FACULTY SEMINAR 2001 MAY 24-27
Edited text of keynote speech by Dr. Thanong Bidaya, Economic Advisor to the Prime Minister
H.E. Dr. Thanong Bidtaya delivering a keynote speech entitled "Trends and Challenges : Economic, Social and Political Isues - Local and Global" at BITEC
Dr. Thanong Bidaya in a commemorative photo with Rector and Vice Rectors on May 24, 2001.
Prof. Dr. Kanok Rongtrangan, President and CEO of Robinson Department Store (guest speaker) in conversation with Rector and Vice Rectors on May 24, 2001.
Panel session with Dr. Vinai V., Dean Dr. Warapatr T., President, Thai Rating Ltd., Dr. Sen Director, Faculty of Education and Dr. Tang Z., Lecturer, Graduate School of Business.
Rev. Bro. Prathip, Rector of ABAC, Vice Rectors, faculty members and distinguished guests.
I am very honoured to be here today and I shall be giving a leisurely and non-serious talk about my insights into the current economic and political situation and the challenges we are facing today. I have no intention of making you dizzy with all the statisticalb formulas and economic jargon and as I believe that such a large audience must comprise specialists of many fields and disciplines I request professors of economics and finance to bear with me in my attempts to explain abstruse things in an easily understand-able and simplistic manner, My briefing will consist of three parts and in the first section I will summarise the lessons learned from the financial crisis including how our economic boom was created which we all enjoyed tremendously and how this was followed by a bust which was very painful and which resulted in many of us being made scapegoats. Then I will go into the second phase which will deal with recovery attempts of 1997 to the year 2000. And in the last part I will present the futuristic outlook in which I will summarise the political and economic challenges facing the present government, what has been done and what remains to be done from the perspective of ordinary laymen. I shall be happy to obtain whatever feed-back or recommendations you wish to provide so that I can pass them on to the Prime Minister who welcomes constructive critical opinions and suggestions as valuable contributions that will be thrashed out further at cabinet meetings and that is why this government has been labeled as the "workshop government" Now about the lessons learned from the past crisis. I think all the people without exception who lived in this COL.;Y during 1980s and early 1990s must be considered fortunate where the economic growth of 8% to 12% per year was achieved and Thailand was called one of the Asian miracles that could sustain such growth rate for a long time. A lot of reasoning and arguments were put forward by scholars and academicians on how Asean countries could prosper so well. They talked about Asian values as a factor contributing to this miracle growth, the industriousness of all Asean people who worked so hard and all our good qualities and features. In the early 90s Asia became one of the largest production pools of the world contributing more than 25% of the global output. More interestingly Asia has more than 50% of the global population and with the prospect of high consumption demand the region was highly attractive to investors from Europe, U.S. etc. But theoretically to me, how we became and remained a high growth economy hinged on three essential factors. I remember well that the Chatichai Administration tried to organize Thailand's economy into high gear after years of belt tightening under the Prem Tinasulanonda Government following the first devaluation of the Baht which enabled Thailand to reduce the total foreign debt to only $ 14 billion and amass and accumulate a lot of new wealth. Prime Minister Chatichai, a shrewed politician was able to exploit this happy situation and also the time was opportune for globalisation of capital movements and for the efficient mobilisation, manage-ment, supply and distribution of materials and products. The level of wages in Thailand then was about 20 times lower compared to rates in U.S. and Europe and this coupled with the whopping influx of foreign investment resulted in the building and establishment of huge industrial complexes including petrochemical, steel, auto-motive and electronic plants and factories. This investment-led expansion triggered rising wages which boosted consumption and Thailand was able to maintain a steady growth rate of around 8% during the late 80s. When we examine an economy we have to look at it as an engine of 4 cylinders each made up of and fuelled by 1. investment 2. consumption 3. Government expenditure and 4.import-export differentials. So imagine our economy as an engine with 3 cylinders working for expansion and one retracting and the decelerating effect or deficit gaining momentum all the time. The engine was not working smoothly even though we managed to maintain a satisfactory growth rate. Every year we imported more than we exported and we thought the inflows of raw materials and new capital into the country was a good and salutary phenomenon and that Thai-land could keep on producing finished goods for export indefinitely. Every-body thought that the trade deficit or the current account deficit was no big deal and that things would somehow balance out by the capability and productivity of the economic system. But this did not happen and why did it not happen? I can think of some reasons such as the fact that the higher earnings and other benefits which we were enjoying came not solely from accepted and traditional sources of income but mostly from speculative and disingenuous deals and other business activities of doubtful nature and dubious authenticity There were frenzied and dizzying transactions all based on speculation and everybody was happy and making money including myself. The stock exchange and property markets were doing roaring businesses and the SET index shot up from a mere 400 to over 2000 within a short span of time. I invested 50,000 in stocks in the early 80s and within five years that investment was worth 100 million. In those days it was possible to buy property and make profits of 20-30% within a few months or even days. There was massive speculation and it was obvious the bubble economy was coming into shape. At that time a research conducted by a private firm showed explicitly that loans made by ninety finance companies amounting to some 900 billion were used mostly for speculation in the stock exchange and real estate markets. Even manufacturers and exporters relegated their core activities and dabbled in property and stock markets where large profits could be made in quick succession. The government authorities were aware of the dangerous economic developments and the Central Bank even tried to dampen speculation and jack up interest rates but a few measures that were taken did not match the gravity of the situation. The fear and worry at the time was how soon the bubble economy would burst and how we could manipulate a soft landing. The government did not dare to expose itself by taking bold decisions to wipe out the speculative frenzy of industrialists, businessman, and even laymen. And no one dared to explain what the real situation was and how we have spoiled the chance of economic progress and prosperity and the stabilisation of our economy. Worse still, we had to liberalise our financial markets because we needed foreign capital inflows and investments to maintain our 8 % growth rate as our domestic savings were insufficient to pay for import of raw materials and capital goods. By end of 1996 our foreign debt stood at U.S.