Thailand's Growth Rebalancing

This paper reviews Thailand's structural changes, the 1997 crisis experience, and recovery and lessons from the crisis. The paper then discusses the impacts of the subprime crisis on the Thai economy and the policy responses to date. The paper ends by discussing strategies to rebalance growth by reducing the dependence on exports as the main growth engine. The recovery from the 1997 crisis left Thailand more dependent than ever on exports as the main engine of growth, with the ratio of exports to gross domestic product (GDP) increasing from a precrisis level of about 38% to about 65% recently. The lessons learned from the 1997 crisis led to a more risk-averse financial system, and this helped Thailand avoid the direct impacts of the subprime crisis. However, being highly dependent on exports, Thailand, along with other export oriented East Asian economies, is now heavily affected by the indirect impacts of the subprime crisis, especially in the export industries. Exports and GDP have dropped sharply over the past two quarters. The government has been using fiscal stimulus and monetary easing measures to try to improve the economy. These measures are mostly short-term in nature, and if the subprime crisis is protracted, then the sustainability of the fiscal stimulus will be called into question. In the medium- to long-term, Thailand needs to move to a more balanced growth path, depending less on exports (although exports will still be important) and more on other, domestic sources of growth. The paper concludes by discussing a number of policy strategies that will contribute to a more balanced growth path.