Thailand: Asian Tiger Leads Regional Growth

• History
• Culture
• Economy

Bangkok boasts of Thailand’s largest temple, Wat Pho or the Temple of the Reclining Buddha, which is famous for its 46 meter long Buddha. The city also serves as the seat for traditional Thai massage, in a country where tourism contributes to 6% of the GDP.

The geographical heart of Southeast Asia, the Kingdom of Thailand is more than a pulsating, vibrant tourist destination – it is one of the biggest economies in the region. Heavily export-oriented, Thailand, or the Land of Smiles as it is popularly known, is recognized for the openness of its economy, and willingness to accept foreign direct investment. From virtual collapse during the Asian crisis of 1997-98, Thailand has managed to weather political storms, including the disruption caused by the military coup of 2006, and a disastrous and calamitous tsunami, to build on its status as an emerging Asian giant.

Thailand today is the world’s largest rice exporter, the second-largest tungsten producer and third-largest tin producer. Having made significant progress in social and economic development in recent years, Thailand’s growth from 2002-2006 has averaged 5.6%. Unlike its other neighbors in Southeast Asia such as Laos, Vietnam, or Burma, Thailand was never colonized – and the country’s developing, free-enterprise economy is slowly shifting from agriculture to manufacturing.

History

Coups and political turmoil

Thailand, known as Siam until 1939, has been inhabited for around 5,000 years with the earliest civilization believed to be that of the Mons in central Siam, although the first Siam state is the Theravada Buddhist kingdom of Sukohthai. Among the most glorious periods in its history was the reign of Ayutthaya, which was founded in 1351 by King Ramathibodi. One of the greatest centers of trade and commerce in Southeast Asia, Ayutthaya attracted the scorn of the Burmese, who invaded the kingdom twice in the 16^th and 18^th centuries. On the second occasion, the once glorious capital of Siam was plundered, laid to waste, and left in ruins, a pale specter of its ancient glory.

Thailand has one of the oldest surviving monarchies, and the current Chakri dynasty was founded in 1782 by King Rama I with the capital shifting for the first time to Bangkok. The 20^th century saw the beginning of great change in Thailand. King Mongkut (Rama IV) was instrumental in developing a strategy that enabled them to avoid the yoke of imperialism that overtook Laos, Cambodia and Vietnam –Siam’s closest neighbors. The King’s strategy was simple: his ministers signed unequal treaties that gave free trade, extraterritorial rights, and special privileges to imperial powers like Great Britain , France , the U.S. , and Japan. The result was that by playing each one of these powers against another, Siam managed to maintain its independence. In 1932, a peaceful coup turned the country into a constitutional monarchy, before Siam became known as Thailand in 1939.

Controversially, Thailand sided with Japan during World War II. The period following the war was a chaotic one for Thailand as it battled a number of military coups even as dissatisfaction rose against rising inflation, food shortages and inexperienced public officials. The democratic elections of 1979 marked the first period of relative stability, as the economy grew with the collapse of military rule.

The country was rocked by several coups over the next two decades before violent demonstrations in February 1991 forced the military to relinquish power to a civilian government led by Chuan Leekpai, leader of the Prachatipat (Democrat) Party. He is credited with beginning the process of creating a completely new constitution, and instituted several reforms that led to Thailand having one of the highest growth rates during this period. At the turn of the 20^th century, a relatively unknown party called the Thai Rak Thai Party (TRT) led by the charismatic Thaksin Shinawatra came to power on the promise of economic reforms.

Thaksin delivered on his promises but was dogged by allegations of mass corruption. The devastating tsunami that hit Southeast Asia in December 2004 affected Thailand too, causing nearly 5,000 deaths, and eroding a major source of its revenue from tourism. In 2006, General Sonthi Boonyaratkalin led a bloodless coup, deposing the unpopular Thaksin and holding fresh elections in December 2007.

A new party called the People’s Power Party, which consisted largely of members of the dissolved TRT, won the most number of seats under the leadership of Samak Sundaravej, who assumed power in February 2008. The then Prime Minister Sundaravej headed a six-party coalition. However, following a court order that ruled that Sundaravej had violated the constitution by hosting a television cooking show, he had to step down and was replaced by Somchai Wongsawat as the prime minister. The situation though, continued to remain tense, as the People’s Alliance for Democracy (PAD) insisted that both Sundaravej and Wongsawat were puppets of Thaksin. Repeated protests have been held in Bangkok since May 2008 and five months of these protests considerably weakened the government’s ability to implement policy. Matters came to a head when the PAD occupied the Bangkok International Airport in November, stranding around 350,000 travelers. This resulted in a substantial loss of tourism revenue and wielded a body blow to the country’s image as a tourist-friendly nation. Eventually, Abhisit Vejjajiva, the leader of the opposition Democrat Party, rose to become Thailand’s third prime minister over the course of four months.

Thailand functions as a constitutional monarchy with the Head of State being King Bhumibol Adulyadej.

