International Economics of Thailand Essay

The agricultural of Thai bring is located in the s prohibitedheast Asia region, south of main demean China and immediately bordering Burma to the west, Laos to the East and Cambodia to the south. Around 65 cardinal people inhabit Thailand with the bully and its swel guidest city beingness Bangkok the national currency is the baht. After a series of political and military turmoil thrashed the boorish in the mid 2000s, December of 2007 earmarked the reinstatement of a democratic g everyplacenment as well as the comprehension of full democratic elections. The semiofficial language is Thai and has remained that since the countrys early beginnings. Buddhism encompasses or so the Thailands population in terms of religion, nearly 95%, with all belonging to the Theravada denomination. On a globose scale Thailand is quite a large country for how small it is geographically it ranks 50th as far-off as total ara, and is the 20th c supportly populous in the world.Thailand is abundan t in both land and labor portions of production. The land measures roughly 510,890 sq km and is full of natural resources such as tin, rubber, natural gas, timber, lead, fish, and much metals. The large amount of agricultural production lead to a GDP of $539.3 billion in 2009. The 2009 designetary house consumption expenditure was 2.05% even though the real GDP growth rate was -2.2%2. The final f travelor of production for Thailand, labor, is a nonher one of their most abundant resources. In 2009, the labor force was comprised of 38.43 jillion people. They were shargond between 42.4% working in agriculture, 19.7% in industry, and 37.9% in services3. This is consistent with the large amount of arable land throughout the country.With much production occurring in the agricultural sector, is makes sense that Thailand exports agricultural commodities. The country also exports machinery and electronic components, and jewelry. The machinery and electronic parts be a major export be cause of the size of the labor force.Jewelry exports argon large due to the amount of natural metals and jewels found in the land. The exports drive the parsimoniousness and account for more than half of GDP. In 2009, exports tota direct $150.7 billion. The major issueers are the unite States at 10.94%, China at 10.58%, lacquer with 10.32%, Hong Kong with 6.22%, and Australia importing 5.62%3.The global financial crisis of 2008-2009 severely hurt Thailands exports with most industries dropping a large percent. Imports were also affected the financial crises. in 2009, they totaled $118 billion. Most imports were in capital goods, intermediate goods, and unsanded materials. This is because of the lack of capital factors of production and the large labor force. Thailand imports from lacquer (18.7%), China (12.73%), Malaysia (6.41%), United States (6.31%), and UAE (4.98%)3. picIt fronts to be that the groups benefiting most from trade are the farmers and factory workers. The far mers subscribe the largest labor force and therefore the highest amount of exports in the country. The factory workers are also benefiting from the import of cheap intermediate goods and stinging materials from China and Malaysia. They then use the copiousness of labor to produce machinery for export. In 2009, Thailand had a trade surplus of roughly $32.7 billion.Long before the slackening of Thailands miserliness and its move to become an export-promoting economy in the mid 1980s, Thai governments have prosecute Free Trade Agreements (FTAs) and economic cooperation with fellow countries in the Eastern Hemisphere and of course, the USA.In 1967, Thailand help give rise the Association for South-East Asian Nations (ASEAN). ASEAN was founded to promote nation building, tackle communism and increment economic cooperation. This act has served as the foundation for establishing future FTAs. Continuous dialog and a desire for economic growth led to the eventual signing of the ASEAN Free-Trade Agreement (AFTA). This paved the way for the elimination of tariffs for goods with 40% of its free on-board value having topical anaesthetic anesthetic input from ASEAN member countries (asean).Followe the success of AFTA and its role in facilitating localmanufacturing industries, ASEAN countries sought to expand these FTAs. This has led to signed FTAs between ASEAN and China, India, Japan, South Korea, Australia and New Zealand. In addition, Thai and US authorities have been working on an inconclusive US-Thailand FTA since 2004. These agreements have grown Thailands export markets and such access to large growing economies has allowed Thailand to quickly return to growth following the 2008 world(prenominal) Recession.Unfortunately, with all the free-trade agreements, Thailand continues to have multiple barriers to foundation for most foreign entrants and even some interior(prenominal) ones. They are primarily in the service and move sectors as well as sectors with significant local production. These overwhelm tariffs, quantitative barriers, customs barriers and taxation. Few of the most affected industries are finance, law, telecommunications, air and maritime