Public Disclosure Authorized - Documents & Reports - … Economic Monitor -5 -Figure 7: Real retail sales index (1993=100) Annual inflation continues to fall. 300, Consumer prices

The World Bank

19720

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FEBRUARY 1999 3

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Bangkok, World Bank Thailand OfficeFebruary 1999 14th Floor Tower A Country Director: J. Shivakumar

Diethelm Towers Comments to: U93/1 Wireless Road Stefan Koeberle, Lars SondergaardBangkok 10330, Thailand [email protected](662) 256-7792 [email protected]

Thailand Economic Monitor: Executive Summary

Recent developments * The hope for export-led recovery remains elusive. Exportvolumes expanded by 2.4 percent in November, reflecting an

* Thailand' s recession has stabilized but the signs of recovery increase in all export commodities, with the exception of labor-are mixed. Manufacturing production increased from the montht of intensive goods. Export prices fell by 10.9 percent on a year-on-November but not enough to expand year-on-year. The overall year- year basis in November, off-setting the expansion in volume terms.on-year decline in December was only 1.8 percent, compared to 3.4 Thus. in US dollar terms, exports contracted by 8.7 percent inpercent in November. Expansion in the vehicles and equipment November when compared with November 997. Imports in USsector continued, expanding by 94.5 percent in December. Capacity dollar terms decreased by 15.2 percent from the same period last

utilizatiovemeroe a 54.2 percent in December. from 50.5 myear. November's trade surplus amounted to $1t,025 million, similarNovember and 54.2 percent in October. to that of the previous month. The current account has recorded

* Progress on legal reforms. The stock market rose from 313.65 monthly surpluses throughout 1998 in the order of $1,100-1,200on February 12 to 347.43 on February 13 following news that the million, largely due to the large import compression.Senate approved an amended version of a bill establishing a * Unemployment has increased from 1.1 million recorded inbankruptcy court, the first of four vital bankruptcy- and foreclosure . . .

reltedbils t pas te uperhose.Pasingthee rfor bils asAugust to an estimated 1.5 million in the November Labor Forcerelated bills to pass the upper house. Passing these reforrn bills has Survey, according to preliminary numbers . Since this survey is thebeen viewed by many observers as key in restructuring the large first to be conducted in November, it is difficult to assess whetheramount of corporate debt. Without the threat of swiftly having their the increase is significant or simply a result of the large seasonalloan collateral seized and sold off, firms have little incentive to fluctuations in the labor market.restructure.

-) Inflation remains modest. Consumer prices rose by 0.4percent The Bank is negotiating its second Economic and Financial* Inflation remains modest. Consumer prices rose by 0.4 percent Adjustment Loan (EFAL II) for $600 million, scheduled for Boardin January compared to December, the first increase in five months, presentatonn MArch. The Jpns gonmenthwill pr Soaras a weaker baht and higher oil prices made imports more mnillionin inparallel financing.expensive. CPI inflation for 1998 was 8.1 percent and is expectedto be between 2.5 to 3 percent in 1999. * Financial support for Thailand as a part oi Japan's planned $30

billion Miyazawa Initiative for the region is likely to amount toB The Thai baht has remained remarkably stable in spite of $1,850 million. This will cover funding from JEXIM for a loan forBrazil' s devaluation and depreciated only slightly against the dollar manufacturing sector support and EFALII, as well as OECF supportin January. The average exchange in January was 36.6 to the US fanuEconomic Rectovry and ScAL , Secto am Oan andpandollar, compared to 36.2 in December. On February 18, the baht Agnrcultural Sector Program Loan. In addition, a trade insurancewas trading at 36.9 baht to the dollar. facility of about $500 million is being considered.

* In December, liquidity in the money market remained high, * Assessment. With fiscal and monetary policy in place toresulting in further declines in money market rates. The minimum support growth, and production consolidating at an extremely lowlending rate (MLR) has also come down, albeit at a slower rate. On base, Thailand is likely to see modest growth in 1999. However,February 18, the midpoint of the range of MLR offered by the six cautious optimism is overshadowed by continuing vulnerability tolargest commercial banks had fallen to 11 percent, down from 11.3 extermal shocks and growing concerns over the impact of a waterpercent in January and 11.8 percent in December. However, a lower shortage on the agricultural sector. A key question is to what extentlending rate will not necessary imply new lending. Economic Thailand will be able to address the structural problems that led touncertainty and the high cost of provisioning for bad loans have the crisis in the first place and that are now hindering a sustainablebeen cited as the two most important factors holding back new bank recovery. There are encouraging signs that key bankruptcy andlending. foreclosure legislation will eventually be adopted to provide the

basis for corporate restructuring and resolving the financial sectorcrisis. However, the challenge over the coming months will be toavoid a false sense of complacency as the first signs of recoveryemerge.

The views expressed in the Thailand Economic Monitor are entirely those of the authors and should not be cited without prior permission. They donot necessarily represent the view of the World Bank, its Executive Directors, or the countries they represent. The material contained herein hasbeen obtained from sources believed reliable but is not necessarily complete and cannot be guaranteed.

Thailand Economic Monitor - 3 -

Figure 2: Production of automobiles(seasonally adjusted)

Overall production is still declining... 60

MantJfacturing production picked up inDecember. The level of output in December increasedby 7.5 percent over November and some sectors are 30now expanding on a year-on-year basis (Table 3). 20However, the overall manufacturing production indexis estimated to have declined by 1.8 percent in December on a year-on-year basis, compared with a3.4 percent decline in November, and a 2.6 percent C v > , n v C, Z v , ...decline in October (Figure 1). Despite the large level z z 2 ; o zof output in December, capacity utilization in themanufacturing industries remain low at 54.6 percent,reflecting the fact that the manufacturing sector is Other sectors are also showinig imiprovenments.producing at a level of production similar to that of While the overall manufacturing production is still1994.1 being pulled down by large year-on-year declines in

the production of construction materials (14.5% of the

Figure 1: Manufacturing production index manufacturing sector), production is picking up inseveral other sectors (Table 3). The textiles sector,

130 which accounts for 10 percent of the manufacturing125 -'-- 1995 - 996 sector, has been expanding throughout the crisis.120 + --------- 1997 1998 Production of beverages, notably beer and liquor, has115 - been expanding for four consecutive months, and theii ko- -.. food industry has also turned around. Other100 ~ n / \ ~^ -.manufacturing industries (8 % of the total) are still95 .t shrinking: the production of induction motors90i contracted by 14 percent on a year-on-year basis in85 November, compared with declines of 46 percent in80 October and September.

... but pockets of the manufacturing sector are now .. .and private investment indicators are bottomingexpanding. out.

Recovery in the vehicles sector. The vehicles Several indicators of private investnment havesector appears to be on the path to recovery, stabilized. BOT's 12-month moving average of keyexpanding by 94.5 percent in December 1998 when private investment indicators continued to contract bycompared to D)ecember 1997. Following the dramatic 23.2 percent in November. However, severalslump in domestic demand for vehicles in 1997, most indicators have stopped plummeting in recent months,large auto assemblers had announced that they were including sales of iron rod and galvanized iron sheets,severely cutting back operations by November 1997 domestic cement consumption, and imports of capital(Figure 6). The production figures show a staggering goods (Figure 3, Figure 4 and Figure 5).decline in the months following the crisis: from37,732 cars produced in the month of June 1997 toonly 5,996 cars produced in December 1997. Sincethen, the vehiicles and parts sector has graduallyexpanded production (Figure 2) by shiftingincreasingly to producing commercial vehicles forexport markets.2

Thailand Economic Monitor-4-

Figure 3: Domestic galvanized iron sheet sales Domestic consumption has stabilized...

45,000) Car sales picked up at the enid of 1998. The40 ~~~~~~~~~~~~sharp decline in income, wealth, and the rise in

35~ .unemployment resulted in a large declrine in private30 001 consumption in 1998, estimated to have shrunk by 1525158)- percent. The sharp decline is most vividly reflected in

i20,000 domestic passenger car sales which plumrneted from a15,000- ~~~~~~~~~~~monthly average of 14,628 in the first ha:Lf of 1997 to

io,00o -- ] 1996 around 3,500-4,000 in the months that followed.515)0 -~ - ---- 1998

0-- ~ ~ ~ ~ ~ ~ oseaiyIn recent months, sales have been climbing~~~~~~~ ~taiyand soared in December to 6,479 cars sold.

Car sales usually rise sharply in Decemnber but thisyear's rise was extraordinary with 69 percent more

Figure 4: Imports of capital goods (US$) cars sold in December as compared withi November.However, it is unclear whether the surge i'n Decemberwas real or a result of auto manufacturers reporting

3500 ~~~~~~~~~~~higher sales to make their total sales in1998 look3000 . . -mre attractive. Preliminary numbers for passenger2500 -cars sales in January show that passenger car sales2000 . .*plummeted to 2,077 units, suggesting that the surge in

December may have been artificial.1500-'

1000 --- 19961000-' ~------1997 Figure 6: Sales of cars and motor-bikes

500 1998 ~~~~~~~~~~~~~(seasonally adjusted)

~~ 8. ~~~~~~' 8 ~~~1 8 120

~16 - *.

Figure 5: Domestic cement consumption 1 2 -80

210-60

4,000 v c8

',,4 - Sales of cas43,500-v. 20. ~~~~~~~~ ~~~~~~~~~~~~~ ...... Sales of motobks2 2

2,000 O~~~~~~~~~~~~~~~~' .D r-- r-- r- cc cc cc cc

1,2000

.1,500-0------ 1995 -T -- 1996

500 The adjustment in retail sales has been less0 8.dramatic. Real retail sales continue to be at a lower

~~ .~~~~ - 8 ~~~level than in 1997 but the new lower level appears toz ~~~robust (Figure 7). Real retail sales fell by 7.9 percent

in November on a year-on-year basis compared withdeclines of 8.8 percent in October and 12.1 percent inSeptember. Retail sales num-bers are still unavailablefor the usually large spending month of December butthe large number of visiting tourists, and the positivedevelopments in a number of other variables suggestthat retail sales should have risen sharply as well.


Figure 7: Real retail sales index (1993=100) Annual inflation continues to fall.

300, Consumer prices rose in January fromDecember, the first increase in five months, as a

250 - ~ t ~ p weaker baht and higher oil prices made imports more

200- - A expensive. The increase of 0.4 percent over December

15l - -/ was attributed to a weaker baht that made exports> e ~~~~~~~~~~~slightly more expensive. Meanwhile, the price of

~ 100 {1 1995 1996 crude oil futures rose about 6 percent in January.Thailand's annual inflation rate was 3.5 percent in

50 X---- 1997 - 1998 January, the lowest since September 1993. Year-on-0 1 - - l year inflation was at least 10 percent from April to

< t S < : - Q o ° z July in 1998, peaking at 10.7 percent in June.

Figure 9: Changes in prices

25--~~~-P ~- -------- Wholesale pncesRising vacancy rates and failing prices but no salesin the real estate sector. 20 .. .---

All real estate markets experienced falling 15demand and rentals and rising vacancy rates in 1998 lo -when compared with 1997. Vacancy rates in the oi espace market has risen to 29 percent as of January1999 while rents and prices in this market fell bysome 20 percent in 1998 as compared with 1997. Theprime retail market also suffered, with rentals -5

declining 28 percent and capital values declining by 1030 percent year-on-year. Vacancy rates in the retail r vc 00 o z oc 00

market have improved somewhat from 24 percent in > >,

July 1998 to 22 percent as of January 1999. The - zmarket for luxury condominiums experienced declinesof the same magnitude.

Market responds favorably to progress in passing

Figure 8: Average rentals and capital values of reform bills.

office space (Bangkok CBD) (US$ Terms) Thai stocks went on a roller-coaster ride in

_ 300 3,00 February. At the beginning of February, Thai stocksS _ plummeted following announcements of high levels of

-NPLs of banks, and reflecting the market's doubts.200 2.000t about the government's ability to pass reform bills. By

$ 150- 1,00>t February 12, 1999 the SET had slipped to 313.65-^ lo :from its high of 402.56 on January 6. The plunge was

-> 100 - reversed on February 13 with the SET reachingE 50 500 347.43, when the Senate approved an amended

0 o X + W + + + + + + + 0 Z version of a bill establishing a bankruptcy court. Thes m) It Ie In m ) m c r- r- x0 oo13o :^ o > Senate is reviewing three additional bankruptcy- and

a .= n = a~ = .n s = nforeclosure related bills which are considered vital toAnnual Net Rentals - Capital Values speed up corporate debt restructuring.

