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Thailand - Economy (Notes)

The Thai economy is export-dependent, with exports of goods and services accounting for 68.6% of GDP in 2006. Thailand's recovery from the 1997-98 Asian financial crisis relied largely on external demand from the United States and other foreign markets. The Thaksin government took office in February 2001 with the intention of stimulating domestic demand and reducing Thailand's reliance on foreign trade and investment. From 2001-2006, the Thaksin administration embraced a 'dual track' economic policy that combined domestic stimulus with Thailand's traditional promotion of open markets and foreign investment. Weak export demand held 2001 GDP growth to 2.2%. Beginning in 2002, however, domestic stimulus and export revival fueled a better performance, with real GDP growth at 7.1% in 2003 and 6.3% in 2004. In 2005, the economy decelerated to a 4.5% annual GDP growth rate due to the tsunami catastrophe, drought, and violence in the three southernmost provinces. For 2006, the rebound of production in agriculture and manufacturing coupled with soaring numbers of tourists increased GDP by 5.0% (year-on-year).

Before the financial crisis, the Thai economy had years of manufacturing-led economic growth--averaging 9.4% for the decade up to 1996. Relatively abundant and inexpensive labor and natural resources, fiscal conservatism, open foreign investment policies, and encouragement of the private sector underlay the economic success in the years up to 1997. The economy is essentially a free-enterprise system. Certain services--such as power generation, transportation, and communications--are state-owned and operated, but the government is considering privatizing them in the wake of the financial crisis. The timetable for privatization of some state-owned enterprises, however, has slipped due to resistance from labor unions and parts of civil society. Despite the resistance, some firms were successfully privatized, such as Airports of Thailand (renamed from Airport Authority of Thailand), PTT Public Company Limited (renamed from the Petroleum Authority of Thailand), and MCOT (renamed from Mass Communication Authority of Thailand).

The Royal Thai Government welcomes foreign investment, and investors who are willing to meet certain requirements can apply for special investment privileges through the Board of Investment. To attract additional foreign investment, the government has modified its investment regulations. In a reaction to former Prime Minister Thaksin selling his telecommunications company to foreign investors, the interim Thai government is expected to pass amendments to its Foreign Business Act during 2007 which would apply greater restrictions on the ability of non-Thais to own or control businesses operating in the Thai services sector.

The organized labor movement remains weak and divided in Thailand; less than 2% of the work force is unionized. In 2000, the State Enterprise Labor Relations Act (SELRA) was passed, giving public sector employees similar rights to those of private sector workers, including the right to unionize.

Roughly 40% of Thailand's labor force is employed in agriculture (data based on Bank of Thailand.) Rice is the country's most important crop; Thailand is a major exporter in the world rice market. Other agricultural commodities produced in significant amounts include fish and fishery products, tapioca, rubber, corn, and sugar. Exports of processed foods such as canned tuna, pineapples, and frozen shrimp are on the rise.

Thailand's increasingly diversified manufacturing sector is the largest contributor to growth. Industries registering rapid increases in production included computers and electronics, furniture, wood products, canned food, toys, plastic products, gems, and jewelry. High-technology products such as integrated circuits and parts, electrical appliances, vehicles, and vehicle parts are now leading Thailand's strong growth in exports. The appreciation of the Thai baht to the U.S. dollar relative to other regional currencies during the 2006-2007 period has not yet shown any significant dampening of Thailand's exports, although export sector margins have been affected. To help arrest baht appreciation, the Bank of Thailand applied controls on the import of capital into the country in December 2006.

The United States is Thailand's largest export market and second-largest supplier after Japan. While Thailand's traditional major markets have been North America, Japan, and Europe, economic recovery among Thailand's regional trading partners has helped Thai export growth (21.6% in 2004, 15.0% in 2005, and 17.4% in 2006, and 18.5% in the first quarter of 2007). Due to domestic political uncertainty and concern about government's economic policies, Thai domestic demand and private investment were flat from early 2006 and remained flat at mid-2007.

Machinery and parts, vehicles, electronic integrated circuits, chemicals, crude oil and fuels, and iron and steel are among Thailand's principal imports. The moderation in import levels (7.0% increase in 2006 versus 26.0% in 2005) reflects the low confidence of both consumers and investors.

Thailand is a member of the World Trade Organization (WTO) and the Cairns Group of agricultural exporters. Tourism contributes significantly to the Thai economy (about 6%), and the industry has benefited from the Thai baht's depreciation and Thailand's stability. Tourist arrivals, which declined in 2005 due to the tsunami catastrophe, recovered strongly in 2006.

Bangkok and its environs are the most prosperous part of Thailand, and the barren northeast is the poorest. An overriding concern of successive Thai Governments, and a particularly strong focus of the Thaksin government, has been to reduce these regional income differentials, which have been exacerbated by rapid economic growth in and around Bangkok and the financial crisis. The government has tried to stimulate provincial economic growth with programs such as the Eastern Seaboard project and the development of an alternate deep-sea port on Thailand's southern peninsula. It also is conducting discussions with Malaysia to focus on economic development along the Thai-Malaysian border.

Although the economy has demonstrated moderate positive growth since 1999, future performance depends on continued reform of the financial sector, corporate debt restructuring, attracting foreign investment, and increasing exports. Telecommunications, transportation networks, and electricity generation showed increasing strain during the period of sustained economic growth and may pose a future challenge. Thailand's growing shortage of engineers and skilled technical personnel may limit its future technological creativity and productivity.

Facts at a Glance: Geography - People - Government - Economy - Communications - Transportation - Military - Climate - Current Time - Ranking Positions - Thai Baht Exchange Rates
Notes and Commentary: People - Economy - Government and Political Conditions - Historical Highlights - Foreign Relations - Relations with U.S.

Facts at a Glance
Current Time
Ranking Positions
Thai Baht Exchange Rates

Notes and Commentary
Government and Political Conditions
Historical Highlights
Foreign Relations
Relations with U.S.

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