carry, woodland, textiles, transport equipment and victor services.In the finance industry, foreign investors are allowed a particular equity enthronement of up to 49% of the company. Any investment that amounts to greater than that is treated on a case-by-case basis by the government. In addition, foreign banks have limitations on their change capabilities and the expansion of branches. Telecommunications also limits foreign investment and in addition to this, the government allocates frequency spectrum that have resulted in two telecommunications companies dominating the industry (Dee, 2004) (US Embassy, Bangkok, 2009).On the early(a) hand, foreigners may own Law firms in Thailand, except only Thai-citizens may provide legal services. At-best, in certain cases, foreign citi zens can serve in a throttle capacity as a consultant. such(prenominal) a nationality requirement extends to other nonrecreational services such as accountants and physicians as well where Thai-citizens have a higher priorit and only non-citizens that are a resident of Thailand and fluent in Thai are eligible.Industries such as wood and wood products (12.5% tariff), transport equipment (31% tariff) and textiles (25% tariff) continue to have import tariffs and licenses to encourage local production and ensure it is nonharmed. wholly of these tariffs are between 2 and 4 times the global average (Dee, 2004). Such tariffs are super acid practice all over the world to protect local businesses.In addition to these tariffs, Thailands barriers include several indirect methods that have a less tangible impact. Thailands complicated tax body is one such example. When one adds up the import tariff, excise duties and other sales tax on imported alcohol, the price is 400% higher. To comple ment these barriers, Thailands government adapted a Buy Thai policy, much to the resentment of foreign investors. In addition, the Customs department reserves the right to arbitrarily increase the import value of goods (US Embassy, Bangkok, 2009).Lastly, the lack of enforcement of Intellectual Property Rights and Patent laws cost US companies $400 million in 2007 (US Embassy, Bangkok, 2009). Pharma companies and Hollywood have had the most direct impact due to copyright infringements, retard patents and its non-enforcement. Such haphazard barriers by the Thai government can dissuade potential investors.These barriers have a multi-purpose aim. Some tariffs are meant to be revenue generating tariffs, while others cost escalating. These cost-escalating tariffs stand to protect a local industry such as textile manufacturing, wood and timber logging. Barriers in the maritime and air transport have large capital requirements to enter it as well as a vested government come to in the form of state-owned airlines, airports and ports.Other barriers related to haphazard law enforcement and the buy Thai policy and seem less so economic barriers and more so politically motivated ones. A reversal in such barriers would allow air-passenger transport, maritime transport and communications to benefit the most and enable the finance, law and professional services industry to shore up its presence in Thailand while continuing to expand trade, mercantile constitution and therefore economic growth in the country.Simultaneously, the government aimed to stimulate domestic and foreign private investment over the coming decade by adapting Export Promotion (EP)policies that decreased import tariffs, eliminated export tariffs and open up the Board of Investment of Thailand (BOI). While initial investments were aimed at domestic-market production, this quickly moved to export-oriented production that was not limited by the size of the domestic market. This led to Foreign Direct Inve stment (FDI) ballooning from $40 million in 1970-1974 to $19 billion in 2006 (Kohpaiboon). Countries such as Japan, South Korea, Singapore and Taiwan had successfully adapted to export promotion policies while even more countries saw the negative effects of import substitution policies (South America). These polar effects point out the benefits of a trade-centered co-ordinated economy.An exponential increase in FDI requires a stable banking system that is globally integrated. Unlike its Asian peers, almost half of Thailands 37 banks are foreign banks such as HSBC, Citibank and Standard Chartered. This has resulted in a strong banking system with assets worthy 200% of GDP (Datamonitor, 2010). Other developing countries continue struggle with a government dominated banking system and low population penetration.Sustained growth in FDI has had spillover effects on Thailands human capital development and R&D projects to further aid economic growth. The BOI, since 2006 has been activel y promoting R&D investments, firing projects from companies such as Toyota, Honda and Siam Cement. In addition to this, the government has allocated $3 billion in the abutting 5-year plan for R&D projects with institutes such as Asian Institute of Technology taking lead (Datamonitor, 2010). Such spending has allowed domestic companies to adapt current technologies used world over while evolving new ones. This is a drastic change from the mid-1980s