Source: Jones l_ang Wotton


Figure 10: Stock market index (end of month) Figure 11: Changes in exports

700 A Expor1 unit value Export value

600 ~ ~~~~ ~~~~~~~~~~~25 i ----- Export volunrr

2{0

100 1l ee-~~~~~~~~~~~~~~~~10,05

N C- N N I CC 90 :5 50 9C 00 DS J

~~~~~~~~~~~~~~~~< < L T. 9 N5 ' fiC oC z

EXTERNAL SECTOR The country's top ten export items includedcomputer and parts, electrical appliances, garments,

The growth rate of export volumes is slowing electronic circuits and components, rubber and rubberdown... products, rice, jewelry and ornaments, canned

seafood, plastic and plastic products, and frozen

Export volumes expanded by 2.4 percent in shrimps. Thai exports are increasingly moving awayNovember, reflecting an increase in all export from the region, toward the EU and the US.commodities with the exception of labor-intensivegoods. Export prices were still declining in November Figure 12: Destination of exports1998 but at a slower pace than at the end of 1997. Fit h.lf 1997 N-98

Export prices fell by 10.9 percent on a year-on-year Re,tF No-9S

basis in November, off-setting the expansion in R-.f d KX%volume terms. Thus, in US dollar terms, exports 2o ,Chi Ko-g)

contracted by 8.7 percent in November when Chin 5od.

compared with November 1997. N ln

The recent slowdown in export volumes h-E

(Figure 1 1) has been attributed to increased 15% IS%

competition, an appreciating baht, and the fact thatnumbers are now being compared to periods in the ... while the declines in import volumes areprevious year where export volumes were already decelerating.high. The slowdown in exports appears to havehappened across the board with the exception of Imports totaled $3.3 billion in November andfishery products where exports were increasing in $3.5 billion in December, considerably lower than theNovember. average of $5.6 billion six months prior to crisis. In

recent months, imports of capital goods and rawPreliminary numbers for December indicate materials have picked up but imports are still at a

that exports decreased by 9.4 percent in US dollar lower level than in the same period in 1997. In USterms on a year-on-year basis. For all of 1998, the dollar terms, imports of capital goods and rawcountry's exports in 1998 amounted to $52.8 billion, a materials were still contracting by 15.1 percent anddrop of around 7 percent, or $4 billion down from the 6.6 percent, respectively, on a year-on-year basis inprevious year. In baht terms, exports totaled 2.24 November. However, these rates of declines aretrillion baht, an increase of 346 billion, or 24 percent., considerably lower than the rates of decline in thefrom 1997. - second quarter of 1998 where imports of both

commodities contracted by more than 30 percentwhen compared with the same period in 1997.

Thlailand Economtic Monitor - 7 -

Imports in 1998 fell by 33.5 percent, or $20.5 ... but the capital account continues to registerbillion, to $40.8 billion. The top ten import items large capital outflows...included electrical machines, machinery, chemicals,electronic circuits and components, crude oil, basic The current account has been in surplus sincemetals, computers and peripherals, electrical September 1997 but the capital account has beenappliances, steel and iron, and textiles. recording massive capital outflows. The current

account surpluses continue to help build up foreignreserves but they are partly being offset by continuing

Figure 13: Changes in imports tlarge private capital outflows. The outflow of private

-A--Import umt value -Import value capital started prior to the crisis in the second quarter-------- Import volume of 1997. Since June 1997, the amount of private

0 9 ~ ' ~ capital leaving Thailand has amounted to $13.9\/5 ~ ~ _ o billion in the second half of 1997 and $21 billion in

-15 - < . ' / the first eleven months of 1998, a total of $34.9c -20 1 \' / billion in 17 months, approximately 30 percent ofe -25 l . GDP in 1998.3 If one adds the amount of capital usedt -30 1 \/\' * t / by the central bank to unwind future/swap obligations,

; 35 the amount of outflows in the same period is close to-40 1 \4/$54 billion.

-45

-50- - 5- - ce n tr Where has all the m7oney gone? First, the.< .- > X S t : < ° Cu central bank has used a total of $19.1 billion to

unwind its offshore stock of swaps and forwards,leading to a buildup of net reserves (Figure 19) and

The current account surplus for all of 1998 is thereby lowering sovereign risk. The majority of the

likely to sur-as- $13.5 billion.., large amount private capital outflows has been used torepay short-term debt. At the end of 1997, short-term

The trade account continued to record a debt was $34.8 billion, already down from $45.1 inserplus of a1pproxiately $1 billion in November and March 1997. By November 1998, the amount of short-Decesinber 1998. Coupled with a surplus on the term debt had been reduced by almost $10.8 billion toservices and oransfers account, the result was a current $24.1 billion (Figure 16). Oddly, private capitalaccount lur of $112 million in November, outflow was also a result of increasing foreign assetsslightly lower than last month at $1,275 million, in the banking sector. The foreign assets of banksThailand registered a trade surplus of 471 billion baht, increased by $3.9 billion from end-December 1997 toor $12 billion in 1998. In view of the large trade end-November 1998 from S8.9 billion to $12.8surplus in December, the current account surplus for billion.4

all of 1998 is likely to reach around $13.5 billion,corresponding to approximately 12 percent of GDP.

Figure 14: Current account to GDP ratio Figure 15: Private and public capital flows

15 3 * Private i2 4 Public i

107 Ii L[ { Dl > | | _ ~~~ ~ ~~~~~~~~~~~~~~~~-2

-5 * --6C

*i*l-7 outflows

-8 92 93 94 95 96 97 98e 99fc c -


Figure 16: Long- and short term external debt' Figure 18: FDI by country (excl. US$ 2.1 forrecapitalization)

Long-term

100,000 Short-term I)00 1600-Total debt (% GDP)

90,000 90 1400 -

80,000 80 1 - 1997 I Jan-Oct 1998

70,000 70 ~in~~~~ 60,000~~~~~~~~~~~~~~~~10

50,000 5

40,000- 40

30,000 3 0

20,000 2020

0 -U O1 m.tV -° o0 I a 0N 0' c C: '0 N cm

~~~~~~~~~~~~_ _ ~ 0~~~~~

o ~~~~~~~0

... despite record high levels of foreign direct Gross reserves are growing and offshore forwardsinvestment. and swaps have been unwound...

Foreign direct investment (FDI) reaches Gross reserves have been increasing steadilyrecord levels in 1998. Foreign direct investment in throughout 1998. On February 5, gross foreign1998 reached US$7.6 billion, the highest leveL in the reserves totaled $29.4 billion, up from $27.0 billion atcountry's history, compared to US$3.6 billion in 1997. the end of 1997. Equally important, total forwardA total of US$2.1 billion of this amount was obligations were brought further down to S5.3 billionaccounted for by recapitalization of the banking sector on February 5 from $18 billion at the end of 1997, andanid only US$5.5 billion for non-bank sectors. By the remaining is reported to be onshore obligations.October 1998 (latest available data), the industrial Forward obligations incurred in defending thesector had accounted for 44 percent of non-bank exchange rate were a serious source of concern in thecapital inflows, followed by 17 percent in financial wake of the economic crisis, amounting to over $29institutions and an equal amount in trading and billion in July 1997. As a result of the unwinding ofholding companies (Figure 17). Japan continued to be forward obligations, net international reserves havethe largest investor, followed by the EU and USA been climbing steadily from less than $1 billion in(Figure 18). August 1997 to approximately $21 billion by

Figure 17: FDI by sector (excl. US$ 2.1 for February 5, 1999.6recapitalization)

Figure 19: Official reserves

2500 Net forward obligations

G -- - Gross international reservesJan-Oct 1998 3 , Net international reserves

301500 -1I-----~~~~ Q 0~~~~~~~~~2

z i25 a,' ', -- '-. .- '

t 500 17 1 11lX,_, R ] <15 1 1 1 110 /

0 10~~~~~

t- 0- 0- o0 oo o cc cc 0 1

cG > z 7- 0 > -


... but the buiildup of reserves has taken place with .. .but unexpected non-tax revenues prevent theborrowed money. government from reaching the IMF target.

Balance of payments support under the $17.2 The ciumulative deficit at Bt40.7 billion forrescue package has been crucial to help buildup the first quarter of the 1998/99 fell short of the IMFreserves. The large buildup of net reserves is only target at Bt6O billion. Revenues shrank by 17.5partly a result of large current account surpluses, percent in December when compared to Decemberequally important has been the balance of payments 1997. The decline was a result of the large contractionsupport provided by the fMF, the World Bank and in the collection of value-added tax, corporate incomcbilateral donors. As discussed, the large current tax and import duties. The government's cash balanceaccount surpluses were partly offset by large capital recorded a deficit of Btl9.9 billion in December,outflows. Thus, the main reason why net reserves resulting in a cumulative deficit of Bt4O.7 billion forwere still increasing was because the Bank of the first quarter of this fiscal year. In the Sixth LetterThailand has been building up reserves with money of Intent, the government had agreed to aim for aborrowed under the financing package. While the deficit of Bt60 billion in an effort to jump start theBOT does not publish the amount of disbursement economy.under the financing package, increases in externaldebt owed by the BOT give an approximation.7 One major reason for not achieving the IMF

target is that the government received unexpectedFigure 20 .Estimate of amount of borrowed non-tax revenues from accumulated interest payments

Fgr2:Esiaesof from the Ministry of Defense's deposits in commercialreserves banks before purchasing armament. The amount was

Btl3.7 billion and was received in November.2 B r Another source of unexpected non-tax revenue of16 _ -- Net international reserves Bt4.0 was due to lack of disbursement from IFCT's14 - foreign loan. This amount was remitted to the12 - Treasury in December 1998 and is expected to belo disbursed in March 1999.

Qa 6 ~ / 11 | | | | The fiscal stimulus may not become effective for4 | | | l several months.

r__ 00 X 00 x 00 The much neededfiscal stimulus is unlikely tom. ,. c become effective soon, pending the release of donor

Z z 22 monev. A vital component of the IMF and the

government's attempt to revive the economy is thewidening of the fiscal deficit to 5 percent of GDP.The intention to stimulate the economy through

MACROECONOMIC POLICIES additional expenditures of approximately Bt75 billion(excluding interest cost of financial sector

Government expenditures increase in December... restructuring) was announced as part of the 6th Letterof Intent released on December 1.

In December, government expendituresexpanded. However, part of the fiscal expansion was There are some important caveats concerningdue to interest payments on new FIDF bonds. the much needed fiscal stimulus: first, the additionalGovernment expenditures rose to Bt76 billion in fiscal expenditures are likely to be financed throughDecember, compared to Bt7O billion in December loans from the World Bank, ADB, OECF and JEXIM1997, a 8.6 percent increase. However, Bt9.6 billion which will only become available once they areof this amou:nt was interest payments on the recently approved and disbursed. Foreign financedissued FIDF bonds. When excluding this payment, the expenditures are not included in the governmentdisbursement rate was only 6.0 percent, lower than expenditure data that the Bank of Thailand publishes6.3 percent in the same period in 1997. on a monthly basis (Table 14). Most importantly,


experience has shown that delays in project In December, the monetary base stabilized atimplementation tend to constrain rapid disbursement. the same level as December 1997. Narrow moneyIn short, Thailand's economy will not see any fiscal (MI) decreased by 1.1 year-on-year but increasedstimulus until intemational donors (including the WB) when compared to November. Broad money (M2)release their loan packages - and the additional increased by 9.0 percent year-on-year in line with thespending will not show up in the regular fiscal data. expansion of commercial bank deposits, and credit to

the public sector.The policy dilemma between exchange ratestability and low interest rates has been resolved. Commercial bank credit is still contracting.

Commercial bank credit (including BIBF) declined byAs a largely symbolic gesture, BOT cut its 9.6 percent year-on-year in December, folowing the

discouint rate to an historic low on January' 29 to 7.0 contraction in BIBF credits and as a result of debtpercentfrom 12.5 percent. Very little lending is made repayments and the continued caution in extendingusing BOT's interest rate and therefore the effects of loans.the reduction only signals the range in which BOT Figure 22: Commercial hank real private credithopes lending rates will settle in the medium term. growth (incl. BIBF)However, Thai Farmers Bank responded immediatelyby announcing it would cut its minimum lending rateby half-a-percentage point to 10 percent in mid-February. The last adjustment to the discount rate wasin July 1997 when BOT raised the discount rate to lo12.5 percent from 10.5 percent after floating the baht.

Iinterest rates continued to fall in Decenmber.In December, liquidity conditions in the money 5market remained high, resulting in further declines in -10money market rates (Figure 21). The minimum -is

lending rate (MLR) has also come down, albeit at a t- v t- vX o

slower rate. On February 18, the midpoint of the .' o a 7

range of MLRs offered by the six largest commercialbanks was II percent. The spread benveen lending and deposit rates

narrowed further in December. The spread betweenFigureand 21:money marketurch rates) the minimum lending rate and a weighted deposit rate

has come down to 5.6 percent from more than 6.0percent in November. Banks have been reluctant to

25 - narrow the gap between lending and deposit rates,

since they have used the spread to cover the cost ofrecapitalization rather than enterinig the government'srecapitalization scheme.

i5 - t ''

--------- I dayRlP \The Bank of Thailand is holding talks withlocal commercial banks to discuss whether they will

I .nth WP be able to further reduce the spreads of dzposit andlending rates to 3-3.5 percentage points from the

i _ _ _ current level of 5.6 percentage points. The centralt t > t t a v C: a <> <> bank is reviewing whether to scrap its requirement forL- .z tS o. .: S < C < Cbanks to maintain a 1 percent reserve for performing

loans in general.


