Thailand 10 years after the crisis:
Beyond finance, the exhaustion of a
low-productivity growth regime?
Bruno Jetin, Research Institute for
Development (IRD, France) and Center
for Education and Labour Studies (CELS,
Chiang Mai University, Thailand).
Since the crisis, ASEAN countries have
entered a period of slow growth.
INVESTMENT HAS NOT RECOVERED
A GROWTH PULLED BY EXPORTS
Thailand is no exception
Private and Public investment rate in Thailand
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
Source: computed by the author from NESDB
Private
Public
Gross Fixed capital formation
Even if private investment in
equipment has slowly improved.
Private investment as a share of GDP, 1988 prices
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
Source: computed by the author from NESDB
Construction Private
Equipment Private
TOTAL PRIVATE
Has Thailand entered a new period
of slow-growth?
Source: R. P. Mallikamas, D. Rodpengsangkaha, Y. Thaicharoen (2003, p 3).
Analysing structural change
• Finance is powerful. But finance does not
create value. The financial sphere is more
autonomous, but not independant from the
productive sphere.
• Understanding structural change in the
productive sphere and in society is necessary
to better understand the power of finance.
Employment: Agriculture is no more
dominant.
Structure of employment in Thailand, 1980-2006
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
Agriculture
Non-Agriculture
Manufacturing
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
0.0
Formal and informal labour income
are on a par.
Share of formal labour income and informal labour income in % of
GDP
60.0
55.0
50.0
45.0
40.0
35.0
30.0
25.0
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Source: Calculated by the author based on NESDB nad NSO data
Raw labour share
Share of income from unincorporated Entreprises
The labour income share is decreasing in
favour of the capital income share
0.90
Labour and Capital shares of GDP in Thailand, 1980-2005.
Source: calculated by the author based on NESDB and NSO
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
Adjusted labour share
Adjusted Capital share
Linear (Adjusted labour share)
Linear (Adjusted Capital share)
The rate of accumulation of capital was decreasing
since 1990 and profit started to decrease in 1996.
Profit rate, GDP growth , capital stock growth
13.0
11.0
9.0
7.0
5.0
3.0
1.0
-1.0
-3.0
-5.0
-7.0
-9.0
-11.0
Source. Calculations based on NSO data
Profit rate (constant 1988 prices) in %
Growth rate of capital stock in %
Real GDP Growth rate 1988 Prices in %
Capital productivity was decreasing since 1989 and fell
in 1995-1996.
Capital productivity and real growth
0.40
15.0
0.38
10.0
0.36
0.34
5.0
0.32
0.30
0.0
0.28
-5.0
0.26
0.24
-10.0
0.22
0.20
-15.0
Capital productivity
Real GDP Growth rate 1988 Prices in %
Unit labour cost is rising
Determinants of Unit Labour costs in Thailand. Source: author's calculation based on
NESDB and NSO
110,000
100,000
1.4
1.3
Unit Labour Cost, right-hand scale
90,000
1.2
80,000
70,000
1.1
60,000
1.0
50,000
0.9
40,000
0.8
30,000
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
0.7
1980
20,000
Source: Author's calculation based on NSO, NESDB and BOT statistical data
Adjusted labour income per worker in current bahts
Labour Productivity: Thousands of 1988 bahts
Unit Labour Cost (ULC1)
And competitiveness is eroding
Figure 2: Thai competitiveness before and after the crisis
1.30
1.20
1.10
1.00
Recovery and slow-growth
regime
0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
Source: Author's calculation based on NSO, NESDB, BOT and World Bank
ULC2 (Unit Labour Cost at PPP exchange rates)
ULC1
Conclusion regarding the
production sphere
• The slow productivity-growth regime is not
sustainable.
• Wage repression is not enough to restore
competitiveness.
• Thailand must go beyond the assembly stage
but how without industrial policy and
protectionism?
• Incentive is not enough: Automobile versus
electronics.
The surplus in manufactured
products: Structural?
The financial sphere: back to 1997?
• Finance makes thing worse. Capital inflows
and the present speculation on the baht is
aggravating the decline in competitiveness
due to rising unit labour cost.
• There are several common points between the
present situation and the 1996-97 crisis.
• But there are also important differences.
Mobility of capital is higher than ever
And so is financial volatility
Capital inflows are clearly speculative.
• At the Bangkok stock exchange (SET), foreign
capital invest in banks, energy and real estate.
• They don’t invest a lot in manufacturing and
agriculture.
• There is still room for the buble. Price-toearning of 11-12 times in the SET is still cheap
compared with the 15 times valuation in
Singapore market and higher valuation in
Indonesia.
But there are also differences
• Former « crisis countries » have current
account surpluses, not deficit. Forecast for
2007 are 11% in Malaysia, (9% in China),
between 1 and 2% for Thailand, Indonesia and
Korea (IMF, ADB).
• Central banks are not commited to defend a
fixed peg.
• There is no downward pressure on forex but
upward pressure.
Asian governments have not
drawned the good lessons
• Based on the fact that Asian savings were far more
higher than capital outflows in 1997, they have
decided to promote « Asian bond markets ». (see
ABMF1 and ABMF2 managed by the ADB and BIS).
• The (good) idea is that Asian savings should stay in
Asia as a shield against massive financial outflows.
• It is inspired by the European experience of regional
integration.
• The project is flawed by the fact that there is no
serious institutional and monetary integration.
A project bound to fail
• No serious project of creating an « East-Asian
monetary Unit » like the ECU before the euro,
no serious project of creating an « East-Asian
monetary system ».
• European experience shows that Financial
integration without monetary integration is
bound to fail.
Conclusion
• Instead of a regional financial integration there
will be a direct integration in global markets
which are far more efficient and competitive.
• As a consequence, Asian countries will be even
more exposed to the whim of financial markets.
• The project in fact is to operate a shift from a
bank-based system to a market based system in
Asia that better suit global finance.
My proposal.
• Collective and coordinated capital controls at the
regional level to support an « Asian monetary
System ».
• This « Asian monetary system » would manage the
float of an « Asian Currency Unit » (ACU). Band of
fluctuations protected by Currency transaction tax
and other capital controls.
• Governments could raise bonds denominated in
« ACU » to finance long-term investment in
infrastructure.