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Thailand is among the region’s more open economies, with exports accounting for around 65% of gross domestic product (GDP) in recent years. Those shipments span the value-added gamut, with the country serving as a production and export hub for multinational automobile manufacturers, while maintaining its traditional position as one of the world’s leading rice, rubber and seafood exporters.
So far Thailand has been hard hit by flagging global demand, particularly in the US and Europe. Exports fell 15.7% year on year in December, the second consecutive month of declining growth, according to Bank of Thailand statistics. The Ministry of Finance’s Fiscal Policy Office meanwhile projected the Thai economy contracted a worse-than-expected 3.5% in the fourth quarter. Independent analysts have carried forward that downbeat analysis, predicting economic and export growth will both be negative territory in 2009.
Thailand’s once profligate banks and finance companies were at the heart of the country’s 1997 collapse and after a decade of recapitalizing and restructuring once again face a fast deteriorating outlook – though sovereign rating agency Fitch says Thai financial institutions are much better positioned and provisioned to deal with the current global slowdown than they were during the Asian financial crisis.
In particular, local banks were only marginally exposed to the toxic sub-prime mortgage derivative products that have driven several once prestigious Western banks into insolvency. While several US and European banks collapsed, Thai banks in 2008 recorded a higher average return on assets (ROA) compared to a year earlier, rising from 0.3% to 1.1%.
It represents one of few times in recent years that fiscal and monetary policies have been complementarily calibrated. A grinding political conflict, pitting supporters and detractors of former Prime Minister Thaksin Shinawatra who was ousted in a 2006 military coup, has hobbled successive governments’ ability to devise and implement effective economic policies.
The debilitating conflict climaxed last November when military-linked anti-government protestors closed Bangkok’s two international airports for over a week, crippling the money-spinning tourism and air freight dependent export sectors. The Bank of Thailand has estimated the closure cost the Thai economy as much as 290 billion baht, with hotels estimated to have lost 140 billion baht due to cancellations.
Indeed grass roots competition for government resources is intensifying. For instance the Farmers Rehabilitation and Development Fund is seeking 17.2 billion baht from the cabinet to buy back debts owned by over 62,000 farmers and rehabilitation and occupational training programs. During the 1997-98 financial crisis, a large number of unemployed factory and service sector workers returned to the rural countryside to eke out a subsistence living working in their relations’ fields. Agriculture currently accounts for 11% of GDP.
Higher agricultural prices drove up farm incomes during the first half of 2008, but fell sharply in the second half in line with declining global commodity prices. As the local economy slows and unemployment rates rise, it’s not clear that the rural sector will with falling food prices have the same absorptive capacity it did in the wake of the Asian financial crisis.
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The government is expected to draw on S$53.7 billion (US$40 billion) from its reserves for this year and an additional S24 billion (US$17.8 billion) over the next three years to assist local companies transition into a post-pandemic business environment.
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