Figure 23: Spread between lending and deposit Figure 25: Exchange ratesrates

0 1208- Nominal -------- Real

10- .- - 100

6 2 J 30 ... - ,. 80

52v 5 30 60V20~~~~~~~~~~~

3

2 ~~~~~~~~~~~~~~~50 20

60 t60 0

0 i I + I + I I ++~~~~~~~~~~~- IC CD !I OD Go w ww

< 00 O 0 00

Figure 26: Volatility of forward rates

Figure 24: Real lending rate'

7 , ot j ~~~~~~~~~~HKD - 11111

5 2.0% .

- C 0. - ~ )0.5% -- _

2 ~~~~~0.0% ---- I _ I oo oo a . a a o 0 0) 0

-, 0

0 ~ ~~~~~~~ ~ ~ 1' Cj 4 c --| | 4¢ a a < < < , 2

Source: Clarion Securities Asia

PERCEPTIONS OF THAILAND

The baht deprecites in January.According to the large rating agencies, Thailand is

The Thai baht depreciated slightly against the still below investment status..

dollar in January. The average exchange in January

was 36.6 to the US dollar, compared to 36.2 in Analysts expect thzat the lar-ge cr-edit ratitngDecember. On February 18, the baht was trading at agencies will upgrade Thailand's credit ratings by36.9 baht to the dollar (Figure 25). Increased volatility June 1999. Currently, Standard and Poor's quotes the

of the spot anid forward rates in nmid-January indicates sovereign long-term foreign currency rating at 'BBB

that the return of confidence has been somewhat minus'. This is just above the threshold for investment

undermiined by the contagion effect of Brazil's grade which many institutions and funds are obliged

devaluation. to respect when placing investmients. Moody'sInvestors Service gives Thailand a "Bal" rating which

is just below investment grade (Table I11). Thailand's

cost of borrowing on financial markets would benefit

from an upgrade by one or both agencies.


A global bond issue has been postponed until SOCIAI, IMPACTIkey reform bills are passed. Despite the successfullaunch for the Philippines sovereign bonds at the The recession has significantly reduced thebeginning of January, Thailand will insist on the delay demand for laborof a global bond issuance pending the passage of 11key economic reform bills and a lower rate on the Unemployment rose to 1,463,000 people in

country's~~~~~~~ ~ ~ ~~ sovereiynn roeoon,6300deoleIcountry's sovereign bonds. November 1998 from 1,138,000 people in August but

tlhe interpretation of the number is difficult. There areco. but in the sovere ign bond market, Thailand .s large seasonal fluctuations in the labor force inconsidered a low risk investment. Thailand which means that unemployment figures

from the Labor Force Survey have to be comparedThailand sailed through worries of contagion with the same period in the previous year to become

effrects from the Brazilian devaluation without meaningful. However, the newly released numbers areproblemes. Thailand's US-dollar sovereign bond due in from the first survey to be conducted in November2007 rose briefly from 300 to 360 in the days after the which makes it very difficult to assess whether theBrazilian devaluation but fell back quickly to 300. increase is significant or simply a result of seasonalSimilar increases were experienced on sovereign fluctuations.bonds issued by other countries in the region (Figure27). On February 11, Thailand's sovereign bond was The November survey estimated that theretrading at 255 basis points above an equivalent US were 1,463 thousand unemployed, or 4.5 percent oftreasury. By comparison, Indonesia's and South the current labor force, compared with 1,138Korea's sovereign bond spread on February ]1I was thousand, or 3.4 percent of the current labor force in950 and 285. respectively. August 1998. The number of underemployed

increased to 989 thousand in November from 938Figure 27: International spreads9 thousand in August. In a recent NES.DB paper,

Kakwani and Pothong used only the February (dry)1600 C-THA and August (wet) surveys and seasonally adjusted the

1400W- IDHN data (Figure 28). Their results show that in August1200 --------- PHL 1998, the seasonally adjusted unemployment rose to

1200 - ---- ----PHL / \ 5.3 percent of the current labor force.1000 /

80(0 Il-eb 99 Figure 28: Seasonally adjusted unemp]loymentratesl0

600

6400)--\

5 ~~~~~~~~~~~~~~~~5.3200

0 r__ 4 --y~~~~~~~~~~~

7 g; < 2- m C Z°a - 3c

Source: Bloomberg

0-m mr ir c C l- r-_ X X

Suc Kka and Poth l998~ ON ON ON ON

Soutrce: Kakwani and Pothong, 1998


The main reason for the large fluctuations in CORPORATE SECTORthe labor market is that the agricultural sector is stillthe main source of employment in Thailand. Withinthe agricultural sector, employment varies Performance of SET-listed non-flnancial firmssubstantially between the wet and dry seasons. Forexample, the agricultural sector employed 11.6 While showing some recovery from themillion people in the dry season in 1998 but 16.5 previous period, high degrees of leverage persisted inmillion people in the wet season (36. 1 % and 49.4 % of the third quarter of 1998. Average debt-to-equity forthe total labor force, respectively), the 27 non-financial firms considered here fell from

2.8 to 2.5 between the second and third quarters ofThe economic crisis has also led to large 1998.11 Nearly three-fourths of all sectors

drops in incomes avrage,pte cisi as led oa experienced a reduction in debt-to-equity ratios.drop in real incomes for people with all levels of Whrineasintsfgueddoc,teywe

educaion. 'Howver, he lage dcreas was Where increases in this figure did occur, they wereeducation. However, the large decrease was generally modest.experienced with people with elementary education orless (Figure 29). Debt-to-equity ratios of the largest sectors

tend to be higher than average. This is particularlyFigure 29: Impact of economic crisis on real true of the building and property sectors which were

income per earner by education among the most highly leveraged sectors during 1998.Figure 30 below shows debt-to-equity ratios for the

O - 'key' SET non-financial sectors of property,-5 chemicals, building materials and supplies,t0l communications and energy. Key sectors arex -15 j - | . l l l l llll identified as such based on a ranking of total sector

&'-'"0 X - ;. lll > l l l assets in the third quarter of 1998.12

Isquarter 1f cl SE s30 lEO Irdst quarter 1998 Figure 30: Debt-to-equity ratios of key non-

-35 financial SET sectors

< - a X i c 8- 0 Propertya ' c ° c ------ ChemicaLsa w. > D| Building Mtls.

6 -A Communication

Source: Kakwani and Pothong, 1998 - Energy5 - All Sectors

The specter of a water shortage overshadows 4 -'

agricultural production. 3-

The agricultural sector may be adverselyaffected by Ca severe water shortage in 1999. Officialspoint out that water levels in irrigation dams are very 0 - - > - > v - xlow, primarily because there was not the normal o a, 5, - 5 arecovery during the July-September period. Thisoccurred in part due to low rainfall and unusually highreleases during that period. In the next season, thewater shortage will bring the growing problem of For many sectors, leverage ratios peaked atallocation and scarcity to the fore. year-end 1997. Following the onset of the crisis,

significant increases in liabilities were met withdeclining levels of equity. It is likely that much of theincrease in liabilities across the board was the resultof changes in the valuation of foreign debt due to theBaht depreciation. Deterioration of equity, meanwhile,has been more severe for some than others. The


number of firms posting negative equity increased Figure 32: Firms with insufficient interestsharply during the crisis, rising from only 7 at the first coverage and their associated liabilitieshalf of 1997 to 41 in the third quarter of 1998 (Figure3 1). At that time, the assets held by these negative- 60% Distressed Liabilities 160

equity companies accounted for over 8% of the total -*No. of Distressed Firms 140

assets of all non-financial firms. These negative 1 120 'equity associated assets were largely concentrated in - 40% o100

the building, property, and commerce sectors. 30 - 80

20%-U16Figure 31: Non-financial SET firms with negative -fl40

equity 10% 1 120!Z 0% -0

50~~~~~~~~~~0

9' Nee. EquityAsoc. Assets/'TA (it} 50 y y y y yq +-NO Firms 45 r _ C> el

-7 , 40

6 ea lu / | | L 35 The liabilities associated with these distressed5> /l \$ | |i 30 firms is considerable, accounting for 39% of the total

- 4 / i25liabilities of all firms in the data set. The;/ -20 t concentration of distressed liabilities is high, with the

majority being associated with key sectors. One-thirdof distressed firms belong to the property arid buildingmaterials sectors and together account for 45% of

t c > OC distressed liabilities (Figure 33).. co co5 o' crn C

C?

Figure 33: Distressed liabilities by sector

Insufficient interest coverage continues to (Q3 1998)present a problem for at least a third of all non- Propertyfinancial listed firms. During the year and a half P roperty

preceding the crisis, the number of 'distressed' firms Sectorsfor whom cash flow falls short of interest expenses 36%

more than quadrupled (Figure 32).4 As would beexpected, the circumstances of the crisis has placedadded strain on companies and interest coverage(defined here as earnings before interest., taxes, Building

depreciation and amortization, or EBITDA, as a Materialsproportion of interest expenses) has declined further 6%

as a result. Almost across the board, increases in Communi-interest expense have been accompanied by cation ChemicaLs

reductions in profitability and cash flow. The average 14% 6%

ratio of EBITDA-to-interest expense droppeddrastically from 3.8 to 1.7 between the first and thirdquarters of 1997. At the third quarter of 1998, theaverage non-financial listed firm was only just able togenerate the cash flow necessary to service interestexpenses.


Progress is being made in corporate Inter-creditor arbitration. Slow coordinationrestructuring... and decision-making by financial institutions have

been an obstacle to rapid progress in voluntaryProgress is being made both in specific restructuring. An agreement between Thai banks,

restructuring transactions, and in developing a finance companies and foreign banks operating inframework conducive to more rapid progress. Thailand to adhere to streamlined inter-creditor voting

rules has developed rapidly. The most recent versionsThe scope of the problem is becoming clearer. of the agreement calls for signatories to adhere to a

The scope ol the problem is being more thoroughly 75% approval threshold, arbitration for those casesunderstood since the Bank of Thailand developed its which do not reach 75% majorities, and somemonitoring capabilities. The NPL problem in incentives for corporate participation.Thailand (estimated at 2.5-2.8 trillion baht) can bedivided into large, medium and small cases. At the Facilitation and operational support.large end of the spectrum, there are roughly 300 large Following a successful roundtable with public andNPLs which exceed 500 billion baht each, private representatives involved in corporaterepresenting roughly 1/4th of the NPL problem. The restructuring, the World Bank is seeking to assist inaverage size in this set exceeds 2 billion baht per case. the development of enhanced facilitation to supportThe medium-sized set, with over 1,300 cases between the Bank of Thailand in corporate debt restructuring.100 and 500 million baht per case, represents another This would involve high-level Thai and foreign1/4th of total NPL. The smaller cases, under 100 restructuring experts acting as a communicationmillion baht per case, represent roughly half of the bridge between debtors and creditors, and a source ofNPL, and is spread over tens of thousands of more innovation and expertise. The World Bank,corporate cases. through ASEM funding, is also proposing the

development of an advisory center to assist corporatesMore larger restructuring transactions have in developing restructuring plans.

been completed in the first two moniths of 1999,indicating the feasibility of a number of new forms of Upgrading of CDRAC. CDRAC, the ad hocrestructuring for Thai corporates. One example Corporate Debt Restructuring Advisory Committeereceiving attention was a large telecommunication chaired by the Governor, was upgraded to fullfirm that reached a voluntary agreement with Department status in the central bank. The Governorcreditors, involving over Bt2O billion of obligations is unhappy with the degree of progress achieved, andincluding international bondholders. the accountability of his staff toward achieving

progress. CDRAC will receive a pennanent staff ofThe first court-supervised reorganization up to 80, with a mandate including policy and

have taken place. Atphatec Electronics became the operations.first corporate to emerge from the formalreorganization process introduced in the 1998amendment to the Bankruptcy Law. Creditors Progress in restructuring the 200 firms selected by the CDRAC

accepted a plan by which the assets of Alphatec will (BOT Estimate)be revived through a strategic investment by AIG and (billion baht)Investor of Sweden. In process Completed

of negotiations RestructuringSept Oct Nov June Sep Oct Nov

... while ne2v measures to speed up the progress are Manufacturing 228 266 287 2 6 10 32being considered. Construction 14 20 20 1 3 3

Real estate 61 99 85 0 1 6 15

While indications of increasing momentum Exports 8 9 17 0 2are evident, there scope of the problem merits more TOtael 438 569 596 1 8 17 30

proactive approaches. The new measures include: Source: Bank of Thailand


PRIVATIZATION AND LEGAL REFORM Water. The Master Plan proposed twostrategies for increasing private sector participation in

Privatization Bangkok's water utility, MWA, in order to improveservice quality and reduce the city's unaccounted for

Currently, 65 state-owned enterprises operate water (40% of total production). Options include ain Thailand. In 1998, these enterprises had total long-term concession or corporatization and sale ofrevenues of 884.2 billion baht ($US 24 billion) and shares to a strategic partner. For the Provincial Wateremployed 336,648 people, just over 1% of the labor Authority, serving the remainder of Thailand, itforce. Revenues of state enterprises accounted for a proposed dividing the authority into several separatesignificant portion of economic act:ivity-- regional water utilities, with private sectorapproximately 14% of 1997 GNP. State-owned participation initiated on a case by case basis. MWAapprximaely 4% o 197 GN. Stte-oned and PWA currently serve as both policy maker andenterprises operate primarily in four infrastructure and for they wayer s both fliturer andsectors-energy, telecommunications, transportation regulators for the water sector. In the future, withand water-as well as in banking, services and increased private participation, it is expected thatmanufacturing. Many of these activities are these authorities will shed their policy making andgenerally considered to be outside core government service provision functions and be transformed intofunctions, and could be delivered through private regulatory bodies for the sector. This process,sector participation, however, is still in the planning stages.

