Running head: THAILAND’S ECONOMIC DEVELOPMENT STATUS 1

Thailand’s Economic Development Status

Mark D. Derham

American Military University

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Abstract

Thailand is one of the more prosperous Southeast Asian nations; however, the past couple of

years have proven that they are no less vulnerable to outside effects as any other country that is

part of the global economic community. Thailand’s past economic successes is a result of good

economic ties with several developed states, including the U.S., as well as revenue from

exports and tourism. In light of the political crisis following a 2006 bloodless coup, foreign

investment has diminished as well as much need revenue from tourism being down 22% in

2009 (Bangkok Post, 2009). Thailand’s reliance on exporting, especially the exporting of

automobiles, has put a large dent in their economy due to the lack of demand resulting from a

global recession. In order for Thailand’s economy to begin growth once again, it is imperative

that the political crisis be resolved. Additionally, Thailand’s education system must improve in

order to stave off the lack of skilled laborers and increase the capability of their infrastructure in

the future. Finally, a balanced economic approach must be utilized in order to avoid another

disaster resulting from relying on one main source of revenue, such as exporting. Thailand has

a great deal of economic potential in the future but these hurdles must be passed before that

potential can be fully realized.

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Since 1932, Thailand has seen 18 coups, mostly bloodless, transform their state (Abuza,

2006). The most recent coup occurred in 2006, and it has proven to be problematic for their

economy. With Thailand being in a state of political crisis, their economy has continued to

worsen exacerbated by the global recession. The country is dependent on foreign exports that

have been reduced in the last two years, and they must now work to balance their economy with

other means of providing revenue. Despite being one of the more advanced South East Asian

states, Thailand still has many economic problems, and they are far from becoming a developed

state.

Thailand was an absolute monarchy known as Siam up until a bloodless coup in 1932

led to the establishment of a constitutional monarchy (CIA World Factbook, 2009). The military

has often times taken control of the government and it stability was finally found in 1992. The

1997 Asian financial crisis threatened Thailand’s stability; however, the country was able to draft

a new constitution and elect a new Prime Minister without military intervention. In 2001, Thaksin

Shinawatra, a telecommunications millionaire, was elected to Prime Minister. His government

was marked by a “confident foreign policy, implementation of his populist policies, and

accusations of anti-democratic actions” (U.S. Department of State, 2009). Despite the

accusations of anti-democratic actions, Thaksin’s party dominated the 2005 elections and took

the plurality of seats in the parliament. By early 2006, accusations of corruption and widespread

demonstrations forced Thaksin to take action. He dissolved the parliament and declared

elections in April of 2006. These elections were quickly nullified by the judiciary, and on

September 19, 2006 a group of military officers overthrew the government in a bloodless coup.

An interim constitution was drafted and an interim prime minister was appointed (state

department). Since the coup, Thailand has seen 6 different prime ministers and continued

widespread civil unrest (Lintner, 2009).

In recent decades, Thailand has been able to thrive under their free-enterprise economy

and pro-investment policies. Until the 1997 Asian financial crisis, Thailand had one of the fastest
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growing economies in the 1980s-1990s (Thailandguru, 2007). After the 1997 crisis, Thailand’s

growth slowed considerably down to 4-5% annually up until the 2008 global financial meltdown

(U.S. DOS, 2009). Thailand was able to avoid a large part of the global downturn based mostly

on the fact that Thailand has a relatively low amount of international investments, and the fact

that Thai banks had very little involvement in toxic assets. Thailand was not able to entirely

escape the global downturn as is evident by the fact that their economy is projected to be down

as much as 3.5% in 2009 (U.S. DOS, 2009). The decrease in economic growth can mostly be

blamed on their reliance on exports and not so much on their internal policies, which will be

discussed later in this essay.

State structure and government policies do not account for all of the success that

Thailand has had. Thailand’s economic success in the past can also be attributed to the amount

of tourism the country receives. Thailand’s tourism industry thrives off of the beautiful, lush

beaches that permeate the country. About 6% of the Gross Domestic Product (GDP) can be

attributed to tourism (U.S. DOS, 2009). Tourism has taken a hit in the last couple of years due

to several reasons. First, the political turmoil caused by the 2006 bloodless coup has caused

many to reevaluate their desire to travel to a political charged country. Mass demonstrations

throughout the country against the government coupled with the continued civil unrest in the

Southern region are partly to blame. Second, the global financial downturn has forced many to

cut back on unnecessary expenditures such as foreign travel. Finally, the recent outbreak of

another influenza strand, H1N1, has caused many to reconsider traveling to a country that

continues to boast medical illness problems. The combined result of each of these issues has

resulted in the forecasted loss of 22% visitors compared to 2008 (Bangkok Post, 2009).

Thailand’s tourism industry will not stabilize as long as the political turmoil continues to throw

the country into unrest.

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Tourism is not the only industry that is being affected by Thailand’s internal political

strife. Foreign investment as well as domestic investment continues to look bleak due to

weakened consumer confidence. According to

Dr. Tarisa Watanagase (2007): Domestic demand has however been affected by

dampened consumer and investor confidence, linked primarily to political uncertainty. In

July, private consumption remained close to the level recorded in the first half of the

year. I am hopeful that once the general election date is scheduled and the cloud of

political uncertainty has lifted, consumer confidence would rebound. (p. 1).

