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Economic Boom (1986-1995)

Economic Boom (1986-1995). Boom (1986-1995). Decade of unprecedented high economic growth: average 9% p.a. (over 10% in 1988 -90) Sharp fall in world oil prices  less burden on deficits and inflation. Boom (1986-1995). Lower world interest rates  less debt service burden

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Economic Boom (1986-1995)

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  1. Economic Boom (1986-1995)

  2. Boom (1986-1995) • Decade of unprecedented high economic growth: average 9% p.a. (over 10% in 1988 -90) • Sharp fall in world oil prices  less burden on deficits and inflation

  3. Boom (1986-1995) • Lower world interest rates  less debt service burden • Japanese Yen revaluation (Plaza Accord in 1985)  influx of FDI from Japan and NIEs

  4. Boom (1986-1995) • High rise in manufactured exports + income from tourism and labor export + less oil import bill  reduce current a/c deficits up to 1989, but the gap widened afterwards

  5. Boom (1986-1995) • “Structural adjustment” policies (loans from World Bank and IMF): • Promotion of exports (esp. manufacturing) and investment in provincial areas

  6. Boom (1986-1995) • “Structural adjustment” policies: • Fiscal austerity and debt control • Tariff reductions • Reduce oil and transport subsidies; oil price float

  7. Boom (1986-1995) • “Structural adjustment” policies: • Privatization of state enterprises • Liquidation • Share selling (Thai International Air) • Concessions to private sector in telephone, ports, expressways, power, water,… • Tax reform: VAT introduced

  8. Boom (1986-1995) • More export-oriented manufacturing: • Relocation from Japan and NIEs: textiles, electronic, shoes, toys, watches, lenses, car parts • Exports of electronic, transport equipment and computer parts surpass textiles and agro-based

  9. Boom (1986-1995) • More export-oriented manufacturing: • Still highly dependent on imported materials, components and machines (60%-90% of value)

  10. Boom (1986-1995) • Financial liberalization in early 1990’s (aim: regional financial hub replacing Hong Kong): • Abandon interest rate ceilings • Deregulate capital flows and exchange control

  11. Boom (1986-1995) • Financial liberalization in early 1990’s (aim: regional financial hub): • Offshore banking (BIBF) promoting freer flow of international funds • Allow both banks and non-banks to borrow abroad

  12. Boom (1986-1995) • High economic growth + massive capital inflows led to speculation in real estate and stock market  “bubble”

  13. Boom (1986-1995) • Peter Warr: during the boom, more than half of output growth was accounted for by increases in capital stock (both domestic and foreign) • Short-term capital flows were more important than FDI

  14. Boom (1986-1995) • Peter Warr: Bank of Thailand’s fixed exchange rate and sterilization policy  high interest rate, real appreciation of Baht, attracting short-term capital inflow (exceeding reserves from 1994 on)

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