With the objectives of raising revenues and Transportation. Objectives for reform of thisimproving efficiency, the government is undertaking a sector-encompassing land, air and waterprogram of divestiture of state enterprises. On transportation--are to reduce the role of the state andSeptember 1, 1998, the Cabinet approved a Master enhance private sector participation. The Ministry ofPlan for State Enterprise Reform. The Master Plan Transportation and Communications is to bearlays out a comprehensive strategy and time table for pmatry rponsiblitses ty atathe povicy. y fprivatization in infrastructure, as well as for various Master Plan proposes that the provision ofother state owned enterprises, transportation services will be predominantly the

responsibility of the private sector, with reforms

Energy. The Electricity Generating Authority separating regulatory functions from policyof Thailand (EGAT) is currently the main entity in responsibilities exercised by line governmentcharge of electricity generation, transmission and sale agencies.of bulk energy to distributors in Thailand. Privatesector participation in the sector will be encouraged High contingent liabilities in transportation,through independent and small power producers (IPPs particularly for the State Railways of Thailand, makeand SPPs). Seven IPPs have contracted to generate a financial restructuring an urgent necessity. In 1997,total of 5,944 megawatts of electricity for EGAT, SRT recorded a loss of 1.76 billion baht (US$48largely using natural gas, with some of these on line rnillion), while receiving a government subsidy of 3.7as early as 1999. billion baht (US$ 100 million). Basic maintenance of

the railways, and improvement of the safety record,

The Master Plan, in accordance withi policy are top priorities. The Master Plan has proposed fordeveloped by NEPO, calls for introduction of full SRT a separation of infrastructure, operations and realcompetition in power generation to complement estate assets, with private sector participation inexisting independent power producers, with open operations and real estate. Currently, an 'emergencythird party access to wheeling services, as well as assessment' of SRT's financing needs is beingretail competition. Eventually, an independent system undertaken by an independent research institute underoffice, owning no generation assets, will be the auspices of the Office of State Enterprises,established to oversee transmission. Over the medium financed by EMAP. Assistance, for whichterm, the Electricity Generating Authority of Thailand contracting has begun, will follow in 1999 to begin(EGAT) will be corporatized and restructured, with the division of infrastructure, operations and realindividual power plants and subsidiaries sold. estate in preparation for incorporating private

participation where possible.


Telecommunications. Two state enterprises The success of voluntary restructuring restsprovide the bulk of telephone service in Thailand. on a strong legal framework for bankruptcy andThe Telephone Organization of Thailand (TOT) foreclosure. Significant progress was made inprovides domestic telecommunications services, while February on the government's legislative reformthe Communications Authority of Thailand (CAT) program.provides intemational services, as well as telex andpost. These enterprises have operational and Act creating Specialized Bankruptcy Court.regulatory authority over telecommunications in their Creates a specialized court, and limits the levels ofrespective areas, and are under the authority of the appeal for a bankruptcy case. Creation of aMinistry of Transport and Communications (MOTC). specialized court will speed processing and moreWhile CAT and TOT compete in some areas such as rapidly build judicial capacity. This has been passedcellular, paging, etc., they largely operate in exclusive by both the House and the Senate. It only awaitsproduct markets. ratification by the House, before the Prime Minister

presents it to the King for his signature.In accordance with a commitment to the

World Trade Organization to fully liberalize its Act amending Bankruptcy law. The lawtelecommunications market to foreign competition in makes several important corrections and2006, Thailand has begun to open the sector to private improvements to the bankruptcy regime, includingcompetition. This strategy is put forth in the voting by creditor classes, more clarity and securityTelecommunications Master Plan, approved by the for creditors who lend to insolvent companies toCabinet in November 1997. The strategy is for a enable business to continue, treatment of debtorphased approach in which the government will first insiders, raises the minimum debt threshold to use thepartially liberalize the market for domestic law up to I million baht for corporations, clarifiescompetitors, followed by full liberalization. conversion of foreign currencies to Thai baht, specificAccording to the Telecommunications Master Plan, contents of rehabilitation plans, and containsthe government intends to convert the concessions, objective rules for treatment and confirmation ofafter which revenue sharing agreements will be plans, plan preparers and plan administrators (whereaswaived, and operators, including CAT and TOT, will before these were largely at the discretion of thepay license fees to a newly established National Court). The changes stabilize the process and shouldCommunications Commission. Compensation from help creditors have more confidence in using it.concession conversions will be used to reduce servicefees. Code of Civil Procecdulre Amendment - Petty

Cases. Streamlines and speeds foreclosureLegal reforn procedures for cases with a simply underlying

transaction or a small amount. This may have aIn order to facilitate privatization, legal substantial impact in restructuring, especially since

reform will be required, for example to corporatize the majority of foreclosures are simple mortgages onstate owned enterprises. In July 1998, the property, plant or equipment.Government submitted a Corporatization Law toParliament. The Lower House has passed the law, and Code of Civil Procedure Amendment onthe Senate is now considering it in its current session, Execution of Judgments. Limits appeals onceending in March 1999. judgement issued, thereby eliminating one of the

causes of the extremely long time between foreclosureand collection as experienced in Thailand.

Code of Civil Procedure Amendmentenabling default judgements. This bill enables thejudge to issue a judgement for the plaintiff if thedefendant fails to appear to a summons. This closesanother of the delay tactics used by debtors to avoidforeclosure.


Parliamentary Timetable. __ _ concentration, ownership, size of institutions, types ofHOUSE SENATE financial services offered, outreach (branch network),

1st 2nd & 3rd 1st Reading Vetting etc. The government has recently appointed areading Reading colmmittee Financial Services Task Force which will identify

Bankruptcy 2 assed Passed Passed 'Cleared reforms needed to ensure that the financial sector iscourt _ _ safe, sound, and efficient in pricing and delivering

Amendments Passed Passed In committee financial servicesto 1/23

Bankruptcy :.. \.fBankruptcy Current DevelopmentsLaw

Foreclosure: Passed Passed In committeePetty 1/20 The next round of FRA sales will take placeCases on March 10, 1999. The FRA is now planning to

Foreclosure: Passed Passed In committee - auction off the unsold portfolio around end-February,execution of 2/10 1999. It is widely expected that the Assetjudgement 209-0 Management Corporation (AMC) will take part in this

7->e .asure: On agenda second round, and that the assets will be r-epackagedSummons in two forms. Assets in which the private sector has

I procedures ._______ ___________________ ____ shown interest will be packaged in smaller tranches.

Less desirable assets will be packaged in larger pools,

FINANCIAL SECTOR and will be sold according to a profit sharing scheme._____________ _- It is also expected that the FRA will revise and ease

Or ea yry ha some of the bidding conditions -- e.g. make non-cashOver the ast year by necesity, Tha payments acceptable under well-defined

authorities have focussed on containing the financial circumstances.crisis and restoring public confidence. Whilesubstantial progress has been made on the resolution TFB recently issued BtO billion in preferredof troubled financial institutions, as well as on shares and subordinated debentures. The preferredregulatory and supervisory improvements, fi'ancial shares increase Tier I capital, enabling TFB to avoidrestructuring is not yet finished and a resilient p i

financal sytem i not et asured.participating in the Government's Tier I bankrecapitalization scheme, which would result in greaterdilution of the current owners. On its face, the

Bankrestuctringis ovin slwly.The transaction contributes to bank recapitalizationprocess of mergers among intervened and other state-owned inis'_ ,'Lutions as part of the August 14. efforts. However, over half of the shares vere taken

71struc . Plan is on track despite some elays up by TFB's depositors, who will earn a higher returnRestrucv.ukrng Plan iS on track despite some clelays.r, te bn s on their shares than on deposits, raising questionsHowevera provate bankspitain schemes ak about its real impact on the ability of TFB toadvantage of the recapitalization schernes -- recognize its mounting losses.particularly the Tier 1 scheme that requires banks towrite down their capital in return for official money. Bangkok Bank (BBL) also raised Tier 1The recent Thai Farmers Bank (TFB) preferred share capital through refinancing and capital gains. BBLissue (see below) demonstrates that bank owners will has raised Btl3.4 billion in new capital by refinancingtry to find solutions that avoid participatior -in the outstanding notes and debentures held by foreigngovernment program. Only Siam Commercial Bank investors. The bank also announced capital gains of(SCB) has applied for the Tier I program, although Bt3.8 billion, achieved by adjusting the terms of itsThai Military Bank (TMB) and Nakornthon Bank $400 million in subordinated convertible bo.ds due in(NTB) have recently expressed interest. SCB, TFB 2004. BBL was able to gain from the refinancingand TMB also announced their intention to participate because of the devaluation of the exchange rate sincein the Tier 2 scheme. .. the time of the original 1994 issue.

Financial sector restructuring requires amedium-term perspectfive. The urgency of the crisisNo-efrnglas(P)cntueomediu-termperspctive Theurgeny of he crsis row but are expected to peak in the first half of 1999.has not allowed ongoing efforts to be based on a clear According to the BOT, NPLs at local cofmercialvision for the financial sector-in terms of


banks accounted for more than 46 percent of total ASSESSMENTloans in October 1998. Thailand's eight private bankshad loans more than three-months in arrears There is light at the end of the tunnel amounting to 39.45 percent of their total loans, or1.22 trillion baht. Eight state-owned banks had NPLs Several of signs indicate that the bottom ofworth 58.3 percent of total loans, or 966.3 billion the crisis mnay have been reached. First, production,baht. Foreign banks had NPLs of 8.05 percent. consumption and investment indicators have leveled

out at a stable low level equilibrium which does notUpdates on the reform program seem to be deteriorating further. Second, Thailand's

Strenigthening supervisorv capacity. The vulnerability to external shocks have been reducedconsiderably by increasing reserves (both gross and

Bank of Thailand (BOT) is actively working to net), paying off short-term debt, and turning a largestrengthen its supervisory capacity. International current account deficit into a solid surplus. Third, incentral bankers delivered training for examiners on contrast to a year ago, both monetary and fiscal policycredit risk in early December and are assisting with are now accommodating of growth. Interest rates havethe developmnent of a school for bank examiners in the fallen to pre-crisis levels without threatening theBOT. In addition, the BOT is working on upgrading stability of the baht or raising inflation, suggestingprudential regulations and reviewing compliance with that monetary policy can be even more expansionary.the Basle "'Core Principles for Effective Banking Fiscal policy has also been geared to stimulate theSupervision". The BOT is also arranging a Y2K economy by allowing the deficit to grow to 5 percentcompliance e xamination course. of GDP in the current fiscal year-- or 8 percent of

GDP when including the interest cost of financialBanking Law Reformn. The BOT has been sector restructuring.

working to strengthen the legal framework for thesupervision of commercial banks and finance lmhere are also small signs of' recovery.companies, utilizing the lessons learned from the Within the manufacturing sector, the vehicles andfinancial sector crisis and incorporating best parts sector is now expanding rapidly on a year-on-international practices. year basis by increasingly servicing export markets

outside of the region. Domestic consumers may alsoDleposit Insurance Svstem. The BOT has have regained some confidence, judging by a rising

finalized a framework for a Deposit Insurance trend in sales of cars and automobiles at the end ofAgency, which will eventually replace the 1998.unconditional guarantee now offered by the FinancialInstitutions Development Fund. However, ... making the modest growth forecast of 0-1implementalion of the limited deposit insurance percent highly likely...scheme would occur when the financial system isstabilized. Growth in the 0-1 percent range for 1999

seems a realistic scenario, given the low base theeconomy is starting from and the positive trendsoutlined above. Without any clear and present dangersthreatening to make consumer spend even less in1999, or manufacturing finns produce at a level ofproduction lower than their current level(corresponding to 1994-levels of production), theeconomy is set to grow modestly without any majordomestic shocks-- provided the corporate debtoverhang can be restructured and the soundness of thefinancial sector is not further undermined by risingnon-performing loans.


... but the challenge is now to put Thailand on the One of the biggest threats to sustainedtrack for the next decade of growth. recovery is to declare premature victory. There is a

risk that the incipient recovery generates a false senseModest growth in 1999 may be possible since of complacency that could erode the Government's

it is starting from a low base, but will be difficult to resolve to tackle difficult structural reformns. In thesustain in subsequent years unless it is supported by final analysis, Thailand's prospects of a quick anddeeper structural reforms. sustained recovery depend on how resolutely

government addresses issues of financial andThe prospects for a sustained recovery remain corporate sector reform, how ably it manages theclouded by the slow progress in dealing with the social impact and how effectively it pursues structuralunderlying structural problems of the economy: rising reformiis.non-performing loans continue to undermine theviability of the financial system, restructuring of thehuge corporate debt overhang has made littleheadway, and the progress in privatization and publicsector reform has been very modest. The social impactof the crisis has pushed numerous people below thepoverty line and threatens to erode social cohesion.The external environment looks much less threateningthan it did in the summer of 1997. The risk premiumof Thailand's sovereign debt has been sharply reducedand Thailand's economy was resilient enough toweather the contagion effect of Brazil's currencyupheaval without serious consequences. Nonetheless,the prospects for Thailand's recovery remainintricately linked to the outlook for the depressedregional market in Asia and the danger of a slowdownin growth in the USA and Europe.