I completely agree with Dr. Watanagase’s statement. Once the political unrest is dealt with and

the mass demonstrations as well as the civil unrest are quelled, Thailand will once again see

consumer confidence increase along with foreign and domestic investment. Without political

stability, foreign investment will be lost to other countries, and Thailand’s economic growth will

continue to worsen.

To a degree, Thailand’s education system is also a contributor to internal factors

hampering economic growth and stability. According to the U.S. State Department, during

Thailand’s period of economic growth, they experienced a strain on telecommunications, energy

and transportation. There are not enough engineers and skilled technicians to keep these

networks up to speed with the growth of the country (U.S. DOS, 2009). Over 40% of the Thai

people are employed in agriculture, but agriculture only accounts for 11.6 of the GDP (CIA

World Factbook, 2009). The lack of higher education must be improved if Thailand will be able

to sustain economic growth in the future. This may be increase difficult to obtain in Thailand.

According to

Hallinger and Kantamara (2001): In general, Thai people would rather maintain things

the way they are than to take initiative, be different, or shake the ground. Throughout

Thai society, innovation is neither encouraged, nor highly valued, and may even be
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regarded as disruptive. Even if a new practice holds high potential for the organization,

individuals will feel uncomfortable departing from accepted practice. (p.397).

While this may be the case, the Thai government must work towards increasing the number of

skilled laborers otherwise economic growth will be inhibited by the countries lack of advanced

infrastructure.

Thailand has several external factors that have aided their economy with the two most

important being their trade treaty with the United States and their partnership with the

Association of South East Asian Nations (ASEAN). The United States and Thailand Treaty of

Amity and Economic Relations updated as of 1966 allows for U.S. businesses operate in

Thailand with near equal footing as Thai businesses despite restrictions that were established

by the Foreign Business Act (U.S. DOS, 2009). This treaty has allowed for many U.S.

businesses to establish operations in Thailand with success and has fostered close ties

between these two states. Thailand’s relationship with the United States has been a major

factor in their economic rise in the past. It can also be attributed to their economic growth loss,

which will be explained further on.

Thailand’s partnership with ASEAN has also been able to give strength to Thailand’s

economy, and if future goals are met, it could have much more potential. ASEAN consists of

Thailand, Cambodia, Singapore, Brunei, Indonesia, Laos, Malaysia, Myanmar, the Philippines

and Vietnam (ASEAN, 2009). The main goal of ASEAN is to create a fully integrated regional

economic community by 2015. This integrated economic community has many implications for

Thailand’s future: Increased trade through SE Asia, more foreign investment, and a stronger

economic base to barter with foreign states. The possibilities are endless. There are many

roadblocks that have to be taken care of such as the current political dispute between Thailand

and Cambodia over former Thailand Prime Minister Thaksin being named a Cambodian

economic advisor (My Sinchew, 2009).

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Despite the many external aids that Thailand has, they have one very large external

factor that threatens the stability and growth of their economy. Thailand’s biggest weakness to

their economy is their reliance on exports. Over 70% of Thailand’s GDP is attributed to exports,

and their quick recovery from the Asian financial crisis can be mainly contributed to the export

demand from the United States (U.S. DOS, 2009). One of Thailand’s major exports is

automobiles from Toyota and Ford being the major contributors in the Thai market (Runckel,

2005). The global recession hit Thailand the hardest in this industry due to the diminished global

needs of automobiles. Thailand’s reliance on exporting goods must be balanced out with foreign

investment and domestic revenue in order to create long term stability. The recent global

recession has proven that reliance on one industry for revenue can be a drastic mistake.

The next steps that Thailand needs to take will be difficult tasks, but they will significantly

increase Thailand’s economic potential. First and foremost, the political crisis must come to an

end along with all the civil unrest that is prevalent throughout the country. While it is unlikely that

the separatist movement in the Southern Regions will be quelled in the near term, it is important

for political and social stability to improve throughout the country. Without this, the next two

steps will be near impossible to achieve. The second step is for Thailand’s education system to

be improved. Without skilled laborers, Thailand’s transportation, energy, telecommunications

and all other infrastructures will be difficult to improve. An improved infrastructure is a must in

order to obtain and maintain an expanding economy. Lastly, the state’s exports must be

balanced with other areas of investment. Specifically, foreign investment must increase in order

to provide other areas of revenue. This last step will not be obtainable as long as political turmoil

persists. In order for foreign investors to have confidence in the Thai market, they must be

ensured that the state will not collapse around them.

While many of the economic problems that have surfaced in the last couple years in

Thailand can be attributed to the global recession, it is important for the Thai government to

understand that they must diversify their economy otherwise they will face much larger
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problems in the future. The alliance with ASEAN will likely prove to be a key means of providing

stability in not only Thailand, but the entire region. A strong education system has also been

proven many times over to be necessary in order to obtain a more stable economy. While

Thailand’s economic future looks promising, their immediate goal should be creating a strong,

stable government, because without that there is little hope of maintain a strong, stable

economy.
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References

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CIA World FactBook (2009). Thailand. Retrieved from

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Hallinger, P. & Kantamara, P. (2001). Exploring the cultural context of school improvement

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Thailand Guru (2007). Economy, government, business in Thailand. Retrieved from

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U.S. Department of State (2009). Background note: Thailand. Retrieved from

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Watanagase, T. (2007). Tarisa Watanagase: Thailand’s economy and resiliency – 2008 and the

road ahead. BIS Review. Retrieved from http://www.bis.org/review/r071001c.pdf

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