Culture

Rich tradition creates immensely colorful nation

One of Thailand’s major tribes, the Yao, migrated from southern China at the end of the 19th century. Farming remains the predominant occupation among the Yao, known to be the only Thai tribe to possess command over the written language.

The land of Theravada Buddhism has had a long tradition of being one of Asia’s most culturally vibrant countries. With miles of extended coastline, Thailand has some of the world’s best beaches, ancient architecture, friendly people and unique cuisine. Effervescent with life, it is one of the most popular tourist destinations in the world. The wats or Thai Buddhist temple complexes are richly ornamented structures, replete with scenes from the Buddha’s life as well as the ancient Hindu mythological text, the Ramayana.

The Thai traditional greeting, the wai, involves pressing the fingers and palms together at chest level while slightly bowing the head. The wai is always returned, and performs the twin functions of greeting and showing respect.

Among the most famous of Thai cultural shows is the khon dance, which traces its heritage to the royal courts of Siam. Nang Yai or the shadow puppet show is a dramatic art form that originated during the Ayutthaya period, and today is confined almost exclusively to the southern part of Thailand. Various tribes such as the Akha, Karen, Hmong, Yao, and Lisu have their own unique and diverse way of life –which all contribute to the rich cultural tapestry of Thailand.

Economy

Cycles of economic boom and bust

Thailand’s economy is characterized by years of neglect during its unstable formative years following World War II to a decade of continuous growth from 1985. Ten years later, Thailand was one of the world’s fastest-growing economies with an average growth of around 9% annually. During this period, the percentage of population living in poverty fell from 23% in 1981 to less than 10% in 1994. However, the disastrous slump of 1997 triggered a severe recession. During his reelection in 2001, Prime Minister Thaksin Shinawatra introduced a set of policies that came to be collectively known as Thaksinomics. These were mainly populist measures that tried to reverse the devastation and havoc wreaked by the Asian financial crisis of 1997-98.

Thaksin provided a three-year debt moratorium for farmers, heavily subsidized both gasoline and diesel, and began a universal medical program that offered almost free, basic healthcare to the rural poor. Importantly, the village-level business loans helped to revitalize grass-roots manufacturing and services and his emphasis on infrastructure created mega projects, attracting investment, and helping Thailand’s economy grow by nearly 6% between 2001 and 2006.

Today, the country is classified as a middle-income country in Southeast Asia, and continues to make rapid economic and social progress, although recent political turmoil has affected its growth since the last year.

The economy is heavily export-oriented, with exports accounting for more than two-thirds of the Gross Domestic Product (GDP). With a population of 63.4 million (2006 World Bank Data) Thailand is classified as a lower middle-income country, having made the transition from low-income to middle-income (per capita income of $3000) within the span of just a few decades.

Known as the “kitchen of the world,” Thailand is the world’s largest rice exporter. In January 2008, a looming global food crisis pushed the regional Thai grade B rice above $1000 a ton.

Large parts of the country are agricultural (around 44 million acres are under cultivation) with rice the leading crop. In fact, Thailand is the world’s largest exporter of rice. Agriculture contributes to around 11% of the GDP with major crops including rubber, corn, cotton, sugarcane and jute. The industrial sector has flourished with a contribution of 45% to the GDP, with Thailand serving as a hub for automotive manufacturing in the Southeast Asian region.

Major industries in the country also include textiles, electronics, cement and food processing. The services share of GDP was 45% in 2006. Including housing, retail trade, tourism, banking and finance, this sector has witnessed high growth in recent years, especially spurred by the popularity of Thailand as a major tourist destination in Southeast Asia. In 2007, international tourist arrivals numbered 14.46 million, a jump of 4.65% compared to 13.82 million tourists the year before. Inbound tourism generated revenues of baht 547,782 million ($16.5 billion) in 2007. Typically, tourism contributes to a staggering 6% of GDP, more than any other Asian nation. The U.S. and Japan remain Thailand’s largest trading partners, although the creation of the Association of Southeast Asian Nations (ASEAN) Free Trade Agreement in 2002 has meant that Thailand has increased trade with other Asian economies.

The Thai economy is the world’s 67th freest economy, according to the Index of Economic Freedom for 2009. In the Asia-Pacific region, Thailand was ranked tenth out of 41 countries, as the country scored high on factors such as monetary freedom and investment freedom. Life expectancy at birth is 69.9 years, according to 2005 annual estimates. For women, life expectancy at birth is 74.5 years, while for men it is 65.0 years. The capital of Bangkok remains the economic, political, cultural, and commercial heart of Thailand – contributing to almost 60% of the GDP despite having less than 20% of the nation’s population.

Recent developments

With exports accounting for more than two-thirds of GDP, Thailand’s largest export market remains the U.S. Other major markets include Japan and Europe, with automobiles serving as one of Thailand’s major exports.

