R F tT RI CT ED

Report No. FE-la

FThis renort was nrenared for use within the Rank- In makino it

available to others, the Bank assumes no responsibility to them forLne aCCuracy or completeness of the information containea nerein.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

CURRENT ECONOMIC POSITION AND PROSPECTS

OF THAILAND

August 12, 1957

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CURRENCY EQUIVALENTS

Buying rate (Iune 1957) US $1.00 u Baht 2Mo6

Selling rate ' US $1.00 . 20.77

2. RATE USED FO PUJECTIUI1NSIN THIS REPORT:

US $1.00 . Baht 20.u

I Baht . US $ .05

1 million Baht . US $50,000

1 billion Baht = US $50 million

ABLE OF CONTIN'iR

Pape No.

BASIC DATA ............................ i

SUM1ARY AND CONCLUSIONS ..................... ii-iii

CURRENT ECONOMIC POSITION AND FROSPECMST TUATT AITT .

..L* kJL A A UUL.M LA.. .UU .~U . .........

J-J-. IlL.1L UeeU)I~I~ V .. ............. .

Production ................... 2rureign Thade anu Baance o.f raymentS.External Debt .............. . ........ 4.Lnternal Finance .....................Internal Debt ........................ 7Money Supply and Prices * .......... 7

I!. Prospects .............................. 8Outlook for 1957 .................... 8Long Term Prospects ........ oAgriculture, Forestry and Fisheries .. 9Mining ...................... ..... 10Manufacturing ........... ....... 10Other Sectors .......... ...... 10Internal Finance ..................... 11The Investment Program and the Yanhee

Project .......................... 13Balance of Payments Prospects ........ l4The Outlook for Exports ........... 14Imports ................... .. ..... 15Invisibles .......................... 15Creditworthiness ..................... 15

(2)

STATSTUCAL APPENDIX 1ABLES

Page No.

TAble 1 Summary of External National andGovernment Guaranteed Debt ............ 17

1-A Summary of Service Payments on ExternalNational and Government Guaranteed Debt 18

2 Gross Domestic Product by Industry ofOrigin at 1952 Market Prices .......... 19

3 Value of Output of Principal AgriculturalCrops in 1952 Prices ........... 20

4 Production of Main Agricultural andForestry Products .. ............. 21

5 Production of Minerals .................. 226 Principal Exports ...................... 237 Export Prices ............. 248 Composition of Imports ................ 259 Estimated Balance of Payments and Change

in Reserves .................. 2610 Bank of Thailand Gold and Foreign Exchange

Assets ................................ 2711 Government Revenue ....... ... 2812 Budget Expenditures . ............... 2913 Government Investment Expenditures ..... 301A Internal Public Debt .................. 3115 Price Indices ..................... 32

BASTC DATA

Area P001hv so. miles

PonItion (19q6 stimate) 20.7 million

current prices)Thtal Baht --2 billion

Per Capita Baht 1,797 ($90)

T,ade Statistics (1956)Totl Ixot T$3 + 4140.TtlImot $~ ili:

Rice 42% Textiles 19%Onh, km or '314D +'IA-IeAn+e 1

7in 7% Machinery and

Other 23% Other 51i

Government Budget, 1956 Preliminary Actuals

Revenue 5,065Zxe , ULoUtz (wUDeficit

Public Debt, December 31, 1956Internal kmillions of ant) oeyExternal (millions of dollars equivalent) 86.2

Bank of Thailand Gold and ForeignExchange Holdings, March 31, LY7f

(millions of dollars ecuivalent) 324

MoneySupply, end 1956 (estimate)(millions or bant) (,5U

Price indexes, First Quarter ly>((193 =107

Wholesale Prices 115Cost of Living 115Exports 81

(i)

SUMMARY AND CONCLUSIONS

I. Thailand's economic position is basically sound. Real output hasincreased by nver h% Anniillv -innp. 1941 - nnH Trn'mi.tq tn nntininp ;t nPAr1vthat rate for the foreseeable future. Export earnings, which dropped bynenrlv PV bpTPPn Tq1 anr lQq) fnllrwina +h Ponlnna of the ron lEnn-virtually recovered by 1956 their record 1951 level. Moreover, in recentvp-r.q thp t-.nn.i t-An nf Pvnnr+._ has showmna hea3l fty +:and .tow ar m etnrdiversification.

2. The inflationary spell in 1953-54 has made the Government aware ofth nedtoexrcsemonetar, r-fan Lnd urse sond_"' _"

Since that time government deficits have been cut substantially. There wase+ill ~ ~ ~ ~ I f_ -jasl mekA f + jm "10CA 1-1+ +71 n e4 l 4m-lgf4mm. rr f of

of this were offset to a large extent by increases in counterpart fund1-1 -ot, lVus M nyin, a s .m i a ~ --- ' of the m e n er va,.,wf gove. .n rn entr -yn

together with the recovery of exports, a relatively stable overall financial

by about 9%, which is less than the increase in any year since 1951. The*- - LA g to t e J c e s - - - 1 e% .L- I-ma.in fLaebo contrUibLL.uting LU Ui: Lnu ±I1bt: ±L1± -L7.,u a~d LU 11v~ UeL LIVI

rise in foreign exchange holdings.

3. Export earnings rose by almost 6% in 1956, despite some decline inthe prices of Thailand's two main exports, rice and rubber. Imports, on theother hand, rose by 10%. A considerable part of this rather sharp increasewas due to a substantial relaxation of import controls toward the end of1955. However, the resulting fall in the trade balance was more than offsetby an increase in other receipts, mainly from U.S. aid; foreign exchangereserves continued to rise, although at a somewhat slower rate than in 1955.At the end of 1956 the Bank of Thailand's holdings of gold and foreignexchange were equivalent to more than 85% of imports.

h. The outlook for 1957 appears relatively favorable, and the overallresults, on balance, will probably not be much different from those achievedin 1956. In the following two or three years, however, the budget andbalance of payments position may be somewhat tighter, as a result ofexpected declines in rice and rubber prices and in receipts from foreignaid. During this period it might be necessary to curtail temporarilygovernment investment or permit some drawing down of foreign exchangereserves.

5. In the longer run, the outlook is favorable. Over the next ten tofifteen years the overall growth in national product may average 3-% to 11%per year. By about 1960 it is assumed that world rice and rubber priceswill have stabilized. Thereafter, assuming monetary stability is maintaiAned,the growth in total export earnings should average about 3% per year, withsmaller increases in the early part of the period and somewhat largerincreases in the late 1960's. This should be ample to meet the normalimport needs of the economy.

(ii)

fundamental imp'ovements in the fields of fiscal management and control andV.LVA.L L UJ JJCIULAL16 U.L .LILVVOV1Vi4 VS L11UJ.C CX~.Ltz; k V 11l III V

will be followed through and that additional steps will be undertaken to

increase may be expected in domestic non-inflationary resources to financegovernmen t -investmento

I. Even assuming some increase in investment resources, however, theexecution of the large Yanhee multipurpose projecW would make it necessaryto reduce expenditures for other investment purposes below present levels.During recent years government investment expenditures have been concentratedmainly on railways, highways and irrigation. According to present scneduLes,expenditure on some of these projects will be tapering off by 1959, whenexpenditures on the Yanhee project would begin to rise sharply. Thus itis probable that no major disruption of present projects would be necessary.However, the economic benefits expected from the Yanhee project are suchthat a reduction in other government investment would be justified in orderto permit the execution of this project. Power supply has lagged far behinddemand in the post-war period, and a major increase in the supply of powerand efficiency of distribution seems essential for a balanced developmentof the economy. From the standpoint of agriculture, Yanhee constitutesthe highest priority irrigation and flood control project which Thailandcan undertake at the present time.

8. The service payments on Thailand's present external debt will befairly high during the next two or three years, but after 1960 they arescheduled to decline substantially. This drop in service on existing debt,combined with the favorable outlook for increases in national product andexport earnings, should enable Thailand by the early 1960's to service aconsiderable amount of additional debt. By 1963, when repayment ofprincipal would begin on the proposed loan for the Yanhee project, thereshould be an ample margin to meet the required service payments of about196 million rer year.