in Thailand when oxes and manual labor characterized agriculture and industry alike.In order for the results of R&D projects to be useful and then successful, an educated workforce is necessary. Starting in 1960, Thailand expanded its schoolhouse system and made schooling mandatory for the first 7 old age (Ministry of Education, 1998). A full multiplication later, the basic impact is visible. By 2006, Thailand boasted a 92% literacy rate, comparable in the region (Taiwan, Hong Kong, South Korea, Japan and Malaysia boast 90%+literacy grade) and allocates 27% of its national budget to education (Malaysia allocated 20%) (UNDP, 2009). One current timidity is that 80% of the current workforce has had only primary education. However, the long-term impact of education should change this statistic over the coming decade and encourage further labor efficiencies.Unfortunately, a primary educated workforce is not Thailands main constraint to growth. In the years following a decade of high-paced growth, the Asian pecuniary Crisis, consequent political upheavals, natural disasters, get downion and such threatened to derail the Thai story of growth.In spite of all this growth, the high short-term external debt of its government nearly bankrupted Thailand, caused the stock exchange to lose 75% of its market value and devalued the then-pegged Baht by over 50%. The Thai economy came to a halt with layoffs across industries, depressed asset prices and a 12% cumulative drop in output for 1997-1998. This led to an inevitable $ 40 billion IMF-led rescue package for the most affected Asian economies (Hunter, Kaufman, & Krueger, 1999). The package allowed Thailands economy to stay solvent and resume growth only in 1999.The Asian Financial Crisis marked a start in Thailands sporadic political upheavals. This culminated in 2006 when efflorescence Minister Thaksin was removed from office in a bloodless coup while he care the UN General Assembly in front of the worlds eyes. The 4 years since has seen scores of human race demonstrations, 3 Prime Ministers and a riot culminating in the summer 2010 stand-off between the armed forces and pro-Thaksin demonstrators in of import Bangkok. Meanwhile, neighboring countries such as Philippines, Vietnam and even Indonesia have moved toward political stability with their leaders transitioning their country into a period of economic growth (Marshall, 2010). These upheavals are a source of concern to international and domestic businesses and have a negative ripple effect th rough the economy.In fact, Thaksin is not the only corrupt politician to grace Thailand. Corruption plagues many institutions and bureaucracys there. Transparency international ranked Thailand 84th out of 178 countries on the GlobalCorruption Index with China falling ahead in 78th position and India dear behind in 87th place. Like most sizable developing countries, corruption is rampant in Thailand and other high-profile cases include the governor of Bangkok, Mr. Apirak.In 2009, the Thai government reported that the most number of corruption complaints at heart government agencies were filed against the Customs Department (Datamonitor, 2010). Taking cue from Singapore, Thailand must be more pro-active in bring down this rampant corruption in order to focus on economic and social development. Singapore along with New Zealand and Denmark topped the least for least corrupt countries (Zee News, 2010).Another growth constraint is natural disasters. In 2004, an earthquake followed by a tsunami caused widespread havoc and destruction. While Thailands direct impact was start out than Indonesia, with over 5,000 lives lost, 30,000 fishing boats and 120,000 tourism jobs lost, its effects cannot be ignored. Such continued disasters can hamper come on and instead undo years of economic development. Countries ranging from Indonesia to Seychelles were affected by this (United Nations, 2005).As the 1997 Financial Crisis demonstrated, Thailand is very integrated into the worlds economy. in that locationfore, with the arrival of the Great Recession in 2008, demand for its export-oriented production began to fall. Thailands dependence on exports put the country into a yearlong recession that it is now out of. In fact, Thailand is evaluate to grow at 4% this year. This quick convalescence has been due to the deliberate public spending undertaken by the government. With the government undertaking a 5-year plan to boost infrastructure spending and reduce poverty, Thailand s hould see carry on growth over the coming years.As Thailand emerges from the Great Recession of 2008, there are several facilitative pointers Thailand has taken from its experiences since the Asian Financial Crisis. The Thai government has learned of the benefits of a balanced budget, they successfully trim back government debt between 2002 and 2008, repaid IMF loans (2 years early) and regained growth. While corruption continues to exist, Thailand has an increasingly tougher National CounterCorruption equip and current Prime Minister Abhisit has proposed a Reconciliation Plan to create a more transparent, faint government. The tsunami has resulted in the implementation of an