Consensus Forecast Summary

Average % Change on Previous Calendar Year,unless otherwise noted

1997e 199Sf 1999f 2000f

Gross Domestic Product -0.4 -8.0 0.7 3.3

Private Consumption 0.1 -11.4 0.5 3.9

Gross Fixed Investment -16.0 -28.7 -1.3 4.9

Manufacturing Production -0.4 -11.6 1.1 4.9

Consumer Prices 5.6 8.1 3.0 3.8

Money Supply (End Year, % change) 16.4 9.0 9.8 12.3

Merchandise Exports (fob, US$bn) 56.7 52.8 55.0 57.2

Growth rate (in dollar terms) 4.0 -6.9 4.1 4.0

Growth rate (in volume terms) 9.2 8.8

Merchandise Imports (cif, US$bn) 61.3 40.8 45.0 47.7

Growth rate (in dollar terms) -13.4 -33.5 10.3 6.0

Growth rate (in volume terms) -11.8 -21.7

Current account balance (US$bn) -3.0 13.8 9.0 9.8

Source: Forecast by Consensus Economics (February 1999), IMF,and historical data from BOTe = estimate, f = forecast


Annex Tables

Table 1: Macroeconomic framework

1995 1996 1997 1998f

GDP at current market prices (billions of baht) 4189 4598 4827 4850

Real GDP growth (percent) 8.8 5.5 -0.4 -8.0Consumption growth 7.1 6.7 0.1 -10.5Gross fixed investment growth 11.2 6.0 -16.0 -30.4

CPI inflation (average period, percent) 5.8 5.9 5.6 8.1

Savings and investment (percent of GDP)Gross domestic investment 41.6 41.7 35.0 25.4

Private, incl. Stocks 32.7 31.5 23.5 14.1Public 8.9 10.2 11.5 11.4

Gross national savings 33.3 33.2 32.6 37.0Foreign savings -7.9 -7.9 -2.0 -12.0

Balance of payments (billions of US$)Exports, f.o.b. 55.7 54.7 56.7 52.8

Growth rate (in dollar terms) 24.8 -1.9 4.0 -6.9Growth rate (in volume terms) 14.2 -4.5 7.3

Imports, c.i.f. 70.4 70.8 61.3 40.8Growth rate (in dollar terms) .. 0.6 -13.4 -33.5Growth rate (in volume terms) 16.1 -2.5 -10.4

Current account balance -13.2 -14.4 -3.1 13.8(percent of GDP) -7.9 -7.9 -7.9

Gross official reserves 36.9 38.6 26.9 29.9

Source: Bank of Thailand, IMF, and staff calculations


Table 2: Balance of Payments

(billionis of US$)

1997 19981996 1997 Qlp Q2P Q3P Q4P QIP Q2P Q3F

I. Current Account -14.4 -3.1 -2.1 -3.1 -0.7 2.9 4.2 2.8 3.4

A. Goods and services -11.7 -0.1 -1.5 -1.9 0.0 3.3 4.7 3.8 4.3

a. Goods -16.1 -4.6 -3.2 -3.1 -0.9 2.5 3.1 2.6 3.1

Exports 54.7 56.7 13.6 13.7 14.5 14.9 13.2 13.0 13.3

Imports -70.8 -61.3 -16.8 -16.8 -15.4 -12.4 -10.1 -10.4 -10.1

b. Services (net) 4.4 4.5 1.7 1.2 0.8 0.8 1.6 1.2 1.1

Services receipts 17.0 15.8 4.6 4.4 3.4 3.4 3.3 3.1 3.0

Services payments -12.6 -11.3 -3.0 -3.2 -2.6 -2.6 -1.8 -1.9 -1.9

B. Income (net) -3.4 -3.5 -0.7 -1.3 -0.9 -0.6 -0.6 -1.1 -0.9

Income Receipts 4.0 3.7 1.0 1.0 0.8 0.9 0.9 0.8 0.8

Income Payments 1/ -7.4 -7.2 -1.7 -2.3 -1.7 -1.5 -1.5 -1.8 -1.8

C. Current transfers 0.8 0.5 0.1 0.0 0.2 0.2 0.1 0.1 0.1

II. Capital and Financial Accounit 19.5 -9.1 2.4 -3.9 -3.8 -3.7 -2.6 -3.6 -2.0

A. Capital account 2/ 0.0 0.0

B. Financial account 19.5 -9.1 2.4 -3.9 -3.8 -3.7 -2.6 -3.6 -2.0

1. Private 18.2 -8.1 1.8 -0.9 -6.9 -2.1 -4.3 -2.2 -3.1

Bank 5.0 -6.3 2.4 0.0 -5.9 -2.8 -1.2 -3.8 -4.4

Non-bank 13.2 -1.8 -0.6 -0.9 -1.0 0.7 -3.1 1.6 1.3

Direct investment 1.5 3.2 0.5 0.6 1.1 0.9 1.3 1.5 1.2

FDI 3/ 2.3 3.6 0.7 0.8 1.2 1.0 1.3 1.5 1.3

Thai investment abroad -0.8 -0.4 -0.1 -0.2 -0.1 0.0 0.0 0.0 0.0

Others loans 5.5 -3.8 -0.1 -0.8 -0.9 -1.9 -2.1 -1.1 -0.7

Portfolio investment 3.5 4.6 0.5 1.2 2.4 0.4 0.5 0.1 0.0

Equity securities 1.1 4.0 0.4 0.9 2.2 0.5 0.5 0.0 -0.1

Debt securities 2.4 0.6 0.1 0.3 0.3 -0.1 0.0 0.2 0.1

Non-resident baht account 2.9 -5.8 -1.7 -1.8 -4.0 1.6 -3.0 1.3 0.8

Trade credits -0.1 -0.2 0.3 -0.1 0.0 -0.4 -0.1 -0.2 -0.2

Others 0.0 0.2 -0.1 0.0 0.2 0.1 0.2 0.0 0.2

2. Public 1.:3 1.6 -0.1 0.3 0.6 0.8 0.7 0.1 0.7

3. Monetary authorities 4/ 0.0 -2.6 0.8 -3.4 2.5 -2.4 1.0 -1.5 0.5

III. Allocation of SDRs 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

IV. Errors and omissions -3.0 1.5 -0.4 1.1 2.1 -1.2 -0.8 -0.1 -1.0

V. Overall balance 2.2 -10.6 -0.1 -5.9 -2.5 -2.1 0.8 -0.9 0.5

Source: Bank of Thailand

Remarks: Other sectors (including state enterprise)

1/ Investment income only

2/ Comprise debt forgiveness, migrants' transfers, acquisition/ disposal of non-produced, non-financial assets,etc. These items were previous, up to 1992, included in services and current transfers.3/ Excluding $2.1 billion capital inflows used to recapitalize commercial banks. In some BOT tables, theseinflows are (correctly) categorized as FDI and in others (like this one), they are not.4/ Including Bank of Thailand's borrowing and other oflfshore transactions.p = Preliminary


Table 3: Manufacturing Production(% changes since previous year)

1998Weight Apr. May Jun. Jul. Aug. Sept. Oct. Nov. Dec.

1995Manufacturing Production Index 1/ 58.59 -16.1 -17.3 -12.3 -14.1 -10.4 -8.9 -2.6 -3.4 -1.8Food 6.10 -18.4 -5.4 -0.2 1.0 1.4 5.6 6.6 14.0 1.6Beverages 6.77 3.5 -10.5 -1.4 -0.8 -8.8 16.4 13.7 14.4 4.9Cigarettes 1.90 -36.2 -39.9 5.0 -48.3 -21.5 -27.9 -9.1 39.8 -15.1Construction materials 14.54 -42.9 -37.0 -46.3 -48.9 -37.5 -33.5 -30.6 -31.8 -15.0Vehicles and equipment 7.39 -73.2 -67.0 -60.1 -57.4 -39.3 -40.7 -14.1 60.4 94.5Petroleum products 3.68 2.3 -1.7 2.3 -0.9 0.4 -15.4 -0.2 -23.7 -9.6Textiles 10.08 3.0 3:5 4.4 2.6 2.7 2.3 1.4 1.1 1.2Others 8.13 -3.4 -11.2 -11.1 -14.1 -18.7 -13.0 -13.5 -22.3 -21.9Source: Bank of Thailand (The Office of the Cane and Sugar Board, The Excise Department, Thailand Tobacco Monopoly, andthe manufacturers of respective products)1/ From 34 items which account for 59 percent of the manufacturing sector.

Table 4: Key Private Investment Indicators(% changes since previous year)

1998Feb Mar Apr May Jun Jul Aug Sep Oct Nov

Private investiment index 56.3 49.4 40.1 32.9 25.4 17.4 13.7 9.4 7.4 6.7(% changes of 12-month MA) -6.8 -8.9 -12.0 -14.4 -16.9 -19.6 -20.9 -22.3 -22.9 -23.2Import value of capital goods (baht) 24.2 4.5 -17.8 -7.0 -0.8 -9.7 -15.0 -22.0 -23.6 -17.6Import value of capital goods (US$) -31.6 -35.1 -45.9 -38.2 -39.1 -36.0 -34.0 -31.6 -27.3 -12.4Domestic cement consumption -34.6 -47.2 -50.6 -48.8 -51.7 -51.2 -34.4 -33.9 -36.4 -41.1

Commercial banks'creditfor industry 33.5 13.5 11.1 10.5 9.9 0.6 -3.0 -6.3 -10.5Commercial banks' credit for construction 12.0 6.6 26.7 9.9 14.3 11.8 11.0 9.9 6.7

Source: Bank of ThailandNote: Components of private investment index (in order of importance): 1) Import value of capital goods, 2) Domestic cementconsumption, 3) Commercial banks' credit for construction and manufacturing, 4) Construction areas permitted in municipal zones(whole kingdom), 5) Equity inflows, 6) Domestic sales of galvanized iron sheets (the construction of the private investment index isexplained in (letails in the BOT's monthly publication "Key Economic Indicators.")

Table 5: Capacity Utilization(percent)

Weight 1996 1997 1998Ql Q2 Q3 Q4 Ql Q2 Q3 Q4 Ql Q2 Oct. Nov. Dec.

Food 3.6 62.5 31.0 23.6 30.5 64.5 26.5 23.7 32.6 54.6 24.6 25.9 32.6 44.8Beverages 5.7 81.8 87.2 88.9 107.6 68.1 83.9 81.8 89.3 61.6 69.9 90.3 88.5 93.8Cigarettes 1.9 88.2 88.7 76.3 83.4 86.4 80.1 79.6 57.3 72.7 58.5 58.7 56.8 56.5Construction materials 4.3 75.3 72.3 73.0 72.4 77.5 75.2 66.7 52.7 54.3 41.5 37.7 36.6 37.7Others 11.6 73.0 70.3 49.6 72.0 64.2 65.4 67.5 67.9 60.4 58.2 54.7 51.6 50.8Total 44.9 72.7 70.5 68.1 76.9 71.2 69.4 64.6 58.8 53.4 53.0 54.2 50.5 54.2Source: Bank of ThailandNote: Details of compiling the capacity utilization numbers can be found in "Monthly Bulletin (April 1998)" from BOT. Startingwith the October 1998 Monthly Bulleting, the capacity utilization numbers for 44.9 percent of the manufacturing sector are nowavailable on a monthly basis.