1/ After this report was printed King Bhumiphol agreed to the Government-Ise^n t -I 1 " +^ +-; a BhA u M ultC1i1 + pu rpo se.T ,Pr oje

the Bhuniiphol Multipurpose Proje ct*

(44%\k -J-J

fundamental improvements in the fields of fiscal management and control 8ndJy,t ' +tT A% ... VAn . .%Ji e n.. ,- Tn mS 1Il V f all+ uala. + ,wra-Yo ~ eVif

will be followed through and that additional steps will be undertaken toVt. .5. *VJ wea..4 y4 0J6 is Wo. A5. V4C;A CJJA WVA C U 5 L V 5.LMJi is PW'.L4., o L. C L A

increase may be expected in domestic non-inflationary resources to finance

7w E'Ver.n assumi,ngn soet,.n.ta.. -- -. -n -, -nn - - 4 nvest- nt es nMWOVer + In,

execution of the 2arge Yanhee multipurpose project would make it necessaryiou reduce expeduuivure uLoer in.MUSULMIteL01ven ypuPvoUIo vet:ow P.Luoenu -ave-sooDuring recent years government investment expenditures have been concentratedma-uLALIy UI _L.LWC.yiD, IVwa.%yO &LIU ftrgaIue UPUOILuJI OLI oZAprVsu Sexpenditure on some of these projects will be tapering off by 1959, when

nu-ures;u projeo wula vegin to rte IarpIy. _L kis probable that no major disruption of present projects would be necessary.nowever, the economic benelits expectea Irom the Yannee project are suchthat a reduction in other government investment would be justified in orderwo permit the execution of this project. Power supply has lagged far behinddemand in the post-war period, and a major increase in the supply of powerand efficiency of distribution seems essential for a balanced developmentof the economy. From the standpoint of agriculture, Yanhee constitutesthe highest priority irrigation and flood control project wlich Thailandcan undertake at the resent time.

8. Ihe service payments on Thailand's present external debt will befairly high during the next two or three years, but after 1960 they arescheduled to decline substantially. This drop in service on existing debt,combined with the favorable outlook for increases in national product andexport earnings, should enable Thailand by the early 1960's to service aconsiderable amount of additional debt. By 1963, when repayment ofprincipal would begin on the proposed loan for the Yanhee project, theresould be an ample margin to meet the required service payments of about$6 million per year.

(iii)

CURRENT ECONOMIC POSITION AND BROSPECTS

To TTTn")nnTT1rr1rf

1. Previous Bank reports have emphasized the basic strength of1inaLana ecoz1nm. Its popuaRlon o some eV millon people nas one 01the highest standards-of living in Asia. Rice production continues to bethe mainstay of the economy, as t has-been for centuriese Rice constiutCesthe main staple of the Thai diet, accounts for the largest part of Thailard'sexport earnings, and the rice trade is one of the principal sources ofGovernment revenue. With Burma, Thailand is one of the world's two greatrice exporters. in recent years, however, there has been a gradualdiversification of the economy. Rubber, tin, teak and oilseeds are ofconsiderable importance to Thailand as foreign exchange earners. Moreover,industrial development, although still in its infancy, has recently beenmaking considerable headway in some sectorso

2. Early in the post-war period, the Government of Thailand began todemonstrate an active interest in the overall economic development of thecountry, and started to devote an increasingly important share of resourcesto basic facilities in transportation and agriculture. Since 1950, the Bankhas helped in this effort by making loans for irrigation, railroads and portdevelopment. Highway construction, which hasbeen financed to a large extentby United States aid, has constituted the other principal area of developmentexpenditures in recent years. Power development, however, has lagged behind.

3. The general improvement in Thailand's balance of payments andinternal fiscal policies and management that occurred in 195 and 1955 weredescribed in the last economic report (AS-52 of June 8, 1956). In 1953,Government revenues barely covered the current expenditures, and investmentoutlays of 1.3 billion baht were practically all financed by inflationaryborrowing from the Central Bank. The result was a sharp increase in themoney supply and a rise in retail prices of roughly 20% despite the contractingeffect of a balance of payments deficit which amounted to $60 million in thatyear. The fiscal situation improved in 1954, owing principally to somecurtailment of government expenditures, and about half of the Government'sinvestment expenditures were met from revenues. The remainder was largelyfinanced, in effect, by profits from the sale of foreign exchange to importers.However, the balance of payments deficit continued in 1954 due largely to thedrop in export volume and prices of rice, and between the end of 1952 and theend of 1954, foreign exchange reserves fell by about $80 million.

h. During 1955 the foreign exchange position improved mainly because ofa sharp increase in rubber prices and an increased use of foreign loans andgrants. The volume of rice exports increased from the low 195 level, butthis gain was offset by a fall in rice prices. In 1955 also Thailand completedthe transition from a complex multiple exchange system to an exchange systemwith a single fluctuating free market rate. The requirement that part of

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the foreign exchnege proceeds from exports o r!cep rubbehPr and ti n besurrendered at a rate below the free rarket rate was abolished. To compensatef-"v 4 -- 1 I~ , f n -P 1n n I,n- nvnfj f + njrn-4 f-rnrn~ c 1linac t.h b I~rp. qlIrriontiere,

portion of export proceeds on the free exchange market, the Government in

and tin. An exchange equalization fund was-established with holdings of(r,f,6_ nLilliVon,JI ( ii-I Uol.larL N J 41--U ~ ope rate 4n th ec a nge.±~ mIar~ t tbe pi

of preventing large daily or short term fluctuations.

5. The Government's deficit was reduced in 1955, after taking accountO.L I.J. Le Lj U re ei t from tiC. Iew V-AJJI U _L-V.UD Ut .L1i _LQ_LIICL .. i 0dI-U1'.

deficit increased from about 120 million to nearly A 250 million, mainly

of the unificeticn of exchange rates. Prior to the simplification of theexcnange systcm the profius from sales of foreign eAchangt hau, in encou,been the main source of non-inflationary deficit financing available to theGovernment.

II. RECENT DEVELOPMENTS

Production

6. Complete up-to-date statistics on production and national income arenot available for Thailand. The best indicator of the growth in nationaloutput and of the relative importance of the main sectors is given by a serieson gross domestic product for the period 19>1 to ly>,supplemented by tentativeestimates for 1955 and 1956 (see Table 2, Statistical Appendix). This seriesindicates tat agriculture alone accounts for roughly one-third of total output,and agriculture, fisheries and forestry together comprise about one-half ofthe total. Manufacturing and public utilities together account for about11-12%. The series indicates that the annual growth in gross domestic productin resl terms, has averaged about 4.5% over the five years 1951-1956; allowingfor population growth of about 2-2% per annum, the rise in real output percapita has probably exceeded 2% per year on the average in recent years.

7. The rice crop has constituted virtually half of the value of totalagricultural output. Rice production fell sharply in 1954, due to poorweather, but recovered in 1955 and 1956. The 1956 crop, estimated at 8 milliontons, was almost equal to the exceptionally large crop of 1953 and was nearlydouble the pre-war level. Output of rubber, which is the second main cashcrop after rice, is estimated at 136,000 tons for 1956, slightly above 1955and more than three times the pre-war level. Production data on secondaryagricultural commodities, such as coconuts, oilseeds, sugar cane and tobaccoare not yet available for 1956. In the past few years, however, theirproduction increased ouite substantially although they still represent arelatively small part of total agricultural output (see Tables 3 and L,Statistical Appendix).

8. Tin is the principal mineral product of Thailand. In the post-warperiod production has not recovered to the pre-war level. However, there hasbeen considerable investment activity in tin mining in the past few years,and an upward trend in production has become evident in the last three years.

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Production in 1955 was 255 higher than the 1952-1954 average (see Table 5.Statistical Appendix). Output of other Yretals - lead, wolfram and antimony -has fluctuated and has not shown a very clear trend in recent years.Production of lignite at Mae Moh, although still small, increased fromhO.000 tons in 1955 to 80.000 tons in 1956.

9. Most of the manufacturinL activity in Thailand consists of simpleprocessing of agricultural and forestry products and is carried on by numeroussmall units. Tn recent vears. a feT inaer enternrises havp hpn .tabli.shedto produce cotton yarn, gunny bags, cement, paper, cigarettes, sugar and glass.Framentary atA ndincnnt that manufacturinP nronuction hqs hpn incr-nsing.but it is uncertain whether the relative importance of manufacturing in totalntinnl nint.mt h. increnseA qince. loXC.

