Solid Freeform Fabrication Laboratory

Yoon, Chan

April 11 2007

Powder delivery system

Kingdom of Thailand:

Strategies to Achieve Sustainable Economic Growth

Tetsuya Uetake, Hye jin Lee

Overview: Economic Crisis in late 1990s

There were financial liberalization and abolition of

interest ceilings in the early 1990s.

The interest rate kept high.

High interest rate attracted a massive capital inflow.

The US dollar appreciation led Thai baht to be overvalued.

The series of events put downward pressure on Thai baht.

A fixed exchange rate was replaced with a floating one.

A huge amount of capital flowed out of the country.

There was the dramatic depreciation.

Economic recession and the IMF reforms.

Overview: Recent Events in Thailand (2003-2006)

Tsunami severely hit southern coast provinces.

Political unrest in southern areas

Prolonged drought, leading rice crop to fall.

Military coup occurred, exiling the former

Prime Minister Thaksin Shinawatra. Restrictions on foreign investment by the Bank of Thailand.

Recent Macroeconomic Trends: GDP

Real GDP & Growth Rate

0.00

500.00

1,000.00

1,500.00

2,000.002,500.00

3,000.00

3,500.00

4,000.00

4,500.00

Year

Billi

ons

of B

aht

-15%

-10%

-5%

0%

5%

10%

15%

% C

hang

e GDP

GDP Growth

The GDP growth rate has decelerated. There was a slowdown in C and I due to negative internal events and rising interest rate. The high interest rate raised the value of the baht.

GDP/Person 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005(baht) 49474 52009 50829 44951 46487 48212 48837 51009 54131 56521 59016

Recent Macroeconomic Trends: Unemployment & Inflation

Phillip's Curve

0%1%2%3%4%5%6%7%8%9%

0% 1% 2% 3% 4%

Unemployment Rate

Infla

tion

Rat

eYear 1998

The unemployment and inflation have been stable. There is a tradeoff between inflation and unemployment.

Recent Macroeconomic Trends: Exchange Rate

In 1997, Thailand introduced a floating exchange rate system and the baht depreciated dramatically. However, since then, the baht has appreciated because of high interest rates, economic growth, etc.

Exchange rate

37.940.2

44.4

40.137.8

41.4

31.4

25.324.9

43.0 41.5 40.2

05

101520253035404550

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Year

Exch

ange

Rat

e (B

aht/U

S$)

Recent Macroeconomic Trends: Current & Capital Accounts

Before the economic crisis, capital account was in surplus because of high interest rate. After the economic crisis, there was a huge net capital outflow, which led to a capital account deficit. However, in 2004, the capital account became surplus because of recent high interest rate and increasing imports.

Current & Capital Account

-20

-15

-10

-5

0

5

10

15

20

25

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Year

Billi

ons

of d

olla

rs

Capital Account

Current Account

Recent Macroeconomic Trends: Current & Capital Accounts (2)

The dramatic depreciation in 1998 caused a large increase in exports (24%) and decrease in imports (8%). Exports have increased since 2000, but slower than the imports, which caused a current deficit in 2005.

Exports and Imports % Change

-10%

-5%

0%

5%

10%15%

20%

25%

30%

35%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Year

% C

hang

e Exports

Imports

Recent Macroeconomic Trends: Interest Rate

Before the economic crisis, the interest rate was much higher than other Asian countries. The money supply increased between 1997 and 2004, which led to a decrease in the interest rate. Since 2004, the interest rate has increased due to high country risk.

Interest Rate

14.4%

14.4%

15.4%

12.2%

11.2% 10.9%

13.3% 13.4%

13.6%

9.0%

7.8%7.3% 6.9%

5.9% 5.5%

5.8%

7.4%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Problems with Current Thai Economy

Bath appreciation

Current account deficit

Short-term investment

Decelerating GDP growth

Recommendations: Short-rum policy (1)

Assumption of a small open economy

Relatively high interest rate

Above the balance of payment

Floating exchange rate

Expansionary monetary policy will stabilize both interest rate and exchange rate, and increase output.

Recommendations: Short-run policy (2)

Increase saving rate

35.4% (1995) → 28.8% (2005)

Maintain government budget surplus

From 1997 to 2002 : deficit → 2003: surplus

Establish legal institutions and capital market

Stabilize the politics : the military coup in 2006

Invest in human capital

Focus on education

Policy Recommendation: Long-run (1)

Human capital

Policy Recommendation: Long-run (2)

Program for International Student Assessment (PISA) Score

2003 Math Science Reading

Hong Kong 558 539 510

Japan 553 548 598

Korea 552 538 534

Macao-China 528 525 498

Thailand 424 429 420

Indonesia 361 395 382

OECD Average 496 500 494The test is conducted by the Organization for Economic Co-operations andDevelopment (OECD), which measures how 15 years old students in morethan 40 countries perform in math, science and reading.Source: "Thailand and Its Knowledge Economy" Arkhom Termpitayapaisithttp://info.worldbank.org/etools/docs/library/233823/PWThailandandIts%20Knowledge%20EconomyPaper06.pdf

Policy Recommendation: Long-run - Solow Model (3) -

Solow Model

Capital per effective worker, k

Output per effective worker, yInvestmentBreak-even Investment

s0 f(k)

f(k)

(δ +n+g)k

k0

y0

s1 f(k)

y1

k1

Achieve Sustainable Economic

Growth

Policy Recommendation: Conclusion

Thank you

Question?