Table 6: Changes, in Consumer Prices(year-on-year % changes)

1998Mar ALpr May Jun Jul Aug Sep Oct Nov Dec Jan

All commodities 9.5 10.1 10.2 10.7 10.0 7.6 7.0 5.9 4.7 4.3 3.5Foodandbeverages 11.6 12.1 13.1 13.6 11.8 7.4 7.3 6.7 5.8 6.0Rice and cereal products 46.7 41.6 37.9 34.0 27.0 15.3 11.2 8.6 4.8 1.2Meat, poultry and fish 3.9 4.1 4.2 4.0 4.4 3.6 4.1 4.5 4.4 6.4Vegetables and fruits 5.4 10.8 21.2 28.1 21.0 1.5 7.3 9.0 11.5 13.6Eggs and milk products 9.7 12.0 15.2 20.3 20.3 18.3 15.5 15.1 13.6 12.1Other food bought from the market 9.6 9.6 9.8 10.5 10.7 9.5 9.1 10.1 9.4 11.0Non-alcoholic beverages 8.3 8.6 9.0 8.6 9.4 11.8 11.4 11.6 10.3 10.0Prepared food 9.1 9.0 8.9 8.4 7.5 6.5 5.8 4.3 3.6 3.6

Clothing 8.9 9.0 8.1 8.7 9.1 8.4 6.3 5.5 4.6 4.2Men's and boys' 9.5 9.8 8.1 8.0 8.1 7.3 4.7 4.7 4.6 3.9Women's and girls' 8.2 8.2 8.0 9.2 10.1 9.6 7.6 6.5 4.6 4.3Cloth and sewing services 9.0 8.6 8.9 9.1 9.5 8.7 6.6 5.0 4.7 4.9

Housing and furnishing 5.4 6.0 6.1 6.4 6.6 6.9 6.4 5.3 3.5 2.9Shelter 2.5 2.5 2.4 2.5 2.5 2.1 1.5 1.3 0.9 0.7Furniture and equipment 7.0 7.3 7.4 7.7 8.0 7.6 7.1 6.8 6.0 5.4Housekeeping and cleaning supplies 3.8 5.6 6.2 6.3 9.9 11.9 12.3 8.6 5.0 4.0Household textiles 9.4 9.3 9.8 8.9 9.0 9.1 8.5 6.5 3.6 3.1Electricity, fuel and water 15.2 18.2 19.0 19.9 20.2 22.9 22.3 18.6 11.9 10.5

Personal and medical care 7.2 7.9 8.7 9.5 10.2 9.2 9.7 9.9 9.0 7.8Medical care 6.4 6.2 6.3 5.9 6.0 5.1 5.7 5.3 4.1 3.2Personal care 8.1 9.7 11.3 13.8 15.2 14.0 14.3 15.2 14.3 13.3

Transportation and communication 10.7 10.7 10.9 10.7 10.6 8.3 5.4 4.4 1.8 -0.1Vehicles 12.2 10.7 12.9 12.3 12.2 8.0 2.7 0.7 -2.1 -5.0Public transportation 14.0 15.8 13.2 14.4 14.4 13.8 13.9 14.1 11.9 12.2Communication and equipment 0.0 8,.8 8.8 8.8 8.8 8.8 8.8 8.8 8.8 8.8

Recreation and education 7.7 7.7 5.2 4.6 4.6 4.3 3.9 3.9 3.2 3.2Recreation 6.3 6.8 6.8 7.5 7.5 6.5 5.9 5.8 5.3 5.2Reading and education 8.5 8.5 3.5 1.9 1.8 1.7 1.8 1.7 1.1 1.2

Tobacco and alcoholic beverages 19.7 21.6 23.1 26.4 26.6 22.5 20.8 13.6 10.4 10.1Non-food and beverages 8.2 8.7 a 94 _ 12 7.0 5.8 4.1 3.3



Table 7: Capital Flows to the Private Sector 1/(millions of US$)

1997 1998 1998Year Q1 Q2 Jun. Jul. Aug. Sep. Oct. Jan-Oct

Bank -6,569 -1,472 -3,883 -2,523 -1,966 -1,494 -911 -2,042 -11,768Commercial bank -4,727 623 -1,756 -1,665 -1,255 -497 -698 -909 -4,492of which recapitalization 837 1,148 18 0 0 0 0 1,986

BIBFs -1,842 -2,095 -2,127 -858 -711 -997 -213 -1,134 -7,276Non-bank -1,912 -3,055 1,599 383 943 200 99 -346 -558

Direct investment 3,201 1,273 1,493 441 377 400 437 472 4,453Foreign direct investment 3,641 1,287 1,528 451 387 410 447 475 4,534Thai direct invest. abroad -440 -13 -35 -10 -10 -10 -10 -3 -81

Others loans -3,783 -2,110 -1,064 -301 -20 -500 -213 -396 -4,304Portfolio investment 4,494 487 144 100 -15 -70 69 13 628

Equity securities 3,869 491 -27 40 -60 -75 60 87 476Debt securities 625 -3 170 60 45 5 10 -75 152

Non-resident baht account -5,839 -2,850 1,245 262 596 380 -199 -416 -1,244Trade credits -242 -82 -169 -50 -40 -60 -60 -15 -425Others 256 226 -49 -70 45 50 65 -3 333

Total -8,481 -4,527 -2,284 -2,140 -1,022 -1,294 -812 -2,388 -12,326

Source: Bank of Thailand and own calculations1/ Data is from BOT's Monthly Bulletin (November). converted into US dollars.


Table 8: Foreign Direct Investment by Sector (excl. FDI for recapitalization) 1/(millions of US$) 2/

1996 1997p 1998May P Jun P Jul P Aug P Sep P Oct P Jan-Oct

1. Industry 707.9 1859.5 83.6 282.5 102.9 151.5 206.8 438.0 1971.9

1.1 Food & sugar 45.1 222.2 1.8 26.8 3.5 2.0 5.4 6.6 69.8

1.2 Textiles 49.2 47.6 3.1 14.9 3.5 46.2 28.6 0.5 85.5

1.3 Metal & non metallic 112.5 210.7 21.0 21.0 23.8 67.9 25.6 14.9 330.0

1.4 Electrical appliances 240.5 588.0 2.7 50.3 30.9 10.6 63.1 -14.1 214.8

1.5 Machinery & transport 108.5 410.3 32.0 118.5 27.6 15.6 62.3 227.8 684.5

1.6 Chemicals 182.7 193.0 19.0 43.1 8.7 13.4 12.6 12.3 177.6

1.7 Petroleum products -249.8 14.4 0.0 -2.0 0.8 0.7 0.5 1 85.2 320.0

1.8 Construction materials 3.5 -12.6 2.6 0.0 0.8 0.2 0.0 0.0 3.4

1.9 Others 215.8 185.9 1.4 9.7 3.4 -5.2 8.8 4.8 86.1

2. Financial institutions 3/ 71.9 118.7 4.4 8.5 226.9 16.0 11.6 25.9 770.8

3. Trade 544.4 1082.1 132.0 88.7 100.9 56.7 -22.6 56.1 756.4

4. Construction 70.3 184.4 63.5 9.8 8.6 16.7 -8.7 5.2 177.7

5. Mining & quarrying 19.3 20.8 7.5 -3.2 4.8 10.1 -4.3 -10.5 30.2

6. Agriculture 2.0 1.2 0.0 0.0 0.1 0.0 0.0 0.0 0.5

7. Services 124.8 289.5 13.2 78.2 26.2 16.1 27.0 8.6 265.7

8. Real estate 751.8 110.5 2.6 2.1 1.4 0.5 1.7 2.5 18.9

9. Others -24.8 84.6 14.9 39.0 50.0 155.7 7.5 -0.8 448.8

Total 2267.7 3751.4 321.7 505.6 521.8 423.4 219.1 525.2 4441.0


I / Direct Investment = Equity Investment plus loans from related companies.

2/ Converted to US$ by average period exchange rate. As a result, the 1997 figure is slightly higher than USS FDI reportedelsewhere (a yearly average of B/US$ 31.37 was used here).3/ Revised.P = preliminary


Table 9: Trade Indexes and Terms of Trade 1/

1995=100 1996 1996 (in terms of US$)Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Exports:Exportunitvalue 108.9 107.9 108.7 109.1 109.2 109.0 109.3 109.4 109.1 108.8 108.5 108.3 109.3Export value 98.1 94.7 98.0 103.9 89.7 105.3 93.0 94.7 100.9 96.3 99.1 102.3 99.3Export volume 2/ 90.1 87.8 90.2 95.3 82.2 96.6 85.1 86.5 92.4 88.5 91.4 94.5 90.9Imports:

Importunitvalue 111.1 109.4 110.4 111.1 111.6 111.4 110.9 110.7 110.8 111.1 111.7 111.8 112.0Import value 100.2 103.4 98.3 109.1 105.1 105.5 98.3 98.4 104.9 92.6 102.0 96.6 93.1Import volume 2/ 90.2 94.5 89.1 98.2 94.2 94.8 88.7 88.9 94.7 83.4 91.4 86.4 83.1Terms of trade 98.0 98.6 98.5 98.2 97.9 97.9 98.6 98.8 98.5 97.9 97.1 96.9 97.5

1997 1997Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Exports:Export unit value 105.3 109.7 109.6 108.9 108.0 107.2 106.5 105.7 104.7 103.7 101.9 99.7 97.6Export value 101.8 98.0 90.7 105.1 91.8 102.7 99.9 102.1 103.1 107.4 110.7 103.0 106.9Export volume 96.7 89.3 82.8 96.5 85.0 95.8 93.8 96.6 98.5 103.5 108.7 103.3 109.6Imports:

Import unit value 107.4 112.7 112.5 111.9 110.2 108.2 108.1 106.3 105.4 103.8 103.8 103.6 101.9Import value 86.8 103.1 85.7 98.0 99.1 91.8 94.8 89.9 91.0 81.3 77.1 67.2 67.1Import volume 2/ 80.8 91.5 76.2 87.6 90.0 84.8 87.7 84.6 86.4 78.3 74.3 64.8 65.9Terms of trade 98.0 97.3 97.4 97.3 98.0 99.0 98.6 99.4 99.4 99.8 98.2 96.2 95.8

1998Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Exports:Export unit value 94.2 93.0 92.1 91.2 90.8 89.6 89.9 90.7 90.7 89.1 88.7Export value 90.2 93.7 101.4 91.6 90.5 96.7 98.2 91.0 96.3 96.7 94.3 96.9Export volume 95.8 100.8 110.1 100.5 99.7 107.9 109.2 100.4 106.1 108.6 106.4Imports:

Import unit value 100.6 101.1 102.0 102.4 101.2 98.6 97.4 94.7 93.5 94.1 94.8Import value 56.6 54.7 61.2 60.4 55.3 60.8 61.2 56.2 55.0 58.0 57.0 59.4Import volume 2/ 56.3 54.2 60.0 59.0 54.7 61.6 62.8 59.3 58.9 61.6 60.1Terms of trade 93.6 92.0 90.2 89.0 89.7 90.9 92.3 95.7 97.0 94.7 93.5

Sotrce: Bank of Thailand1/ From January 1996 onwards, base year was 1995 (1995=100) and the indexes are calculated using the Fisher chainedmethod.2/ Volume indexes are calculated based on the "factor reversal test".


Table 10: Secondary Market Spreads(basis points)

11/97 12/97 1/98 2/98 3/98 4/98 5/98 6/98 7/98 8/98 9/98 10/98 11/98 12/98 1/99 2/11/99Thailand 445 476 452 300 254 274 308 392 419 760 650 545 325 333 300 255China 96 121 147 132 137 116 117 147 144 220 265 235 200 273 305 270Indonesia 274 469 629 649 520 543 773 826 751 790 1430 1300 788 1050 1150 950Philippines 436 466 526 390 357 349 355 355 428 428 730 595 405 428 415 380Source: Bloomberg

Table 1[1: Sovereign credit ratings

Moody's Standard & Poor'sForeign Bank Deposits Foreign Local Outloo

China A3 (stable) Baa2 (stable) BBB+ not rated negativeHong Kong A3 (stable) A3 (stable) A A+ negativeIndonesia B3 Ca CCC+ B- negativeSouth Korea Bal Caa]i BB+ BBB+ stableMalaysia Baa3 (neg) Bal (neg) BBB A- negativePhilippines Bal Ba2 BB+ BBB+ negativeThailand Bal BI BBB A- negativeSource: Paribas, December 28, 1998 (Moody's and Standard & Poor)

Table 12: NPLs of Financial Insitutions

Sep-98 Oct-98past due loans past due loans

6-months 3-months 6-months 3-months"lo % % % mil. baht

Thai banks 35.46 42.94 37.85 46.02 2,188,1688 private banks 29.53 36.67 31.79 39.45 1,221,7988 state-owned banks 46.64 54.74 49.17 58.30 966,370

Foreign branches of commercial 5.54 7.53 5.91 8.05 64,775banksTotal banking system 31.05 37.72 33.23 40.53 2,252,943

Finance companies 48.75 60.58 51.25 63.58 300,52524 private 42.74- 53.20 44.90 55.58 168,62312 intcrvened finance companies 59.64 73.96 62.64 77.91 131,902

Total financial system 32.43 39.49 34.64 42.33 2,553,468



Table 13: External Debt 1/

(millions of US$)1996 1997 1998

Q1 Q2 Q3 Aug. Oct.P Nov.P

Total Debt Stocks (End of Period)Public Sector 16,805 24,323 26,814 26,963 28,556 27,862 31,070 29,484

Govt and SOEs 16,805 17,166 17,695 17,524 18,268 18,032 20,086 19,654Long-term 16,751 17.146 17,675 17,504 18,118 17,862 19.936 19,504

Short-term ' 54 20 20 20 150 170 150 150BOT (long term) 0 7,157 9,119 9,439 10,288 9,830 10,984 9,830

Use of IMF credit 0 2,429 2,672 2,796 3,017 2,819 3,098 3,037Others 0 4,728 6,447 6,643 7,271 7,011 7,886 7,706

Private Sector 73,731 69,093 64,922 61,163 58,136 58,547 58,036 55,373Long-term 36,172 34,277 33,575 32,827 32,192 32,135 31,930 31,466Short-term 37,559 34,816 31,347 28,336 25,944 26,412 26,106 23,907

Commercial Bank 10,682 9,488 9,147 8,747 7,823 8,226 7,661 6,935Long-term 2,314 3,824 3,167 3,971 3,638 3,834 3,746 3,721Short-term 8,368 5.664 5,980 4,776 4,185 4,392 3.915 3,214

BIBF 2 31,187 30.079 27,819 25.679 23,679 23,809 23,972 22,378Long-term 10,697 10,317 9,820 8,236 7,843 7,744 7,511 7,253Short-term 20,490 19,762 17,999 17.443 15,836 16,065 16.461 15,125

Non-Bank 3 31,862 29,526 27,956 26,737 26,634 26,512 26.403 26,060Long-term 23,161 20,136 20,588 20.620 20,711 20,557 20,673 20,492Short-term 8,701 9,390 7.368 6,117 5.923 5,955 5,730 5,568

Total 90,536 93,416 91,736 88,126 86,692 86,409 89,106 84,857Long-term 52,923 58,580 60.369 59,770 60,598 59,827 62,850 61,713

Short-term 1 37,613 34,836 31,367 28,356 26,094 26,582 26,256 24,057Bank foreign assets 7,362 8,887 8,744 11,201 12,564 13,730 13,542 12,801Gross official reserves 38,725 26,968 27,680 26,572 27,291 26,679 28,482 28,891Debt Service P'ayments 9,024 11,630 3,218 3,017 4,027 n.a. n.a. n.a.