104Electr.cPwe rnncapiciy of pub'lic utfili ties hasz eannA vem-r slowlyAand has lagged far behind the demand for power. Most establishments have foundit neca-r to install th-r n generating sets, since power supl frompublic utilities is not available or is undependable and expensive. The powershortage iS eviden,ced in. t-1 rt-e 4 +-". -f +V%- -I ; -;,4* ;- " idesigned to discourage electricity consumption; i.e. consumers must pay a

S'k _L .JLL dUU .iu U 11,Ct- -L K lA,1U

IJL~ U L -racIU le~U pos-4- onU., I -A 'iU~ UII~L. L J~ ~

summarized in the following table:

(in millions of dollars)

1954 1955 1956

Exports, f.o.b. 283 335 354

Imports, c.i.f. 312 321 354

Balance - 29 + lb 0

12. In 1956, Thailand's main exports - rice, rubber, and tin,-increasedsomewhat in volume (see Table 0, Statistical Appendix), but the export valueof rice and rubber remained virtually unchanged as a result of price factors(see Table 7, Statistical Appendix). However, receipts from tin and otherexports increased significantly, with a resulting increase in total exportearnings. The rise of about 107 in imports in 1956 was most likelyattributable to the following factors (a) the substantial easing of importcontrols in the latter part of 1955, (b) the rise in money incomes in 1955,as reflected by an increase in the money supply during that year by about14%, (c) the fear that international trade might be seriously disruptedfollowing the Suez orisis (orders placed during this period are probablyreflected in the import figures for both the latter part of 1956 and theearly months of 1957).

13. Jutiing from available data. Thailand was able to maintain asubstantial trade surplus with the dollar area in 1956, although the surpluswas orobably about 2q-30% lower than the record 1955 surplus. The primaryfactor in this decline was most likely the fall in rubber prices. With thesterlinL qrea the trade balance. which had already fallen sharolv in 1955.deteriorated further in 1956 due largely to a rise in imports. Thailandannpears fn have incirred a trade dfi-it. nf about 8 million in 1956. comnaredwith a surplus of around $15 million in 1955.

14. Despite the unfavorable swing in the trade balance, Thailand's balanceotf panyments e%n crreoi,nt cont. imroed from !3aj eiit o.f aboutf Ai0 mill Ii rn in1955 to a surplus of $7.million in 1956 (see Table 9, Statistical Appendix).ThiS wa_s Mad- pos-ible -ainly 1- A "" ein

4~ " ii- - +4^n~v ^-P TT__ mt,^nrimir,I~aid from about $11 million in 1955 to $30 million in 1956, and a reduction in.LUJI. Vs o.k non-mone-aL~U±yr rIJU.* L k' ap- U L.uali. J.Li.kJ.uJW .LLI L.7i'- ~.)approximated the 1955 level. Capital imports in 1956 totalled $21.7 million,

cn LS4.Lng~ ol Ur-awingon W -Loans k,)j 11LLLA.JV1&/ ±)ALL) _LVAc10 WJ I.L~J

suppliers credits (about $7.5 million), and private capital ($3.2 million).FLepayments on foreign Loans amounted to $6 mllin.L.U1

1-. Ie gold anU foreign exchange reerves of the Bank of Taland roseby $12 million and stood at $311 million at the end of 1956 (see Thble 10,Oatis3ical Appendix). In adLiion, liaUlties to Japan under the Tnailand-Japan open account were reduced by $3.4 million. The foreign exchangeholdings of commercial banks are estimated to have increased Dy my. mlill.on.At the end of 1956, the Bank of Thailand's holdings alone were equivalent to

. n ad - mad e a11more than o>s of ly56 imports.

10. Urderly conditions have prevailed in the free exchange market sincethe multiple rate system was abolished. There has been no indication of anysevere pressure on the exchange rate or on the Exchange Equalization Fund.In fact the baht has appreciated slifhtly. The buying rate declined from7 21.56 per dollar in September 1955 to - 20.60 in June 1957; during thesame period the selling rate declined from )/ 21.73 to 20.77 per dollar.

External Debt

17. During 1956 Thailand contracted approximately $17.5 million of newgovernment or government-guaranteed external debt, including $3.5 million fromthe IBRD for port development, $11.0 million of suppiers' credits for papermill and telephone equipment, and a $3 million credit from the Bank of Americato the Provincial Electricity Authority. Repayments amounted to about 93.8million, and in addition a supplier's credit of $6.8 million originally tobe repaid in dollars was converted to provide for repayment in baht. As aresult, Thailand's external national and government-guaranteed debt increasedfrom the equivalent of $79.3 million at the end of 1955 to 86.2 million asof December 31, 1956. Of the total at the end of 1956, $ 71.1 million wasdisbursed and outstanding (see Table 1, Statistical Appendix). $65.9 millionor 76.4% of the total debt was repayable in dollars, M16.2 million or 16.1%in sterling, 43.9 million or 4.6% through the open account with Japan, and$2.2 million or 2.5% in Japanese yen in connection with IBD loans.

18. The ecouivalent of $4.4 million or about 52% of the external debtat the end of 1956 consisted of medium-term credits which will mature in five

years or less. Under present repayment schedules the total principal amountof debt out3tanding will be reduced to $33.5 million eaivalent by 1962,$15.6 million by 1966 and $.1 million by 1970. Final repayment will beaccomplished in 1971. Annual service on this debt will rise from $12.2million in 1957 (ecuivalent to about 3.6% of 1956 export earnings) to apeak of Alf.h million in 1958. It is scheduled to decline to $6.9 millionin 1962. 9h.0 in 1965. and it aoroximates 3 million annually during 1966-1970 (see Table 1-A, Statistical Appendix).

Internal Finance

19. The recent development of government revenues and expenditures, as

.I~1-..-rn-i nnr-mr

Budget Actualth. iolo noA I oCA

Government on a cash basis. Extensive governmental financial operations takeplace outside the buaget. noreover tere are apparently Iarge expentoureand receipt items carried in suspense each year and not allocated to particularheads of revenue and expenditure until much later. The cash deficit in 1956,as indicated by sources of financing, is estimated at about ./ 700 million as

Source of Financing Millions of Baht

1. Borrowing by Central uovernment fromBank of Thailand 390

2. Increase in liabilities of Provincialnreasuries to Bank of Thailand 10

3. Decline in government cash balance atCentral and Provincial Treasuries .12

Sub-total 507

b. Net sales of Treasury Bills and bondsoutside Bank of Thailand 116

2. IBRD loans 580

Grand Total 703

The- nPt.iT.a+AA P-nq1 crioPi-fcz inr 10cfli nrl 10( werep Arr rn1linn nrl 34 A10Omillion, respectively.

21. The inflationary effect of financing $ L95 million through borrowingfrom the central bav-n1, i,109 6 W- of'fset +. 1r nice

, 382 million in official deposits with the Bank of Thailand, other than

of $ 239 million in counterpart deposits generated by the U.S. aid program;

The net inflationary financing of government operations, including the draw-

compared to Jt 247 million in 1955 and $ 120 million in 1954o

22. The prelimi.nary actual figures of revenue and expenditure in 1956inuicate hat buUge revenues were originally uner-estimated ana bugetexpenditures over-estimated. This has been the usual experience in pastyears. Details are not yet available to show which items of revenue wereunder-estimated. However, imports in 1956 were higher than originally estimated,and it seems likely that customs receipts was the main item which exceeded unebudget estimate. On the expenditure side, preliminary information indicatesthat there was the usual substantial shortfall in investment outlays; non-investment expenditures were also somewhat below original estimates.

23. The unification of the exchange system and the increases in the exportlevies on rice, rubber and tin during 19> make it somewhat difficult to comparethe 1955 and 1956 revenues with revenues'in previous years, (see Table 11,Statistical Appendix). Prior to these actions the budget revenues includedincome which the Rice Bureau derived from profits on the purchase and sale ofrice. Excluded however, were the profits accruing to the Bank of Thailandfrom the sale: on the free market of foreign exchange surrendered by rice,rubber and tin exporters at rates below the free market exchange rate. Theseprofits, however, in effect were used to finance government expenditures,since the Government borrowed equivalent sums (or more) from the Bank ofThailand to finance its budget outlays. When the rice trade was returnedto private hands and the multiple exchange system abolished, the new leviesimposed on rice, rubber and tin, which are now included in revenues, werecalculated to compensate both for the loss of income from the Rice Bureauand for the loss of exchange profits. It appears that this objective wasaccomplished. Revenues for 1954 may be put on a basis roughly comparablewith 1956 revenues by adding the 1954 exchange profits ($ 730 million) tothe revenues of that year. The adjusted 195:4 revenues would thus becomeA L,970 million as compared to the provisional 1956 revenues of 0 5,065million. It should be mentioned that the income from the Rice Bureau in195h was higher than normal due to the collection of a substantial amountof .<.a:rerars from private exporters who had failed to turn over their foreignexchange at the official rate. If allowance is made for this factor the upwardtrend in revenues would have been somewhat more pronounced than a straightcomparison of the above two figures would indicate.