As Thailand recovered from the Asian crisis, the average economic growth from 2002 to 2006 was around 5.6%. Over the past three decades, the government has managed to take significant steps towards reducing poverty – from a high of 18.4 million poor people in 1991, the number has now dropped to 6.1 million by 2006. For the first three quarters of 2008, the Thai economy remained resilient with real GDP expanding by 5.1% year-on-year, as compared to 4.6% for the same period in 2007. The good news at that time was that exports rose 25% year-on-year in U.S. dollar terms. By the middle of last year, the effects of the recession in the U.S. were felt around the world, and the World Bank now estimates real GDP growth to be around 3.9% in 2008, down from an earlier prediction of 5% in April 2008. The projection for next year, however, is worse – the World Bank predicts the Thai economy will grow by just 2% in 2009 – the lowest rate since 1998.

Exports are also expected to be sluggish this year, as the global recession intensifies. In 2009, the World Bank expects Thai exports to grow around 8%, less than half compared to 19.5% in 2008.

The central bank slashed its 2008 economic forecast to a 4.3%-5% growth from the earlier range of 4.8% to 5.8%, projections that are expected to be lowered further as the financial crisis takes the world into a recession. The headline inflation rate fell to a 15-month low of 0.4% in December 2008 compared to 2.2% in November, helped by falling oil prices. The Bank of Thailand, like most central banks around the world, expressed concern over the slowdown in economic activities, and pursued an aggressive monetary policy approach to stimulate the economy. By January 2009, the central bank had lowered its policy interest rates considerably, keeping them at 2% although further rate cuts cannot be ruled out. Persistent political tensions and fear of a prolonged global recession have dented investor confidence, with the MSCI Thailand Index falling 48.27% last year.

To sustain a high economic performance, Thailand needs to adopt levels of innovation, move into the knowledge economy, and make a transition to high levels of per capital income, like Singapore , Taiwan or South Korea. As an indication, Thailand’s ranking amidst 137 countries in the World Bank’s Knowledge Economy Index slipped from 48 in 1995 to 56 in 2007.

Historically, Thailand has been weak in the areas of technology development and innovation, dropping to a rank of 34^th on the World Economic Forum’s Competitiveness Index for 2008-2009, compared to the 27^th slot in 2007. That competitiveness may be further blunted by the protests at the Bangkok International Airport, which caused losses of around $90 million a day as cargo deliveries were impacted. Tourism contributes almost 6% to Thailand’s GDP, a major driver of revenue, and the subsequent fall in tourist bookings have tarnished the country’s image as the “land of smiles.”

The country remains a premier automotive manufacturing hub in Asia but the Federation of Thai Industry expressed concern that Thailand’s car manufacturing output might well fall by as much as 20% in 2009, a worrying factor considering that this sector accounts for as much as 16% of the country’s GDP. The recent high world commodity prices helped push exports of products such as rice, natural rubber and palm oil. However, the sluggish U.S. market is likely to increase pressure on Thai producers, even as domestic demand continues to weaken. As many as one million workers or around 2.6% of the total workforce will be laid off this year, in estimates released by the Federation of Thai Industries and Thai Chamber of Commerce.

Also a concern, Thailand is known to be a major transshipment point for illicit heroin while corruption remains a significant problem as almost all its past leaders, from Thaksin to Anwar Ibrahim, have been accused of amassing and hording wealth. Thailand ranks 84th out of 179 countries on the Transparency International’s Corruption Perceptions Index for 2007, a steep drop from 2006. Politically, Thailand remains poised on a razor’s edge.

Apart from that, the far south of Thailand has been rocked often by sectarian violence instigated by local extremist groups. The dispute with Cambodia is yet to be permanently resolved and Thailand has to grapple with tense ethnic relations as 116,000 refugees from Karen, Hmong, and other tribes seek asylum from Burma. Road safety is another worry. In rather interesting data by the World Bank, road accidents were estimated to have cost baht 232.8 billion ($7.2 billion) in financial terms in 2007. That is roughly around 2.8% of Thailand’s GDP. Road safety will need to be a priority in a country where infrastructure is still developing. Infrastructure certainly needs to be quickly improved if Thailand hopes to maintain its competitiveness with countries such China or Vietnam. Logistics costs have risen, and congested ports and roads have hurt Thailand in the past two years.

Bangkok remains the nerve center of Thailand – accounting for 44% of its overall GDP. The city’s GDP per capita is more than $20,000, making it one of the highest in Southeast Asia.

Thailand’s current demographic profile shows that the youth population ratio has been declining steadily at 22% since 1990, particularly due to delayed marriages and lowered fertility rates. In fact, the projected youth population ration for 2050 is 11.7%, and Bangkok will need to emphasize the productive capabilities of its young people in order to maintain competitiveness in the long run. Despite these significant hurdles, Thailand has managed to integrate itself well into regional and global economies. In fact, it stands as the epicenter in East Asia, which has grown more rapidly than any other region in terms of GDP, alleviating millions out of poverty in the process.

In this evolving and increasingly sophisticated global economic environment, Thailand has shown that it has laid the foundations for sustainable growth. Now, the former land of Siam only needs to extend the frontiers for this growth, and expand its horizons so that Bangkok would be as much of a giant on the world scene as Tokyo, Seoul or Shanghai in the years to come.