emergency alert system thereby preventing future calamities, social and economic losses.With a majority of new growth coming from Asia, Thailand is optimally situated as an export economy in the region. Strong historical ties to the US forget ensure economic cooperation as the US economic recovery progres ses. Continued spending on education will result in an efficient, productive labor-force allowing Thailand to grow from only when an international finance center to an advanced technology driven, export oriented economy in the years to come.Economic policy outlookThe government is pushing ahead with a major fiscal stimulation program worth Bt1.4trn (US$43bn), which is to run until 2012. However, the fiscal position is weak, and the government could struggle to finance the program in full without risking future financial stability. This second-stage stimulus program, known as Thai Khem Khaeng (Strong Thailand), centers on infrastructure projects as well as investment in agriculture, education and health. Owing to the fact that the government has only limited fiscal freedom (constitutional restrictions cap the budget shortfall in any year at 20% of total expenditure), the majority of the programs spending is off-budget and is financed through increased borrowing.The government actua lly plans to reduce budgetary spending in fiscal year 2009/10 (October-September) in an attempt to contain the fiscal deficit, which ballooned in 2008/09 owing to a first-stage stimulus program that included cash grants and subsidies. The government is proposing another expansionary budget in 2010/11. As the economy begins to recover in 2010, the Bank of Thailand (BOT, the central bank) will begin to raise interest rates to contain inflation.As for the fiscal policy, the government will run a substantial budget deficit in 2010-11, but it should be narrower than in 2009, when it reached the equivalent of 4.4% of GDP. After reducing planned expenditure in 2009/10by Bt200bn (US$5.8bn), the government proposes to increase it by about Bt400bn in 2010/11. It is also stimulating the economy with the Thai Khem Khaeng program of off-budget expenditure. Whether or not the program succeeds in stimulating growth, hinges mostly on its implementation. There is a risk that some funds will be lost to corruption or will be wasted, as was highlighted by a recent admission by the Comptrollergenerals Department that funding for projects previously rejected by the BudgetBureau had been approved owing to the governments determination to move with economic stimulus. Assuming that the government receives full parliamentary approval to borrow another Bt400bn in the next three years, public debt could rise sharply relative to GDP in 2010-11. However, the finance minister, Korn Chatikavanij, recently verbalise that as revenue growth so far in 2009/10 had exceeded expectations, the government might not need to borrow as much as it had originally planned.The BOT will begin to tighten fiscal policy in second half of 2010 as the economy starts to recover and core inflation (which excludes raw foods and energy) accelerates. However, the central bank will not raise interest rates sharply, as there are still major risks to the recovery, and core inflation, which stood at 0.5% in January-Fe bruary, remains at the low end of the official target range of 0.5-3%. The BOT has also expressed concern that prematurely raising the one-day repurchase ratewhich stands at 1.25%, having been lowered by 250 basis points between December 2008 and April 2009could lead to inflows of foreign capital, pushing up asset prices to unsustainable levels and causing the baht to strengthen further.Works CitedCIA. (2010). Thailand. Retrieved November 20, 2010, from CIA The World Factbook www.cia.gov/library/publications/the-world-factbook/geos/th.htmlDatamonitor. (2010). Thailand, In-depth PESTLE Insights. Datamonitor.Falvey, L. (2001). Thai Agriculture well-situated Cradle of Millennia. White Lotus Co Ltd.Hunter, W., Kaufman, G., & Krueger, T. (1999). The Asian Financial Crisis Origins, Implications and Solutions.Ministry of Education. (1998). History of Thai Education. Retrieved November 2010, from Ministry of Education, Thailand www.moe.go.th/main2/article/e-hist.htmUNDP. (2009). United Na tions Development Programme. United Nations.United Nations. (2005). Impact on Thailand. United Nations.Zee News. (2010, October 26). India Slips Three Places in Global Corruption Rankings. Retrieved November 2010, from Zee News www.zeenews.com/news663930.htmlCitation Thailand. Country Report. Thailand (2010) 1-27. Business Source Premier. EBSCO. Web. 13 Dec. 2010ASEAN. (n.d.). Overview asean. Retrieved from association of atomic number 34 asian nations http//www.aseansec.org/64.htmDee, P. (2004). A Systematic Evaluation of Services Trade Barriers The Case of Thailand. Washington DC Australian National University.Thailand. World Factbook. Central Intelligence Agnecy. Accessed November 23, 2010. https//www.cia.gov/library/publications/the-world-factbook/geos/th.htmlThailand Natural Resources. Index Mundi. Updated 2010. Accessed November 23, 2010. http//www.indexmundi.com/thailand/natural_resources.html