2b. The overall level of expenditures appears to have been reasonablystable during 19511 to 1956. Roughly 40% of expenditures has been devoted toexternal and internal securitv (including cost of living allowances forsecurity forces personnel), (see Table 12, Statistical Appendix). About

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19% of the total was for investment expenditures in 195 and. according toprovisional figures, about 16.5% in 1956. Of the expenditures classifiedas investment outlays in 195, amon1ngno i 99Q million, about 20% wasfor irrigation, 36% for highways, 14% for other forms of transportation,12% for industry and about 18% for miscellaneous purposes (see Thble 13.Statistical Appendix). In the 1956 budget estimates, nearly 60% ofinvestment e:Kpndit+ure w+aA +l +hc +tedtothetransprtainn categry andsomewhat reduced amounts to irrigation and industry. Within thetransportfl~n+atin catgor +navw,i .k .. +. susata i,nces in oulays was budgettednf+

for railways and a smaller amount for highways. In the miscellaneous

in 1955 and expenditures of $ 25 million were budgetted for 1956.

Internal Debt

25. During 1956 the total outstanding internal debt of the Governmentincreased by p '02 million, and th wumoun held by tne Bauk u mhailand

increased by A 386 million (see Table 1L, Statistical Appendix). A 116million of government securities and Vreasury bills were sold outsiae ueBank of Thailand, as compared to $ 127 million in 1955. Most of these saleshave been to government entities and financial institutions, but it issignificant that in 1956 when the Government offered for the first time along term bond issue at 8%, some p 23 million was reported subscribed byindividuals; this was several times the anount reported subscribed byindividuals to any previous issue of government securities. Prior to thisissue the highest rate paid by the Government had been 6%. The proportionof total debt held outside the Bank of Thailand increased from 7.7% at theend of 1955 to 8.9% at the end of 1956.

Money Supply and Prices

26. The fiscal operations accounted for only a small part of the increasein the money supply in 1956. On the basis of somewhat deficient data (notesin circulation outside the Bank of Thailand, plus total sight deposits ofcommercial banks, minus cash reserves of commercial banks) it appears thatduring 1956 total money supply increased by about $ 600 million, or 8.7%.This compares with increases of 11.4% in 1954 and 14.1% in 1955. It appearsthat as much as 85% of the increase in the money supply in 1956 may have beenattributable to the increase in net foreign assets of the Bank of Thailand(W 311 million) and commercial banks (about $ 190 million). The remainderof the increase in the money supply was probably accounted for by a modestrise in private bank credit; the increase in private credit was apparentlymuch less than the rise of $ 720 million (32%) which took place in 1955 andsignificantly smaller than the increase of $ 300 million (15%) in 1954.

27. After a period of relative price stability in 1954 the domestic pricelevel increased during 1955. In 1955 the wholesale price index averaged some15% above 195h. This was due mainly to the rise in domestic prices of rice,rubber and tin which took place during that year. In 1956 the prices of thesecommodities levelled off and the nverage wholesale price index rose by lessthan 3%. The cost of living index, which is heavily weighted by rice, hasfollowed the wholesale price index with some la (see Thble 15. StatisticalAppendix).

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III. PROSPECTS

Outlook for 1957

28. The outlook for 1957 is relatively favorable. It appears reasonableto assume that total exnort earnings in 19q7 will be about the same as in1956. The value of rice exports should approximate last year's level. Thevolume of rinp exorts in enrlv 197 ch.tqnti11v Pw-.iod Pyrnrtq in thp

comparable period of 1956, but the total for the year is not expected toPeeed areatly the 1CA vrlnme of 1_9M_0 to%ns. rnnrt nrinq in the firstquarter 1957 closely approximated the 1956 level. Eventually, however, world

reprices arbxece o decline, and some decline- __ e-- .end of 1957. Rubber export prices on the average are likely to be lower in157 than in 19,6, -adhs i~expectd torduce earn.ings from rbe xot

below the 1956 figure. In the first quarter of 1957, earnings from tin exports

due to higher average prices in 1957. Earnings from tin exports for the

the relatively high March level. Other exports, such as oilseeds, coconuts,4%.-,C-xveoca anU wouu proutU WLj, prUv.aL.LuLj'.LnJy conu.Llae vIuLt; UpWL.L'u 4a.71cu U.L vlt

past several years and thus offset the decline in rubber export earnings.

Assuming that the monetary situation remains relatively stable, importsShould not exceed the 1956 level and may decline somewhat, in view of thebuild-up of inventories which took place following the Suez crisis.

29. Government revenue in the 1957 budget is estimated about 370 millionhigher than in the y>9o budget. Compared to the 15o5 provisional actualrevenue, however, the increase is only 0 55 million or about 1.1%. Ordinaryexpenditure is estimated to rise p 420 million above the 1956 budget estimate,and investment expenditure is budgetted at about the same level as in 1956.The overall budget deficit is thus slightly higher than in the 1956 budget.As in past years it seems likely that the new budget contains considerableelements of under-estimation on the revenue side and over-estimation on theexpenditure side. The cash deficit will probably approximate the 1956 cashdeficit, although this could doubtless be reduced through curtailment ofspending on low or doubtful priority items in the budget. A cash deficitof the same magnitude as in 1956 would most likely involve a larger amountof inflationary financing, because it is expected that the increase incounterpart fund balances, which was a major anti-inflationary influencein 1956, will be much smaller in 1957. However, in view of the high levelof stocks of goods in the country at the'end of 1956, it seems quite possiblethat there may be some reduction of stocks and a contraction of privatecredit which would offset to some extent the inflationary tendencies resultingfrom the government deficit. On the whole the financial and monetary situationin 1957 should not be much different from 1956.

Longer Term Prospects

30. In the foreseeable future economic activity is likely to continueto be centered primarily around agriculture. Fisheries, forestry and mining

-9-

will also continup to h inortint.. A onnsiVerable further growth of lightmanufacturin: can be expected, although this development is unlikely to bearAnt Pnoiah tz n1Atrr +nlipn t t-nt1i+innn1 r1i.qt.ribuniton of rpqoinoens

or incomes within the next few decades. In total, a fairly rapid rate ofgVroth* in nat-iinal outputf e%f' parhinps f Jtoqi nai- xranr nnn ~expected during the next ten to fifteen years.

Agriculture, Forestry and Fisheries

31. The medium-term prospects for continued expansion of rice productiona. ~ ~ 1 CV aLZ O *± ~ 'A.t J. VLUX J.'. L LI J .J . 3 Lt tJ.' J --Y0 --" -- ' - -'

extend irrigation to nearly 1 million acres of arable land - nearly 10% of theAJ~.a4 . J.L __LCX114.IU_ VW L1~ . JiId L.L . L1.LLrt%.L%JL1IJ.LUJC VU V-Vlj d. 14 LLU I

Yanhee project woad contribute further to these irrigation possibilities byprouv.U.LuA8U ULA) u. wa'- ov-L U V unger p-.3u u.-u 4nV -eate 1 u

also control floods. The great part of this area is already cultivated, andaccounted for 1. millon tons o0' paddy or .oouU CU/ o. Loal rAce prouuoU nin 1955. The increase in yield per acre from irrigation is expected to resultin a steady growtn in total outpuT to about 2.1 million tons by 170. A moremoderate rate of increase in other areas is also expected to follow from theuse of higher yielding seeds, and, to a lesser extent, from an extension 0fland under cultivation. The growth in total output is projected at anaverage rate of 2.> per year - which is almost the same as the growth ratesince pre-war. This would bring total production to some 10 million tons ofpaddy by 1970, as compared to 7.4 million in 1955.

32. The prospects are also good for a continued increase in rubberproduction. A program of new plantings has been started, and at the sametime older trees on present rubber holdings are being replaced by higheryielding varieties. Assuming this program is continued, it seems probablethat production will grow by some 2% annually between 1956 and 1965 andincrease thereafter by perhaps 2.5 or 3% per year.

