Thailand At The Crossroads - Brief Article - Statistical Data Included

Business Asia, July, 2000

THAILAND MUST shift from crisis management of its economy to fundamental reforms if it is to fulfil its growth potential in the years ahead, according to a new report by a respected Australian government think-tank.

The East Asia Analytical Unit (EAAU) of the Department of Foreign Affairs and Trade says that, without continued structural reform, growth could fall as much as two percentage points short of its long-term potential of 7 to 8 per cent a year.

"Thailand's economic policy-making is at the crossroads in 2000; choices made now will determine the pace and nature of growth over the next decade," the report says. "It is too early to pick which path Thailand will choose."

Although Thailand's recovery from its 1997 currency crisis is still gaining momentum, the report says "easy growth" based on using existing capacity more fully will be exhausted as early as next year in some sectors.

After that, growth will depend mainly on new investment and increased productivity. The latter calls for better education, more efficient infrastructure and a more market-driven economy open to foreign trade and investment, the EAAU said.

"This will require less government ownership and intervention in resource allocation, a financial system capable of efficiently intermediating Thai savings and a more transparent, efficient and predictable bureaucracy and legal system.

"If Thailand could achieve these structural reforms, its prospects would be very bright," says the report, entitled Transforming Thailand.

Dr Frances Perkins, executive director of the EAAU, says recent political reforms are one of "real big success stories" in Thailand, noting that fraudulent behaviour has been pursued aggressively.

Perkins also believes positive initial reforms have been achieved in the finance sector, and that the increased presence of foreign investors will change the face of Thai banking.

"There's no way that they can go back to their old, crazy habits," she says.

However, non-performing loans remain high and taking over family-controlled banks will be difficult, she argues.

The report lists a number of risks for would-be investors:

* important recent educational reforms will not upgrade workforce skills for many years;

* corporate debt restructuring is finally accelerating, but bankruptcy laws still favour debtors over creditors and embryonic corporate governance reforms will take years to bear major fruit;

* Thailand's privatisation program is 12 to 18 months behind schedule; and

* sustaining reforms will be key to attracting the funding for the new investment on which growth will largely depend.

Perkins says recovery and reforms in Thailand are offering many new opportunities for Australian businesses, particularly in areas such as agrifood products, automotive parts, non-ferrous metals, medical and pharmaceutical supplies, machinery and equipment.

-- Reuters, Business Asia