Principal 3,822 6,072 1,894 1.673 2,664 n.a. n.a. n.a.Interest 5,202 5.558 1,324 1,344 1,363 n.a. n.a. n.a.

Public sector 1,845 1,959 514 496 656 n.a. n.a. n.a.Private sector 7,179 9,671 2,704 2,521 3,371 n.a. n.a. n.a.

Export of goods and services 73,497 74,431 16,833 16,291 16,624 n.a. n.a. n.a.Debt Service Itatio 12 16 19 19 24 n.a. n.a. n.a.

Source: Bank of Thailand1/ Short-term external debt is defined as debt that has an original maturity of one year or less.2/ BIBF's debt., which was compiled according to remaining maturity since the establishment of BIBF's activities in 1993 hasbeen adjusted to original maturity basis since January, 1996, consistent with other external debt items.3/ Non-bank debt is adjusted back to January 1997 based on the result of March 1998 survey and December 1997 bond datafrom IMF.Notes: 1. The revised definition of private sector debt has been made since 1986. It consists of three parts, namely commercialbank. BIBF and non-bank debt. 2. Total monetary authority debt includes the use of IMF credits and bilateral loans under IMFpackage. Structural Adjustment Loans (SAL) of World Bank and Asian Development Bank under the same package, however,are included in public sector debt. 3. Debt service payments in private sector has also been revised to include principal andinterest payments on BOT debt since 1986.


Table 14: Central Government Balance

(millions of baht)

1996 1997 1998

Jun Jul Aug Sep Oct Nov Dec

Revenue(+) 853,201 847,696 78,610 52,296 45,300 60,023 47,360 59.466 55,460

Expenditures(-) 819,083 874,403 81,349 64,901 78,400 104,324 70,683 63.715 75,988

Budgetary deficit(-) or surplus(+) 34,118 -27,914 -2,739 -12,605 -33,100 -44,301 -23,323 -4.249 -20,528

Non-budgetary deficit! surplus(+) 9,185 12,855 1,477 1,923 300 -7,281 4,549 2.251 602

Cash deficit(-) or surplus(+) 43,303 -:L5,059 -1,262 -10,682 -32,800 -51,582 -18,774 -1,998 -19,926

Financing:

Net domestic borrowings(+): -25,123 -16,380 1,539 -2,793 4,580 -1,747 -1,397 445 -553

- Bank of Thailand 1/ 2,054 -5,800 1,546 -2,559 4,594 -1,695 -529 447 -553

Commercial banks -21,320 -710 43 -163 -32 38 -584 -1

- Government Savings Bank -3,570 -8,200 0 0 0 0 - -

- Others -2,287 -1,670 -50 -71 18 -90 -284 -1 -

Net foreign borrowings (+) -3,665 -3,747 -411 -375 -178 -1,032 -271 -214 -450

Government Pension Fund - -55,991 0 0 -160 -120 - - -

Gov't Bond for FIDF 0 0 150,000 0 50,000 0 100,000 - 100,000

Lending to FIDF 0 0 -150,000 0 -50,000 0 -100.000 - -100,000

Use of Treasury cash balances(+) -14,515 91,177 134 13,850 28,545 54,481 20,442 1,767 20,929

Source: Comptroller-General's Department and the Bank of Thailand

1/ Including Exchange Equalization Fund.The budgetary deficit/surplus is the balance between revenue and expenditure from the current year budget and carryoverexpenditure from the previous two budgets. The overall balance is a cash balance, which is composed of the budgetary balanceand the non-budgetary balance. The non-budgetary balance, reported above the line, represents mainly changes in deposits ofgovernment agencies at the Ministry of Finance which are of revenue-related and expenditure-related types.

Thailand Econiomic Monitor - 31 -

Table 15: Budget Appropriations by Function

(millions of baht)

FY 1998 FY 1999

General governmental services 172,079 164,261General public services 39,987 36,855Defense 83,103 77,140Public order and safety 48,989 50,266

Community and social services 357,022 348,848Education 206,945 208,614Health 64,071 60,180Social security and welfare 34,048 36,636Housing and community amenity affairs 39,538 35,105Religious, cultural and recr-eationial 12,421 8,315affairs

Economic services 215,517 196,257Fuel and energy 2,004 2,482Agriculture, forestry and fishery 63,284 61,288Mining and mineral resources, 4,167 4,715manufacturing, and constructionTransportation and communication 115,953 92,852Other economic services 30.110 34,920

Miscellaneous and unclassified items 85,382 115,633

Total 830,000 825,000Source: Bureau of the Budget


Table 16: National Government Actual Revenue- Classified by Major Sources(inillions of baht)

1997 1997 1998Qi Q2 Q3 Q4 Q1 Q2 Q3

Taxation 762,286 172,945 222,205 206,998 160,138 171,520 182,052 143,070Income taxes: 276,365 50,466 103,682 79,858 42,359 54,809 71,499 46,223

Personal 111,682 33,107 28,722 25,599 24,254 34,172 30,316 30,130Corporation 159,717 16,556 71,:240 53,816 18,105 16,871 39,686 16,093Petroleu 4,966 803 3,720 443 0 3,766 1,497 0

Indirect taxes: 485,921 122,479 118,523 127,140 117,779 116,711 110,553 96,847Import duties 94,813 26,328 24,682 24,121 19,682 16,720 14,357 14,917Export duties 14 3 3 3 5 4 4 8Business tax 394 74 66 167 87 100 104 142Value added tax 1/ 185,942 39,125 41,416 50,045 55,356 56,729 48,430 35,761Selective sales tax 175,159 45,609 46,334 45,934 37,282 38,258 41,348 38,429Fiscal monopolies 12,133 5,488 2,134 3,112 1,399 1,014 2,614 4,252Royalties 6,471 1,482 1,495 1,551 1,943 2,257 2,334 1,966Licenses & fees 2,808 1,896 239 308 365 384 255 270Othertaxes 8,187 2,474 2,154 1,899 1,660 1,245 1,107 1,102

Sales and charges 8,710 2,591 1,i743 2,178 2,198 2,325 1,812 3,447State Enterprises 57,694 33,721 15,251 4,366 4,356 14,089 13,921 6,093

contribute & dividendsMiscellaneous revenue 19,006 4,466 4,691 4,640 5,209 5,206 7,016 4,942and incomeTotal revenue 847,696 213,723 243,890 218,182 171,901 193,140 204,801 157,552

Source: Bank of Thailand1/ Including specific - business tax

Thailand Econiomic Monitor - 33 -

Table 17: Summary Table on Unemployment

(thousands)

Labor force status Feb-96 May-96 Aug-96 Feb-97 Aug-97 Feb-98 May-98 Aug-98 Nov-98Total Total Total Total Total Total Total Total Total

1/Total 59,750 59,903 60,045 60,351 60,649 60,949 61,098 61,248 61,400

Total labor force 31,898 32,504 32,750 32,000 33,561 32,143 32,170 33,353 32,716l.Current labor force 30,741 31,035 32,586 30,964 33,455 30,892 30,168 33,276 32,4381.1 Employed 30,099 30,375 32,232 30,266 33,162 29,413 28,555 32,138 30,975

Underemployed (<20 hours/week)' 639 373 581 544 721 1,477 363 938 989

% of total laborforce 2.0 1.1 1.8 1.7 2.1 4.6 1.1 2.8 3.0% of current laborforce 2.1 1.2 1.8 1.8 2.2 4.8 1.2 2.8 3.0

1.2 Unemployed 641 660 354 698 293 1,479 1,613 1,138 1,463% of total laborforce 2.0 2.0 1.1 2.2 0.9 4.6 5.0 3.4 4.5% of current laborforce 2.1 2.1 1.1 2.3 0.9 4.8 5.3 3.4 4.51) Looking for work 120 159 110 180 96 403 492 477 4602) Available / not looking for work 522 501 244 518 196 1,077 1,120 662 1,003

2.Seasonally inactive labor force 1,158 1,469 164 1,036 106 1,251 2,002 77 278% of total labor force 3.6 4.5 0.5 3.2 0.3 3.9 6.2 0.2 0.9

Unemployed + seasonally inactive labor 1,799 2,129 518 1,734 398 2,730 3,615 1,215 1,741force

% of total labor force 5.6 6.5 1.6 5.4 1.2 8.5 11.2 3.6 5.3

Source: Labor Force Survey by National Statistical Office1/ The May round was skipped in 1997.2/ Line added by World Bank staff. Underemployment is (arbitrarily) defined here as those employed working less than 20hours/week (see section on data issues).

Thiailand Economic Monitor - 34 -

Table 18: CDRAC-monitored Debt Restructuring Cases by Sector

(millions of baht)

Total debts% of total Credit Obligation Total % of totalnurnber of

I irms

Agriculture, hunting and forestry 0.6 860 860 0.1Fishery 0.3 335 335 0.0Mineral and rock mining 0.8 6,721 386 7,107 1.1Production 48.2 343,279 86,315 429,594 63.7Electricity, gas and water distribution 0.6 5,893 524 6,417 1.0Construction 5.9 20,972 8,891 29,863 4.4Wholesale and retail 11.6 21,890 2,539 24,429 3.6H 21 and restaurant 3.7 13,158 18 13,176 2.0Transport, warehouse and 5.4 34,011 23,317 57,328 8.5communicationFinancial brokering 2.3 4,061 44 4,105 0.6Real estate, leasing and business 18.4 72.185 21.953 94,138 14.0Health and social welfare service 1.7 5,438 61 5,499 0.8Community, social and personal service 0.6 1,407 72 1,479 0.2Total 100.0 530,210 144,120 674,330 100.0


Table 19: CDRAC-monitored Debt Restructuring Cases by Type of Creditor

(millions of baht)

Type of creditor Credit % of totaloutstanding

Thai banks 237,238 44.7Foreign banks 14,584 2.8Finance companies (36 open) 53,657 10.1Finance companies (56 closed) 41,001 7.7Bangkok International Banking Facility (Thai) 34,530 6.5Bangkok International Banking Facility 43,052 8.1(foreign)Representatives Office 89,404 16.9IFCT and EXIM 16,741 3.2Total 530,207 100.0of which: Foreign 147,040 27.7of which: Thai 383,167 72.3



Table 20: Leverage and Profitability of Key SET Sectors (1994 to Q3 1998)

SECTOR 1994 1995 1996 Q1-97 Q2-97 Q3-97 1997 Q1-98 Q2-98 Q3-98

ProperityD/E 1.6 1.8 1.9 1.9 2.0 2.3 2.7 2.7 3.2 3.4EBITDA/Interest Exp. 8.2 6.0 3.7 3.7 1.4 0.5 0.3 0.0 -0.4 0.3ROA (%) 7.2 4.2 2.6 2.0 0.9 -0.3 -2.9 1.5 -2.8 -1.9

ComuntnicationsD/E 1.0 1.3 1.9 2.0 2.1 3.8 9.2 4.8 6.0 3.5EBITDA/Interesl Exp. 7.0 6.3 3.5 3.1 3.3 1.2 2.0 1.4 0.9 1.2ROA (%) 7.9 9.6 5.6 5.8 6.0 3.5 0.8 13.3 3.2 7.3

Building Materials & SuppliesD/E 1.6 1.7 2.0 2.2 2.2 3.0 3.7 3.8 3.6 3.3EBITDA/Interest Exp. 4.8 3.6 3.0 3.7 1.6 1.5 1.9 1.5 1.1 0.8ROA (%) 5.9 3.2 0.4 -0.5 2.0 -2.2 -3.8 10.4 -6.4 1.5

ChemicalsD/E 1.1 1.3 1.7 1.8 1.9 3.1 4.2 3.3 2.7 2.4EBITDA/Interest Exp. 3.8 4.9 3.5 3.5 1.6 0.3 1.4 0.7 0.7 1.2ROk (%) 3.4 4.9 2.7 3.7 2.9 0.5 -0.1 14.5 -4.0 13.3

EnergyD/E 1.2 1.3 1.5 1.5 1.1 2.2 2.6 2.3 2.9 2.4EBITDA/Interest Exp. 6.5 3.7 3.6 2.8 6.0 1.9 3.7 3.6 1.8 2.4ROA (%) 6.2 6.5 6.1 5.4 8.5 6.0 5.7 20.5 7.1 7.0