33. Output of oilseeds, sugar cane and other crops are likely to growvery substantially. Government policy has been encouraging the developmentof such crops particularly for dry season planting in rice areas. Thisprogram has had some success as indicated by the growth of output since 1950.The possibilities for dry season planting will be somewhat improved by theChao Phya irrigation project and would be greatly augmented by the Yanheeproject.

34. lbak has been of considerable importance to Thailand's economy, bothfor the domestic market and as an export. Production expanded steadily inthe post-war period until 1954, but at a rate faster than the growth rateof the forests. As a result, production has been declining since and isexpected to decline by another 60% between 1955 and 1960. On the otherhand, there has been a steady increase in production of other forest products,which are more important than teak domestically (having a total value threetimes that of teak), but which have a less important export market.

- in -

35. The volume inrrense in the fish catch avernged 64 a year between1950 and 1954, and indications are that this rate has continued in the pasttwo venrs. Thailnnr is annarently rich in Pishery resources. but Incks thetrained personnel and capital to exploit them adequately. There are reportsthat thp novernment is cnnidering nopning anstal deen ;a fishinp to foreigninvestment. On the basis of these indications, a continued increase in theouintpu o-P ficzherieq at. t.hea crate as+on; in -recentF yearsq Tnay bep nrnij-tP.r

Mi ni no,

31A TA i output accou^intsc for roui-ghly% hlJf thea varlu ii radde byv thi cz or.Feserves of tin ore deposits are good, and production could probably continueto exadconsiderabl y for the next ten. or .-ifteen. year In t, 'it appears that production may actually decline in the next year or two because

the International Tn Agreement which Thailand is about to join. Thereafter,P ~., 1JUU t'Lil al d U .APUL UO Iiiday L) U _-q:)Vk'Lx-'.u t% f.ul' -L1 OLUp 1vL wl .JJ V

consumption, which is projected as expanding by about 2% a year.

37. Output of other metals - chiefly wolfram - is expected to risemoderately in the f'UtureU, bu t -W Ill cotneto- be s- i-m-pOrtLan th LUian tino.Lignite production at Mae hoh is expected to double in the nekt two years1rom ou,UU tons in L>fo to LU,uuu tons in I>I0.

Planufa cturing

30. Recently, a few fairly large enterprises have been established toproduce cotton yarn, gunny bags, cement, paper, sugar and glass. Capacityis currently being expanded substantially in all of these industries. neplanned expansion of output will significantly reduce or, in some cases,eliminate import requirements for these commodities. Apart from these areasof manufacturing, an increase in the productivity of rice milling shouldresult from the Government's policy of making modernization loans for thispurpose, while output should also rise in other food processing industries,some of which (e.g. tapioca, fish and livestock products) have shown appreci-able export possibilities. The development of Yanhee power potential shouldsignificantly facilitate further industrial growth.

Other Sectors

39. Activity in Government construction projects will probably continueat a high level during the next several years at least. Moreover, large projectsfor the development of the highway and railway systems have been undertaken inrecent years and are still under way. As a result, substantial increasesshould take place in the contribution of the transportation sector to the GNP.

40. It may be assumed, in general, that the rate of output resulting fromthe increases in the sectors described above will largely determine the growthrate of the private service sectors. The provision of government servicesshould also rise steadily, while in the field of defense stability may beassumed.

- 11 -

Internal Finance

_l Over th nnnt few vears, the Govnrnment has shown n growinerecognition of the dangers of inflationary financing, and considerably morere+raint hnc hpnn nnnliprl thnn -. Ptiepnt. nrinr fn lt Rfnt1v. theThai Government has taken certain initial steps renuired for a more fundamental

rnn-rn-ftraml n + 1v n Y) r rn1 n tn nn , rlP <-n I~ nATn--4c+rn+Ae,n On +nt11,0PIVIZ

advice the Government has engaged an economic adviser who took up his dutLes1a st yer,, a enA d Svi n- +

1 h- n I-c S~a 'kn rl" w_1*_ ,-v- .,-41-~r' ori ,i-nr. n,.~n

investment budget for 1958. A group of consultants has also been engaged tostudy th,- fi;scal1 admiJnistratio-n and make re con-~nda t"o- for imrmen --- Ti

addition, the Government requested the Bank to send a survey mission, which1."a recel.J .y begun U.LwoJ.L L%

to expect that Thailand's fiscal and monetary policies and management will4. OIU L111YUV:: LU-U 1I±u~I~i I 4± -h year a ~LdU ± I-L __2l~. -3 A-41-14'1LU4coutinue U -I-uw -m ---vment _Lu tone: yout-, al U .U a.La iz y -L: JLLLU .u jit- uum cu

non-inflationary sources of finance should rise at a modest rate and Thailandsnouu ve aL.L' LU I±inaceUt a ±ZtaUaIe JIve1outnt1ll prugrai wmaic IuanU.L11Lrreasonable stability.

3. During the next two or three years, the overall level of governmentrevenue is not likely to increase substantially, because it is estimated thatexport prices of rice and rubber may decline by about 15% to 20% from recentlevels (this assumption is discussed in detail in the section on balance 0fpayments prospects). In this event, export levies on these commodities wouldhave to be considerably reduced.

44. In the longer run, however, it should be possible for the Governmentto increase its current revenues abstantially in order to further basicdevelopment. The Government is faced with considerable political andadministrative obstacles in its endeavor to increase revenues from directtaxes. It is reasonable to assume however that progress will be made inovercoming these difficulties, and after a few years receipts from thissource should begin to accelerate. As for other revenues, it may beassumed that over the long run they will grow in accordance with thegeneral expansion of economic activity and that, in addition, there willbe a moderate increase in the efficiency of tax collection. As a longterm trend, it may be conservatively estimated that total revenues willgrow at the same rate as the national product.

45. Regarding current expenditure, non-defense expenditure may beexpected to rise by some L-5% per year, since there will be a need toexpand basic services in health, education, etc. Defense expenditureshould remain app oximately stable.

46. On the basis of the above assumptions, it may be expected that theGovernment's current surplus will decline in the short run from the 1956level of about $ 600 million, with revenues tending to be stable andcurrent expenditures gradually increasing. After a few years. however,the surplus should begin to increase again.

- 12 -

),7. Aciip frnm thz rrnt br Trnin_ fhp mnin q)nPP.q nvnil,blr

for non-inflationary financing of government investment will be borrowingfrom the nnhli, and fraen aid mnA fna lans. Tn addiAinn. given a reaonabve

degree of overall monetary restraint, a modest amount could be borrowed fromthe Bank AfF Thni I nnA .A +htrif 'On+A na 'ye min i nfl0 +Annyrnrou

148. he Covment I.- to date been able -o borrow from the puli -o].to a very moderate extent (an average of about / 120-125 million in the past

'Mr s 1, -f I. .a, A Va, a e An , - a ,' _a- -P- " 4 -, art .- r,nA" +In 4

n A^ii-

and in view of the greater efforts now being made by the Government to increasesals o bond t-~-O n diVriua,10 and.. I., P'4 ,,--1 ~4~ .,-n 4+I .. ,'v.'

UJ. IJUMSO L* tuuLvtua ao a±± *x a.±.x . LO 1

J tLL L4Lk410, LU SO 11 I.~afCM--

to assume that this figure could be increased to around 0 300 million over+1 - 4. 4 -

llt :laJ.aue suUsUUaRL LUIUJoLUlOc LU DLAND VaviuJl 1U 1id-Lilu uuutforeign aid and loans already committed. These will make a substantialcontriuuion t( Ute Linancing of ialand's inVestmenU program in the netAfew years, quite apart from probable new commitments. In the foreseeablefuture there is every reason to believe that Thailand will continue toreceive U.S. aid, although new obligations may be somewhat below the recentlevel (in the past two U.S. fiscal years ILA has obligated Ppproximately T3>million per year in grants and loans to Thailand). Moreover, as the presentmedium-term foreign debt is retired, a margin will become available for amoderate amount of new Government borrowing in addition to the proposed loanfor the Yanhee project.

50. The extent to which the Government can safely borrow from the Bankof Thailand is related to the amount of increase in the money supply whichcan be sustained without creating inflationary pressures. It is estimatedthat Thailand could sustain an increase in the order of 7-9% per year withoutencountering serious price instability or pressure on the balance of payments.About half of this increase would be absorbed by a growing need for fundscorresponding to the growth in real output of the economy - projected atabout 1% per year. Another important part would be absorbed by the expansionof the money economy. This element has been of considerable importance inpast periods, and while it is difficult to make any precise allowance forit in the future, it would probably account for most of the remainingincrease in the money supply, so that the effect on the price level resultingfrom these assumptions would be small.

