis
„
Free productive capacity to serve domestic demand and exports without
new investments
5 0 .0
50
2 0 .0
CUR (%)
Demand Management
40
4 0 .0
3 0 .0
1 0 .0
30
0 .0
20
Supply Management
10
- 1 0 .0
C a p a c i ty U ti l i za ti o n
G D P G r o w th ( % )
Q3/2005
Q1/2005
Q3/2004
Q1/2004
Q3/2003
Q1/2003
Q3/2002
Q1/2002
Q3/2001
Q1/2001
Q3/2000
Q1/2000
Q3/1999
Q1/1999
Q3/1998
Q1/1998
Q3/1997
- 2 0 .0
Q1/1997
0
GDP (%)
Sudden drop in capacity utilisation after the crisis
80
1997Crisis
Free
productive
capacity to serve domestic demand and export
70
without
the new investment
60
90
¾
GDP Growth (%) and Current A/C per
T h a ila
n d 's F u Capacity
ll C a p a cUtilization
ity S itu a tio n
Thailand’s
C u rre n t Ac c o u n t a s % o f G D P
Strong exports + low investments +low imports → C/A surplus, ↑ int’l reserves +
domestic policies/reforms ⇒ the recovery
9
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The challenges ahead :
The crisis is over.
Now, how to manage supply amid the
global imbalance?
10
Fiscal Policy Research Institute
“Middle income trap”:
Struggle to climb onwards to higher income levels
Billion USD
USD
900
Korea (GDP)
14,000
800
Thailand (GDP)
12,000
700
Korea (GDP per capita)
Thailand (GDP per capita)
10,000
600
500
8,000
400
6,000
300
4,000
200
USD 5,000
2,000
100
0-
0
1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005
1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005
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Fiscal Policy Research Institute
If case 1: Mismanagement policies ⇒ crisis recurring
If case 2: Formulate and implement a new set of the right policies and
institutional changes
6,000 USD
Thailand (GDP per capita)
5,000
5,000 USD
Case 2
• Growth rate 5%
4,000
3,000
2,000
Case 1
• Crisis type
1,000
0-
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
12
Globalization
Trade – finance – technology
ASEAN+3
Global imbalance
Asia - US
China – India – Middle East
The global situation & domestic problems require a
• Trade balance
set of new development perceptions
• FDI balance
• Capital flow balance
• Optimal reserves
CHN
US
Trade
THA
FDI
Capital flows
13
Fiscal Policy Research Institute
Policy consideration
20.0
%
%
2006 (4%)
20.0
10.0
10.0
0.0
0.0
1998
1999
2000
2001
2002
2003
2004
2005
2006 2007 F 2008F 2009F
-10.0
-10.0
-20.0
-20.0
-30.0
-30.0
1998 (-44.3%)
-40.0
90.0
-40.0
Private Sector
-50.0
Infrastructure
Infrastructure
Investment
Investment
Public Sector
TH Investment (1988 prices)
-50.0
„„
Thailand's Capacity utilisation
%
%
„„
80.0
Physical
Physicaland
and
Social
Social
Outward
OutwardFDI
FDI
70.0
2006 P (74.2%)
60.0
1998 (58.7%)
50.0
40.0
30.0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006 P
14
Before Crisis
Excessive
K- flows
C/A
Deficits
Invest in bubble business– instability
Economic
Crisis
After Crisis
Less
K-flows
C/A
Surplus
Less investment / Excess capacity
Unsustainable
Uncompetitive
Way forward
Value Creation
Selective activities
Optimum C/A
K-flows balance
Economic
Capital
Innovation/KM
Infrastructure
Training and Education
Social
Capital
Sufficiency and
Sustainability
Full employment
No under-employment
HR with quality
NR sustainability
Economic sustainability
• Fiscal balance
• C/A balance
• GDP 5 %
• Inflation 3 %
15