$ 100 billion, of which U.S.$ 45 billion were of short term category and we had exchange reserves of a little over U.S.$ 30 billion. We were heavily indebted and there was current account deficit of 6 % of G.D.P. What happened to the millions of dollars brought in from abroad? A lot of them were paid back representing the difference in value of exports and imports over the years plus interest on these dollar loans. The infrastructure of the economy was very weak and nobody dared to disclose the precarious position of Thailand. Foreign investors began withdrawing their funds from 1995, 1996 due to negative capital flows resulting from current account deficits. There were 2 other factors that precipitated the crisis. One was the opening up of the Chinese economy after the dumping of their socialist system and the devaluation of their currency which hurt the exports of all Asean countries. So with the pull-back of foreign funds and the NPL exposures of Thai banks attacks were launched on Thai Baht and the government decided to float the currency on July 2, 1997 instead of keeping it pegged to a basket of currencies. It was thought advisable to seek assistance from the IMF rather than declare a moratorium because the size of foreign loans was not beyond our capacity to repay. The position now is that a large proportion of our foreign debt has been repaid. The structure of our foreign debt has changed considerably and we now have short term loans of about U.S.$ 14 billion as against reserves of over U.S.$ 30 billion. The ratio of foreign debt between public and private sectors has also stabilised at around 40% to 60% whereas in the past the liability of the private sector stood at about 85%. We now have breathing time to repay and there are no creditors urgently demanding settlement. The central bank has been restructured, the floating rate and the foreign exchange system are working properly, inflation is under control and there are no further attacks on Baht in the currency markets. Right now Thailand may be less competitive compared to China due to the latter country's vigorous promotion of exports but the new government is making changes and taking new policy initiatives. We had a lot of workshops on such matters as 30 Baht hospital treatment, contribution to village fund projects, capital market rehabilitation, tourism promotion etc. The first workshop was on creation of the national asset management corporation to take over the bad loans of both private and public sector banks which involved a lot of planning, and preparations. This asset management corporation will soon materialise and it will be a big factor in improving and stabilising the existing unsatisfactory conditions in the financial sector. So a lot of restructuring was done such as reforms at ministerial level, reorganising administrative structure and political economy handled at the grassroots level so as to push consumption and investment, improve exports and imports and tourism with a view to build up the grassroots economy so that people can raise the productivity of the economy and through this their living conditions and standards. At one of our recent meetings we worked on finding a system to really understand the transition from knowledge-based service sector to agro and industrial sectors and how all these three sectors, labelled as a mobilisation scheme, would be accomplished in a dynamic sense and how we could help in training and developing labour skills, how we could turn our officers into knowledge-based officers. A lot of these points were in the programs for long term development of the conomic sectors. We declared war on corruption and on narcotic traffickers and you see all these things being done in a rush in these past few weeks and you will be seeing the results, soon and gradually we hope we would realise all our objectives. Then we also have schemes for rehabilitation of capital markets, privatisation of state enterprises, boosting loans and equities of SMEs, setting up of revolving village funds etc. On the macro level we are determined to run larger deficits than last year and we have earmarked a flexible reserve of 50 billion baht to restore consumption and investment. We are confident that foreign exchange debt would not create another attack on our reserves because we owe only U.S.$ 18 billion against our holdings of U.S.$ 30 billion. We consider that reserves at the current level are adequate to meet contingencies and our position will improve further and in this way we will ensure that another crisis does not crop up. Now I think you all are interested in the assets case involving the premier which is pending in the Constitutional Court. Nobody can be sure about the outcome but if the court hands down a negative decision there will be some set-back, But I believe that whoever is the premier we will contrive to show that policies and programs of Thai Rak Thai are paramount and that the management of the economy remains in the hands of this major party. Now about the fears resulting from the slow down of the global economy. I don't think this will cause another upheaval. As long as the floating rate of exchange works we will be rotected from volatile swings. If our reserves go down through decline in exports we will have to regulate our imports and maintain a balanced position. The role of the central bank is to smooth out the movements of foreign exchange and not to fight or block such movements. There may be attacks to test how we respond but we believe the central bank will be able to defend and maintain our position successfully. The third point of concern is how to sustain collective vigil as we get down to developments at the grassroots level-how to achieve educational infrastructure to create knowledge-based workers and farmers. That is the most difficult part and that is why Thailand ranked last among 47 countries in the World Economic Forum survey. I believe the necessary reforms will be launched soon and that our Rector is actively involved in the planning and preparations being undertaken by the commission.
The fourth issue of concern is how to create a knowledge-based working system for planning, implementation and review of economic development. This is very hard and we have recommended to the Prime Minister that we have no expert in this field and suggested hiring the services of such a prominent strategist as Michael Porter of Harvard to work with us for drawing up national strategies for mobilising our resources and exploiting our advantages and our other strong points.
And the last issue for me now is the creation of a society of good governance and this has to be a continuous process without backpedaling and without stop-go or stopgap digressions. We must have a really progressive economy with fair and equitable rules and conditions so that foreigners are happy and willing to invest and work here on a long term basis. We have to ensure that the grassroots economic production pro-grams which we are trying to develop work satisfactorily and successfully. These are the main concerns and issues and we keep applying pressure on the prime minister and cabinet ministers to maintain proper focus. We pressure them to deal effectively with corruption, to stop trading in drugs, to sup-port education reform, infrastructure development and the I.T. revolution so that Thai people can have a truly knowledge-based economy as a member of the progressive and prosperous global community.