51. Starting with the money supply at the end of 1956, estimated atabout 0 7,500 million, a rate of increase of 7-9% would imply an expansionof about $ 600 to $ 700 million annually over the next few years. After1957, when bank credit is expected to remain stable or perhaps decline, anormal expansion of private credit might add about 0 300 to $ 400 millionper year to the money supply. This would leave a margin of about A 300million per year which the Government could safely borrow from the Bankof Thailand.

52. In summary the resources available for financin7 governmentinvestment over the next five or six years, aside from the proposed loanfor thp Ynnh(A nronet, are AnPected to qvPrAer abont 3 1-200 million ner

year.

- 13 -

Source of Financing (millions of baht)

Current budget surplus 200Borrowing from public 300Foreign aid and loans 400Borrowing from Bank of Thailand 300

1,200

This aim is slightly above the recent level of government investment outlays,taking into account the amount of U.S. aid for development purposes which isexcluded from the budget data (see Thble 13, Statistical Appendix).

53. The above projection is intended only to indicate the probableaverage level of resources likely to be available over the next severalyears. Substantial year to year variations from this average might welloccur. In nrticular. dnrinq the next two or three years. the availableresources may be somewhat below this average. It is therefore possLblethat. inless foreign Pexhann reserves are drawn down some temnoraryreduction in investment expenditures from the recent level may be necessary.

54. Finally it should be mentioned that there is always the possibilitytha-fretn idmiht be substantiallyc__ tailed, alhougoh inlr-tP

earlier this is considered quite unlikely. In this event Thailand would befaned %i+Int the% chMo of' miut-4ng i nvtmen shaM+ li rp-l y o%r n IIow.T;ino CP n +A- tIafall in foreign exchange reserves or a combination of these two courses.ThaW, n d'S,AJ fo.-reinarl!fa VbaevflT alrn .

1.+ tlrh he rvfloan-V, nVrfk

considerable draw-down might be justified in order to prevent a drastic cutin investimen-t. HWever,_hethr or not such actiJon wV,o-l be de, A-sirable coil

only be determined in the light of the then revailing circumstances.

The Investment Program and the Yanhee Project

55. It -is estimated that the Yanhee project and necessary investmentin related lfacilities would absorb about p L,LeU million over nere neSi x

years, exclusive of a Bank loan to finance the foreign exchange costs ofWIe projece. Thi. tota would represent about L1 of the tta.l fnancia lresources expected to be available to the government ( 7,200 million) forinvestment purposes during tU per11ou. rApeUaU.U1u'e ur Ultner ±JaVe UncUllelpurposes would clearly have to be reduced below current levels. Duringrecent years, by far the major part of development expenditures have beenconcentrated on railways, highways and irrigation. According to presentscnedules, expenditure on some of tnese projects, particularly the 3a rgeChao Phya irrigation system will be tapering off by 1959, when expenditureson the Yanhee project would begin to rise sharply. ius, in all likelihood,there would have to be no major disruption of present investment projects.In any case, however, the economic benefits expected from the Yanhee projectare such that there is no doubt that a reduction in other government investmentwould be justified in order to permit the execution of this project. Powerinvestment in Thailand has lagged far behind demand in the post-war period,and a major increase in the supply of power and efficiency of distributionseems essential for a balanced development of the economy. From the standpointof agriculture, Yanhee constitutes Thailand's highest priority irrigation andflood control project which can be undertaken at the present time.

- lb -

Balance of Payments Prosnects

5,*6. fl)p.qit o q?n Pmynr,tP ri.q in Pnrft volume,- P.nrninagq fromn P-Ynrt,.:are likely to remain relatively stable during the next two or three years,bp f.q isp n? t. Pp nr-tnti nn f.h-nt n,vrl rl ricep nc nrihpr ri p.vi~ Irip. r.1 i npconsiderably below present levels. In addition, it is estimated thatAi qhiTrqPmP_nt.. inrltmr fn-rpi cn nAiand loanns -w.T1 Iqa "a -h e,v+.mrnnI ip h f.service will reach its peak during this period. Moreover, after 1957 importswill nrnhnhlitr i-nhr---ncn. Pv nhi,+ 10A) hirmntr " + io ncamnA +ihn+. r awn

rubber prices will have stabilized, and it is also assumed that receipts fromfo-eign aid and 1^vm v.411 Anm n1s+4t1-r e. Af+v +h.,+ +niVi

monetary stability is maintained, export earnings should begin to increase at

to meet the normal needs of the economy, including a moderate investment

.L I=~ %J " . U U L U1ZA1V ,

)! . -ve U r nX ew years 1t is a5umela La 1 race ana, ruoer price(will decline by some 18% and 15%, respectively, from 1956 levels. The chiefconsiderations on whicn these forecasts have been based are:

(a) Most of the rice-importing countries have expanded domesticproduction of rice and at the same time substituted other grains (chieflywheat) for rice because of relative price advantages. As a result, therice import market is growing at a slower rate than export availabilities.Thus, the only plausible prospect for expanding the volume of rice salesappreciably will be for prices to decline to about $100 per ton. Thailand'srice production is expected to increase somewhat faster than populationgrowth, so that a gradually rising volume will become available for export.Rice exports might well increase from about l.3 million tors in 1956 to1.7 million in 1965 and 2.0 million tons in 1970.

(b) For rubber, world demand is expected to be sufficient to absorbgrowing quantities, but only if prices drop over the next few years to a pointwhere they are competitive with synthetic rubber. From developments duringrecent years, it seems probable that synthetic will be substitutable fornatural rubber in many of its present uses, and will be better than naturalrubber in some. Thus, natural rubber cannot remain for long much above thepoint at which synthetic rubber can be produced at a reasonable profit. Thisis judged to be approximately one-fifth lower than the natural rubber pricein 1956. In the case of Thailand a somewhat smaller reduction may benecessary on the consideration that the quality of Thailand's rubber outputcan probably be improved somewhat more rapidly than in other countries overthe next few years. The quality of processing in Thailand is apparentlysignificantly lower than elsewhere at present, and the Government is takingsteps to improve it. The volume of rubber exports should rise approximatelyin step with production, i.e. about 2% annually until the mid 19 60's and2*3% thereafter.

58. The quotas under the International Mn Agreement are expected to beapplied sometime during 1958. and at that noint. Thailand's tin exports willhave to be cut back. Prices are expected to drop slightly from the 1965 level.

- 15 -

In the case of teak,. export volume is expected to drop by even more than the60% decline expected in production. Only a moderate increase in teak pricesis assumed. Burmese exports of teak are exrected to increase by about thesame amount as the decline in Thailand's exports.

59. Other exports, on the other hand, have shown a strong tendency toincrease in reent. vers. nnr thrp smP Tn hp a rizqnnh1 nrnnrt. thqt

this tendency will continue. The most important components of this groupare! ni1.qf.P1 qnrl vegeableh1 oils,_ Inn qPPr nnri qpln wii n-r1iint-q

other than teak, tapioca and livestock products.

60. Over the longer run, say during the decade from 1960 to 1970 the

in the early part of the period and somewhat larger increases in the late

1 4-- - rI 41 3 I

%_1_L I jiu P& U, JuictullWu 11ato ev-Ldence d -a L&Ll-y 11LV,41 LLILIL LL ±

for imports. Given monetary stability, the trend of incomes from exportproducts largely Uuminates the eConomy. herefore wiU te use of tarif 1e

and exchange rate flexibility within reasonable limits, Thailand shouldnormally e able to live within her foreign exchange income wathout relianceto any significant extent on direct import controls. This is the generalpattern which may be expected over the long run. Inere is, of course,inevitably some lag in the response of imports to a change in income.Moreover, special circuLUsances may temporarily disturb tnese generaltrends. In 1957, for instance, despite a rise in foreign exchange incomeduring 19_, imports may be expected to level off because of the accumulationof stocks in the past year. Some further rise in foreign exchange holdingsmay thus take place in 1957. In 1958-59, however, foreign exchange incomeis likely to decline but imports will probably tend to rise on the basisof 1950 and 1957 incomes. It is possible that some of the recentaccumulation of reserves will be drawn down.