All Non-Financial SectorsD/E 1.4 1.6 1.8 1.9 2.0 2.7 3.1 2.6 2.8 2.5EBITDA/Interest Exp. 6.2 4.3 3.4 3.8 2.0 1.7 1.7 1.6 1.0 1.0ROA (%) 8.6 5.5 3.8 3.2 3.4 1.4 -0.2 9.2 0.1 5.8

Source: Stock Exchange of Thailand, Merrill Lynch Phatra Securities (World Bank staff calculations)


Thailand at a glance 9/8/96

East Lower-POVERTY and SOCIAL Asia & middle-

Thailand Pacific income Development diamond*1997Population, mid-year (millions) 60.6 1,753 2,285 Life expectancyGNP per capita (Atlas method, US$) 2,800 970 1,230GNP (Atlas method, US$ billions) 169.7 1,707 2,818

Average annual growth, 1991-97

Population (%) 1.2 1.3 1.32Labor force (%) 1.5 1.4 1.3 GNP Gross

per primaryMost recent estimate (latest year available, 1991 -97) capita enrollment

Poverty (% of population below national poverty line) 13Urban population (% of totalpopulation) 21 32 42Life expectancy at birth (years) 69 69 69Infant mortality (per 1,000 live births) 33 38 36Child malnutrition (% of children under 5) .. 16 Access to safe waterAccess to safe water (% of population) 81 84 84Illiteracy (% ofpopulation age 15+) 6 17 19Gross primary enrollment (% ot school-age population) 87 115 111 Thailand

Male .. 118 116 Lower-middle-income groupFemale .. 116 113

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1976 1986 1996 1997 EEconomic ratios*

GDP (US$ billions) 17.0 43.1 181.4 153.9Gross domestic investment/GDP 24.0 25.9 41.7 35.0Exports of goods and services/GDP 20.2 25.6 39.3 47.0 TradeGross domestic savings/GDP 21.5 27.9 35.9 35.7Gross national savings/GDP 21.2 25.9 33.2 32.6

Current account balance/GDP -2.6 0.6 -7.9 -2.0 .o//s\\Interest payments/GDP 0.6 2.4 1.2 2.0 omestic InvestmentTotal debt/GDP 13.7 42.9 50.1 Savings IseTotal debt service/exports 10.4 30.1 11.4 .Present value of debt/GDP .. .. 50.1 ..Present value of debt/exports .. .. 120.0

Indebtedness1976-86 1987-97 1996 1997 1998-02

(average annual growth)GDP 6.0 8.7 5.5 -0.4 - ThailandGNP per capita 3.7 7.2 4.0 -2.1 .. - Lower-middle-income groupExports of goods and services 8.9 13.5 -1.8 6.6 ..

STRUCTURE of the ECONOMY1976 1986 1996 1997 Growth rates of output and investment (°/.)

(% of GDP) 2Agriculture 26.7 15.7 11.0 11.2 2

Industry 27.6 33.1 39.5 39.8 1 0Manufacturing 19.7 23.9 28.4 28.8 0

Services 45.7 51.3 49.5 48.9 .10- 92 97 94 95 96 97

Private consumption 67.5 59.3 53.9 54.1 -20General government consumption 11.0 12.8 10.2 10.3 _ GDI DPImports of goods and services 22.7 23.6 45.1 46.4

1976-86 1987-97 1996 1997 Growth rates of exports and imports I%)(average annual growth)Agriculture 3.8 3.4 3.8 1.2 25-Industry 7.1 11.2 7.0 -0.1 20

Manufacturing 6.2 11.3 - 6.9 0.2 1\Services 6.3 8.2 4.6 -1.1 I 0

5

Private consumption 4.7 7.6 5.2 0.0 -0 o __,_-' _

General government consumption 7.8 5.9 9.5 -0.7 -5 92 93 94 95 96 07

Gross domestic investment 5.0 11.5 5.4 -19.0 -1lImports of goods and services 4.7 13.7 -0.9 -10.0 Exports ImportsGross national product 5.8 8.5 5.0 -1.1

Note: 1997 data are preliminary estimates.

The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond willbe incomplete.


Thailand

PRICES and GOVERNMENT FINANCE1976 1986 1996 1997 Inflation (%)

Domestic prnces(% change) B

Consumer prices 4.1 1.8 5.8 5.6 6

Implicit GDP deflator 4.5 1.7 4.0 5.4 4

Government finance 2

(% of GOP, includes current grants) o -0 - - i- __Current rev,erue 12.4 15.0 18.9 92 93 94 95 9e 97

Current budget balance 0.7 -0.5 8.5 GDP deflator -- *OPIOverall surplus/deficit -3.6 -4.5 2.2 .. _

TRADE _

(11S$ millions) 1976 1986 1996 1997 Export and import levels (US$ millions)

Total exports (fob) 2,980 8.872 56,001 58,431 80,000 T

Rice 422 775 2,012 2.080 70,000-Rubber 260 577 2,513 1,900 60.000Manufactures .. 4,649 45,646 48,182 so,

Total imports (dl) .. ~~~~~~ ~~~~9,448 72,768 63,286 4000Total imports (cif) 1 6 ,6 30 000 r i ||

Food . .. 1,660 1,36 30,001'

Fuel and energy .. 1,225 6,248 5,536 1 10I000lCapital goods ,. .. 34,222 31,367 0

Export price index (1995=100) .. 62 99 .1 92 93 94 95 9e 97

Import price ndex(1995=100) .. 50 99 .. lExports [lImportsTerms of trade (1995= 100) .. 124 100 ..

BALANCE of PAYMENTS

(USS millionsl 1976 1986 1996 1997 Current account balance to GDP ratio (%)

Exports of goods and services 3,467 11,105 71,687 72,740 0Imports of goods and services 3,900 10,219 83,422 72,673 | 91 92 93 94 95 96 97Resource batlance -433 887 -11,735 67 -2

Net income -54 -864 -3,386 -3,576 3

Net current transfers 47 225 761 446 4t

Current account balance -440 247 -14,360 -3,063 |6 {Financing items (net) 521 436 16,529 13,712 -7

Changes in net reserves -81 -684 -2,169 -10,649 -6

Memo:Reserves includino aold (USS m(ilions) 1.893 3.776 38.645 26.893Conversion rate (DEC. Iocal/US$) 20.4 26.3 25.3 31.4

EXTERNAL. DEBT and RESOURCE FLOWS _.1976 1986 1996 1997 | |

(US$ milliors) Composition of total debt, 1996 (US$ millions)Total debt outstanding and disbursed 2,326 18,505 90,824 B 100

IBRD 298 2,781 1,607 1,715 A: 1607 D: 1,278IDA 11 109 100 98 E:7,623

Total debt service 378 3,655 8,652 .. //IBRD 36 358 318 257 | 37/613

IDA 0 1 3 3 G37,613/ /l

Composition of net resource flowsOfficial grants 84 152 96 .. /Official ceditors 109 294 634 .. |Private creditors 139 -505 9,630 .. | F: 42,603Foreign direct investment 79 263 2.336Portfolio equity 0 31 1,551

World Bank programCommitrnents 158 93 250 767 A - IBRD E - BilateralDisbursements 50 206 138 443 B - IDA D - Other multilateral F - PrivatePrincipal repayments 15 129 198 155 C-IMF G- Short-termNet flows 35 77 -60 288Interest payments 22 230 122 105Net transfers 13 -154 -183 184

World Bank 9/8/98


SOURCES DATA ISSUES

* Data on investment, manufacturing, expenditure, Unemployment. There is no cDnsensus inbalance of payments, monetary variables. and trade ar-.

balance of payments, monetaryvariables,anThailand on which data source is more accurate and whichfrom the Bank of Thailand's (BOT) web page (monthly i .statistical update, Key Economic Indicators, Databank, tio unemployment should be used.Fr exmpeall available at http://www.bot.or.th.) Other sources of the unemployment rate varies greatly whether it is

calculated as a percentage of the current labor force (that is,data include: Clarion Capital Asia: AsiaClock excluding the seasonally inactive labor force) or as a

* Unemployment data in Thailand come from different percentage of the total labor force. More importantly,sources, including (i) the national Labor Force Survey should seasonally inactive workers be counted as(LFS) which is conducted by the National Statistical unemployed or not? The seasonal impact on emnployment isOffice (NSO) three times a year, (ii) the number of highly significant in Thailand.persons complaining about not getting severancepayments after being laid off reported by the Ministryof Labor and Social Welfare (MoLSW), (iii) national The performance of Thailand's factories and retailers willcensuses (three so far) conducted by the Departmenet of be more easy to monitor in the near future. The Ministry ofLocal Administration (DOLA), and (iv) NESDEB Industry is taking over the task of assembling theestimates of the number of new graduates entering the manufacturing production index from the BOT and they willlabor force. We consider the Labor Force Survey the supplement the index with indexes measuring labor capacitymost reliable source and have chosen to focus on those and sales orders. A manufacturing inventory index will benumbers (BOT publishes the numbers on their website). assembled to measure the capability of manufacturers to sell

* Data on tourism is from the Bangkok Post, Jones Lang their products and their level of inventories. MOI will beginWotton and Travel Impact Newswire publishing these figures by July 1999.([email protected]) 2 The largest export commliodity withinl "vehicles and parts"

* Real estate data is provided by Jones Lang Wootton is "vans and pickup trucks" (approximately 40% of total(http://wwwjlwthai.com/) in their monthly newsletter vehicles and parts). In volume terms, this category has been"Insight." expanding by 82 percent from July 1997 to December 1998.

* The "Thailand at a Glance" tables are generated from Exports are increasingly moving towards the EU, Australiathe World Bank's "live data base." Some of the and new markets such as South America and the Caribbean.numbers may differ from BOT tables because of 3 These numbers are taken from an unpublished hand-outdifferences in definitions and the use of different from the BOT s monthly discussion on recent economicexchange rates to convert baht numbers into US dollars. developments. Our own calculations based on BOT's

monthlv bulletin (converted into US$), reveals slightlyLINKS smaller numbers and are the basis of Table 7.

For example, the end of 1997 amount of fore:ign assets ofOther Web sites on Thailand worth visiting: commercial banks is anywhere between S6.3 billion (BOT

* BOT's Economic Research Department: online databank table 5.7) and $10.3 billion (BOT Monthlywww.bot.or.th/research/public/econpage.htm bulletin, October 1998). The monthly bulletin for November

* Privatization Masterplan: www.mof.go.th/SEPC/ 1998 revised the number once more and now foreign assets* Fiscal data: www.mof.go.th/fiscal/ of commercial banks (end of 1997) was $8.9 billion* Board of Investment: www.boi.go.th/ according to the debt table (table 45) but $10.0 billion* Social Sector Program Loan: http://www.sspl.org/ according to the table showing assets of liabilities of* National Statistical Office (for employment data): commercial banks (table 7).

http://www.nso.go.th/ O Short-term external debt is defined as debt that has an* Thai Rating and nfor original matunity of one year or less.

wwwhaisRatinetcoathr 6 In the IMF program, net international reserves is definedwww.tns.trnet.co.th/

as gross reserves minus forward/swap obligations minus* Stock Exchange of Thailand: www.set.or.th IMF borrowing (currently at $3.1 billion of th.- $4 billion

* Customs data: http://www.customs.go.th/ (the Customs has been disbursed).Department's web site contains a data base with volume 7 BOT doesn't publish disbursements under the financingand baht value numbers for all export and import package as a separate capital inflow under "monetarycommodities.) authorities" (BOT Monthly Bulletin, table 42). The large

balance of payments support capital inflows are concealedin the BOP category "Monetary authority" because at thesame time, BOT recorded large capital outflows to unwind


forward/swap obligations. The only way to get an estimateof the amount of disbursements is to look at increases in themonetary authorities' stock of external debt. The numberspresented in the figure 20 are meant to give an idea of thesize of borrowed reserves.8 The midpoint of the range of the minimum lending rate(MLR), as offered by the four largest commercial bank anddeflated by CPI.9 For Thailand, the graph is measuring Thailand's sovereignbond coupon of 7 3/4 percent maturing on 04/15/07spread's above equivalent US Treasuries.10 "Dry" and "wet" refers to the results of the Labor ForceSurvey conducted in February and August, respectively. InKakwani/Pothong's paper, the results of the May LFS arenot included, probably because the May survey wasn'tconducted in May 1997.1 The data set employed in this analysis consists ofapproximately 360 non-financial SET-listed firmscategorized into 27 sectors. Debt-to-equity ratios werecalculated as aggregated liabilities / aggregated equity.12 Sectors 'other' and 'transportation' also rank among thelargest using this criteria of total sector assets, although ineach case this is due to the dominance of a single firm (SiamCement Company and Thai Airways, respectively). Thus,these two are not identified as 'key' sectors here. Rankingby assets is based on information available.13 Calculation of debt-to-equity ratios here excludes firmsposting negative equity. While this may not seem desirable,the inclusion of these companies creates an upward bias,particularly for post-July 1997 time periods.14 EBITDA figures provided by Merrill Lynch PhatraSecurities Company Limited. Due to limitations on theavailability of data, interest coverage analysis covers asubset 278 finns.

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