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IMF: THAILAND Staff Report -- December 2010

IMF: THAILAND Staff Report -- December 2010

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Thailand: 2010 Article IV Consultation—Staff Report; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Thailand .....
Thailand: 2010 Article IV Consultation—Staff Report; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Thailand .....

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© 2010 International Monetary Fund
December 2010IMF Country Report No. 10/344September 3, 2010 September 17, 2010January 29, 2001July 16, 2010 2010 January 29, 2001
Thailand: 2010 Article IV Consultation
 — 
Staff Report; Public Information Notice onthe Executive Board Discussion; and Statement by the Executive Director for Thailand
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions withmembers, usually every year. In the context of the 2010 Article IV consultation with Thailand, thefollowing documents have been released and are included in this package:
 
The staff report for the 2010 Article IV consultation, prepared by a staff team of the IMF,following discussions that ended on July 16, 2010, with the officials of Thailand on economicdevelopments and policies. Based on information available at the time of these discussions,the staff report was completed on September 3, 2010. The views expressed in the staff reportare those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
 
A Public Information Notice (PIN) summarizing the views of the Executive Board asexpressed during its September 17, 2010 discussion of the staff report that concluded theArticle IV consultation.
 
A statement by the Executive Director for Thailand.The policy of publication of staff reports and other documents allows for the deletion of market-sensitiveinformation.
Copies of this report are available to the public fromInternational Monetary Fund
Publication Services700 19
th
Street, N.W.
Washington, D.C. 20431Telephone: (202) 623-7430
Telefax: (202) 623-7201E-mail: publications@imf.org Internet: http://www.imf.org Price: $18.00 a copy
International Monetary FundWashington, D.C.
 
 
International Monetary Fund Thailand
 
September 3, 2010
Thailand: Staff Report for the 2010 Article IV Consultation
1
 
Prepared by the Staff Representatives for the 2010 Consultation with ThailandApproved by Masahiko Takeda and Aasim Husain
Key Issues and Recommendations
 
Growth outlook:
 
Thailand has made a remarkable comeback from the global crisis and around of domestic political turmoil. Led by strong export performance, growth is likely toreach 7½ percent in 2010, before easing to 4 percent in 2011. Risks to these projections are tothe downside, as the global recovery remains fragile, while political uncertainty couldcontinue to weigh on domestic demand.
 
Strengths and weaknesses:
 
Thailand’s resilience is a testimony to its skillful economicmanagement and the strengths built over the past decade. But the crisis has also underscoredits structural weaknesses, which have slowed growth and left it dependent on exports.
 
 Exit policies:
With the economy recovering, the authorities are normalizing the policy stance,winding back fiscal deficits and beginning to raise interest rates. Since policy rates are far from neutral, significant adjustments will eventually be needed. Given the downside risks,however, normalization should proceed gradually, as evidence accumulates that the recoveryis becoming entrenched. Should volatile capital flows intensify, the exchange rate should beallowed to serve as a buffer, reinforced if necessary by prudential measures.
 
 Medium-term strategy:
 
The authorities aim to rejuvenate Thailand’s growth potential byalleviating constraints on economic activity, notably by building out the country’sinfrastructure and developing its financial sector.
 
 Infrastructure:
 
Generating the needed budgetary resources will be a challenge. Theemergency crisis subsidies could be withdrawn, and an expenditure review could identifyfurther sources of savings. There is also scope to widen the corporate and personal income tax bases by reducing exemptions and deductions. And the VAT rate could be raised from itscurrent relatively low level of 7 percent.
 
 Financial sector:
 
Effective implementation of the master plans for the banking sector andcapital markets would inject new life into the system, by generating greater competition andintroducing new services. At the same time, steps should be taken to revamp the framework for specialized financial institutions, where nonperforming loans have been proliferating.
 –––––––––––– 
1
Discussions took place July 5–16. The staff team comprised Messrs. Felman, Kalra, and Yoshida, andMs. Oner (all APD), and Mr. Goldsworthy (FAD). Ms. Vongpradhip and Mr. Kanithasen (OED) alsoattended meetings.
 
 2Contents PageI. Background .........................................................................................................................3A. A Remarkable Comeback ..............................................................................................3B. A Slowing Dynamo ........................................................................................................7II. Short Term: Heading for the Exit .....................................................................................10III. Medium Term: Dynamic Thailand, Regained? ................................................................13A. Outlook and Overall Strategy ......................................................................................13B. Expanding Infrastructure: Mind the Gap .....................................................................14C. Developing the Financial Sector ..................................................................................17IV. Staff Appraisal ..................................................................................................................19Boxes1. Calibrating Monetary Policy in Thailand .........................................................................222. How Do Capital Flows to Thailand Compare With the Region? .....................................233. Assessment of Real Exchange Rate and International Reserves ......................................24Figure1. Anatomy of a Recovery ......................................................................................................4Tables1. Selected Economic Indicators, 2007–11 ...........................................................................252. General Government Operations, 2006/07–2010/11 ........................................................263. Balance of Payments, 2007–15 .........................................................................................274. Monetary Survey, 2007–10 ..............................................................................................285. Financial Sector Indicators, 2005–10 ...............................................................................296. Medium-Term Framework, 2007–15 ...............................................................................307. Medium-Term Fiscal Scenario, 2008/09–2014/15 ...........................................................31Appendices1. Public and External Debt Sustainability ...........................................................................32

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