Invisibles

62. Thailand's net deficit on invisibles is likely to rise slowly in thefuture. It is assumed that net payments for services will increase graduallywhile payments for non-monetary gold should decline, mainly as a result ofquota limitations imposed by the Government.

Creditworthiness

63. Thailand's basic economic position is rather strong, and the outlookfor growth in national output and export earnings is favorable. The mainelement of risk is whether the Government, through improved methods of fiscalmanagement and control and better priority planning of investment, will manageto keep its spending within the limits of the resources likely to be availableto it. Improved methods are also needed to control private bank credit, sinceat times in the past, expansion of private credit has introduced a considerableelement of instability. The Government in recent vears.has demonstrated a

- 16 -

willinpnpss to fqn thpsp ornhlems. Initial stens have been taken to brinzabout some of these necessary fundamental improvements, and the fiscal andmonetary vituation han in fact imn-rved conidernhlv in the niqt -To or th ree

years. It seems reasonable to assume that the Government will follow through

to achieve further progress in these fields.

64. The service payments on Thailand's present external debt will be

mainly due to repayments on outstanding medium-term credits. After 1960,1uwvV66. n'si onu ex-ivac*- py-u are s-o1g cue ueuo.1~~~ , IAD LalJ. Ut:;LJ 1' t-3 V1L3 CE l 1111=- U J. -JLotult±1 UtULJU Ci ~ '.11 UUJ_ U IU0

decline quite rapidly. This drop, combined with the probable rise incxpurt eur unin, uulu pruvide a margin vy the :&.-i .er OUSy V1 o usenV±LX1i1E

a considerable amount of additional foreign debt. By 1963 there should bean ample margin to meet service payments of about lib million annually onthe proposed loan for the Yanhee project. The present distribution ofThaliand's exports, wit a substantial volume ol rubber and tin going tothe dollar area and rice predominantly to the sterling area, is notexpected to change significantly in the future. Consequently no specialcurrency problems should arise in servicing foreign debt.

- 17 -

Trhhlp 1

.qTIM!MtY PV r)TTMRAT .AT nt,T. PN-) MOVE7M QVNT TMAA ATTERn M)TPr

4m +V-- -1-A --P TT Q A in - 'I4rwI -- + l

(in~~mon thuend r4 ce n-~ tv-~

I.L% UctL 1:3 uu L1cj FJ. u uLLL u JJ u Uu CC UJjvul viU@U

Disbursed and still outstanding 71,11 2.0Undisbursed 15,106 17.52

U.S. Dollars 65 862 76.41Privately-placed debt 3=_ 37762

Suppliers' and bank credits 31,16 36.12Disbursed (281176T 7276TUndisbursed (3,000) 3.A8

Participation in IBRD loansWithout recourse 1,289 1.50Disbursed 70) 0.81Undisbursed (589) 0.69

Loans held or guaranteed by IBRD 32.722 37.95Disbursed 21,205 27.9Undisbursed 11.q17 11.16

Tnan. held hv Eport-Tmnrt Rnnkb 724 n 8L

Prminrlc qfwrlira, I) 99P IA_Kn

Publicly issued bondd 3 .07j+a A Atey+ 0 'aHe 1db 77

Loans held by IBRD 2,293 2.76

Japanese Yen 2 161 2.50

-apanese Open Aovunt-Suppliers!Credit 3,949 h.59

a/ ~Xcludes $0,000,000 ICu loan of April 26, 156 repayable at Taland'soption in baht or dollars, and a $6,759,000 suppliers' credit to theThai Government (Ministry of interior) for equipment for municipalwater supply which was originally repayable in dollars but whoseterms have since been changed to provide for repayment in baht.

b/ Does not include two Export-Import Bank loans to private companiesamounting to $1,332,000 as of December 31, 1956.

c/ Only about $821,000 of this was held outside Thailand.Source: IBRD Statistics Division.

- 18 -

Table 1-A.

SUMEARY OF SERVICE PAYNEN3TS ON EXERITAL NAITONALAND 1TI TVERNuTI P H A .(MA LTED .

(as of December 31, 1956)

(in thousands of U.S. dollar equivalents)

1~1

M . - 11 T LUJ.. 1/ 04_ -. L,±V i_J

yU t T o 00 0 I-

1958 15,372 3l,624 2,714 1,034

1959 13,3 8,613 2,162 1,073

1967 3,26 2,369 1715 157

1961 3,222 6,92 1,173 1,50

1962 6,874 5,504 653 717

1963 6,517 5,0)7 653 717

1964 4,39)4 3,032 6)45 717

1965 W,oM 3,029 259 717

1966 3,631 2,698 216 717

1967 3,254 2,366 171 717

1968 3,222 2,33h4 171 717

1969 3,189 2,301 171 717

1970 3,189 2,301 171 717

1971 1,128 1,057 71 -

1/ Excluding payments on $10,000,000 ICA loan of April 1956 and a$6,759,000 .supplierWg-redit n0wprepayable-in baht.

2/ Mainly repayment on suppliers' credit under Japanese openAccount and Japanese yen in connection with an IBRD loan.

Source: IBRD, Statistics Division.

- 19 -

fROSSYoMESTEC PPROMUT PV TUTYp nFlP Arr iocT92 MAPWET PRTIES

1951 i1952 1953 1954 1955 1956

Agriculture 11.9 11.5 13.1 11.8 (13.5) (14.2)Fiseisl,- -1 .3 I. "i1. - 1. (1.5 (1.6) 4Forestry 1.3 1. 1.4 1.5 (1.5) (1.5)

Manufactu,iring and

Construction 0.5 0.9 0.9 0.8T ranspor tPaÆ tion and

Communications 1.0 1.2 1.5 1.7 (1.8)l"-olesale and retail

trade and otherservices 8.1 0.8 _9. 9.5 _

Gross TjomesticProduct 28.2 29.0 32.2 30.9 (33.5) (35.0)

Source: 1951-1954: National Economic Council of Thailand.1955 and 1956: Estimates based on partial data.

Thble 3

IN 1952 PRICFS

(billions of baht)

1950 19 51 -1952 195 3 19 5 4 1955 1956

icez.20 .2 5b6 6.30 1.30 5.70 .10

Rubber/ 1.21 1.1 1.06 1.04 1.28 1.bO 1.45

Oil seeds.1/ 0.20 0.26 0.26 0.26 0.31 0.32) (0.64)

Sugar cane 0.08 0.12 0.15 0.18 0.24 0.27)

Total ofabove 6.69 7.18 6.53 7.78 6.21 7.69 (8.19)

Figures relate to crop year beginning in yepr indicated.a' valued at domestic price for paddy and thus excludes export duties

which are included in the figures for agriculture given in Table 2.These duties correspond roughly to 15%o of the value of output.

b/ Valued at export prices, including export duties.c Peanuts, soybeans, castor beans and sesame.

UUV meLrIc "one]

1951 1952 1953 195h 1955 1956

Paddy 7,325 6,602 8,238 5,709 7,712 8,00

Rubber 11 100 98 120 133 136

Sugar Cane 1,291 1,076 1,820 2,437 2,699

Raw Cotton 26 24 26 23 25

Coprac/ 122 126 152 207 224

Peanuts 76 76 78. 92 94

Soya Beans 21 21 20 21 20

Mung Beans 26 24 26 28 3U

Sesame 7 9 9 10 11

Maize 42 45 51 62 67

Castor Beans 12 10 9 16 16

Tbaco42 1i2 50 53 56

75 n k/ % 261 339 ~ c W830 3C

a/ Preliminaryb/ Exportsc/ copra equivalent of coconuts producedd/ Thousand cubic meters

- 22 -

'qwble C5

PRODUTTON OF KNERAS

(iong tons)

1952 1_953 1951 1955 1_9_5_6a_

Tn10.0 10.1 9.8 11.0 12.5

Lead 2,421 7,834 11,478 12,314 8,333

Wolfram 1,601 1,595 1,087 1,126 1,165

Antimony 137 90 139 48 63

a/ Prelininaryb/ Thousand long tons

Source: Tin - International Tin Study GroupLead, Wolfram- and Antimony - Government of Thailand,

Department of Nines.

A. Value(millions of dollars)

1st ruarter1954 1955 1956 1956 1957

Rice 146 148 137 32 48

Rubber 44 8M 84 22 20

Tin Ore (72% 18 21 25 6 6concentrate)

Other 75 82 99 23 28

Total 283 335 354 83 102

B. Volume

1st Cuarter1954. 1955 1956 195 1957

Rice2' 1,001 1,2L8 1,266 290 441

Rubber Y 130 132 136 35 0

Tin-2 13.9 15.7 17.6 4.1 3.6

a/ Thousand metric tonsb/ Thousand long tons

Source: IhF, International Financial Statistics for value;Bank of Thailand. Current Statistics for volume.

01.C L4 -

Table 7

(1953 - 100)

Rice Rubber l1n

T)ecember 1954 96 87 92

December 1955 75 186 97

March 1956 68 143 89

June 1956 66 115 94

September 1956 70 125 1o

December 1956 67 165 101

March 1957 68 126 145

Source: IMF. International Financial Statistics - Index C

- 25 -

kmillions of baht)

1954 1955 1956Anount Percent Amount Percent Amount Tercent

Food 6o 9.1 618 8.3 572 7.6

Mineral Fuels,Lubricants andrelated materials 570 8.1 685 9.2 775 10.2

Chemicals 526 7.5 577 7.8 652 3.6

Textiles 1,40 21.0 1,66 19.8 1,425 13.8

Machinery andTransport Equip-ment 1,388 20.0 1,367 16.4 1,511 20.0

Miscellaneous (esti-mated) 2j484 34.3 2,702 36.5 2,636 3.8

Total 7,022 100.0 7bl! 100.0 7,571 100.0

Total in millions ofdollars (312) (321) (354)

Source: Government of Thailand, Customs Returns for baht figures.Dollar figures for 1995 an&.1955 from IMF and for 1956 fromBank of Thailand.

'r r nr '1 T r"% n T Ai «Nt-r ~ . ^r' "ir. 't, -r' rT r fY Am , "71 CIý ýtCT'DTTr1

2r,) I Lr± J 2fi~ l-Til11) 1X, U L LA-Ii'2,V4O ýý_ [J Uæ U J .L4~~1~J~.

I L.L-LQ iO C) . u.a. UQJ_La.Uti

GoodsExports f.o.b. 283.4 33>4.9 35I4.4imports c.i.f. 311.7 321.1 35b4.7D-ade balance -28.3 ;ý--1.8 - 0.3

Non-monetary gold (net) -16.9 -10.7 - 3.8Services (net) -16.6 -18.7 -13.Dona ti ons:

Private -7.1 -8.1 - 8.9

on current account -62.5 - 9.6 7.3

Capital movement (net) + 0.8 !-15.2 t1.Errors and omissions 4.38.5 i-20.7 t ,Cumulative Total -233..-26

ChanTe in ReservesIncrease (-), decrease (,e-)

Bank of ofailand andcommercial banks'forein Re-urities .b3.1 30.2

Sterling balances (net) -27.2 -22. -12.1U.S. dolr balances (net) -.. 5 -10.o - 8.1Japan Open Account 4.3 7.9 - 3.5Other 41. 9 i2. b -l1.Monetarv gold - 0.8 0.6 -

Toftal 236. -26.3 -24.9

has adjusted export and import figures, as refleoted in the custom.3

Inrears -, decreaose ( i o ,,,sv v) orf

the estimated exss of actual f.o.b value of rice and rubber over

import side, personal imports of diplomatic personnel and a small

Sterln baane (net)+ -- A -ý -27.2 -i- + 41 ,1 -22 -1.2.1

am ui O-L Vi LL.LL d.LJ£j rUUUz- 4i11UEý.L uj 1"L-L4 :d.Ly <%.L..Åi were inc-LIUded

in the custons returns, were deducted. Since similar adjustments haveJ uaa uOen maccud nu 1955 liurs 1h- L[ ±u uaLa auove ar.3 7o.9 3 .' tly

comparable with the 1955 data. If such adjustments were made the effectwould oal o inceaof thents prosti trae Bakof '!h5iand lce

theL estmaedexcssofatual f.o.b va-lue ý of ad riLace and ruove

the errors and omissions.

Source: IpF for 1954 and 1955; 9ank of Thailand for 1956.

Table 10

End of Period Gold Sterling Dollars Other Total

1953 114 22 162 4 302

19514 113 >7 113 - 273

1955 112 53 133 - 298

1956112 52 144 - 309

II 112 55 lo - 308

III 112 55 140 - 308

pr 112 55 144 - 311

19571 112 53 158 - 324

Note: Beginning in July 1955 the Bank of Thailand foreign exchangeholdings include those of the newly created Exchange EqualizationFund. 71hese are assumed to be all in dollars.

Source: IMF, International Financial Statistics.

- 26-

iablep 11

GOVERNMEN T REVE2NUE~

1954 1955 1956 1957

Taxation 2,h77.6 2,851.3 2,793.5 3,102.8

Government omains 134.4 15[.5 15b.8 173.7

Governrent Enterprises 535.7 519.2 615.1 647.3

Fees, Licenses and Fines 320.8 332.9 294.9 281.8

Miscellaneous )49.3 70.0 52.b 77.1

Rice Bureau and RicePremiuns 322 L4._) UL.U U3.3

Total Revenue 4,239.9 b,369.2 h,752.- 5,U.U

q/ The -ctual figure of total revenue in 1956 is provisionally estimatedat ß5,064.8 million. No estimates of the components of this total areava ilb l

- 29 -

Table 12

BUDMT EXPENMITURES

(million baht,)

Actual Actual Budget BucetMajor Category 1954 1955 1956 1957

National Debt 149.7 252.3 252.7 335.2

External Security 943.6 1,476.2 820.1 780.5

Internal Security and

Justice 295.7 652.5 420.1 343.4

Social Welfare 171.3 169.8 181.4 229.7

Government Enterprises 402.6 324.5 597.5 585.6

Economic Development 1,011.2 853.8 759.2 7h1.7

Education and Culture 319.h 775.0 294.8 172.9

Ci.vil Service 176.0 210.4 266.6 224,.2

Cost of Living Allowancesfor Officials 1,617.1b 2,050.0 2,374.8

Othera/ 186.h 268.1 270.0 556.1

Total 5,278.5 4,982.6 5,912.h2/ 6,34Ah.1

Extra Budgetary Expenditure 190.2 153.9 72.y

Grand Total 5,468.7 5,136.5

n/ Ic Royal AccouIints,l nttuael mnenn+s, +nv ^tcllectiåon

expenditures and expenditures on municipalities during 1954-1956; in1957 i nclde also nr irvi l exp e nn dit r + rå+. no t +ye d it,er byN

purpose.klfl4 istriuted i s..n'v

4.n appropriat at amongt the l- other,pnditu¶re item

c/ The provisional actual figure of total expenditures (excluding extra-

d/ Provisional actual figure.

T-bl 1-P I

CDflURNIvMNT Ti URA-TMENT 1RYPENThTTTORR

i q ni m114nnce% I-Nnlhi

1955 1956 .1957

Irrigation 203.6 183.4 177.6

Transportation 488.9 720.3 671.4

Industry 118.1 77.7 148.2

Other 183.7 283.5 276.9

Total 99h.3 1,26h.9-/ 1,27L.1

a/ The actual figure of total inv-estment in 1956 is provisionallystima ted at p9U>e million, bLt no estimates of tne compot

are available.

N.B. The above figures exclude the value of equipment and technical.services supplied by the U.S. under grant aid for development,largely for the highway program. The amounts involved areestimated at about $4 million (, 80 million) in 195, LU million($ 200 million) in 1956, and $15 million ($ 300 million) in 1957.

Ta-ble- Ih

T,'MiRMIJ, PiRT.TC DE.PT

(millions of baht)

December 31, 1955 December 31 1956Total Held by Bank Total Held by Bank

Outstanding o%f Thailand Outstanding of Thailand

Baht Securities 777.33 859. b322

Foreirn , ExcngeGov't Securities 1,200.0 1,200.0 1,200.0 1,200.0

'Ireasury Bills 3,266.7 3,196.6 3,266.7 3,132..8

Overdraft fromBnk of Thailn n. 9 9 7 96n 7DdL 5,79.L3.847.- )47ýj ,73J7.5 737I

M 4-1r' "nrý 0 'ý I. n '7 /_ ^ne.r ei C' 17-3. -7

- 32 -

Table 15

PRICE INDTCES

(11953 = 1nn)

Cost of LivingWholesale Prices (Bangkok)

1954 98 99

1955 11b 105

1956 117 111

I 113 109

II 117 110

III 121 112

IV 116 111

1957

I 115 115

Source: Bank of Thailand, Current Statistics