Thailand WT/TPR/S/63
Page 1
I. THE ECONOMIC ENVIRONMENT
(1) RECENT ECONOMIC PERFORMANCE
1. Prior to the financial crisis that erupted in mid-1997 and quickly spread to other countries in
the region, Thailand's economic performance was outstanding, with real GDP growth averaging over
8% a year during the period 1987-95, albeit dropping to  5.5% in 1996 (Chart I.1).  This strong growth
was partly the result of market-oriented structural reforms undertaken by the successive governmentsduring that period.  These reforms included reductions in barriers both to imports and exports, and the
liberalization of the foreign investment regime;  strong growth of the economy was helped by
Thailand's high saving rate, financing much of its investment.
0100200300400500600700800
0100200300400500600700800Constant 1987 US$ (1970 =100)Chart I.1
Real GDP, 1970-99a
World Bank , World Develo pment Indicators ; and Bank of Thailand , Quarterl y Bulletin , various issues. Source :Thailand
Selected Asian 
countries b
Estimate.
Chinese Taipei; Hong Kong China; Indonesia; Re p. of Korea; Malaysia; Ph ilippines; and Singapore.a
b
2. While the gross national saving rate averaged nearly 34% of GDP throughout the 1990s, it
nonetheless fell substantially short of gross domestic investment up until 1997.  The resulting saving
investment gap was bridged by inflows of foreign capital attracted to Thailand by prospects of
profitable investments and by its open foreign investment regime.  During 1990-96, net capital
inflows averaged 10% of GDP annually.  At the same time, however, the substantial shortfall in
national saving was mirrored in a correspondingly large and growing current account deficit and aprogressive accumulation of public and private external debt (Table I.1).  This need not have posed a
problem as long as investments in Thailand were allocated efficiently through the domestic financial
market to projects whose returns were at least sufficient to cover the cost of capital.  Unfortunately,
this was not perceived to be the case, and a sudden loss of market confidence plunged the economy
into a severe recession.WT/TPR/S/63 Trade Policy Review
Page 2
Table I.1
Thailand's basic economic indicators, 1990-99
1990 1995 1996 1997 1998a1999b
Population (million) 56.3 59.5 60.1 60.8 61.5 62.1
GDP
GDP at current price (US$ billion) 85.3 168.1 181.5 153.9 116.0 131.9
(% change) 17.2 16.4 8.0 -15.2 -24.6 13.7
GDP at current price (Baht billion) 2,183.5 4,188.9 4,598.3 4,827.2 4,798.2 4,894.6
(% change) 17.6 15.3 9.7 5.0 -0.6 2.0
GDP at constant 1988 price (% change) 11.2 8.8 5.5 -0.4 -8.3 1.0
Agriculture -4.7 2.5 3.8 1.4 1.1 2.5
Non-agriculture 14.1 9.7 5.7 -0.7 -9.4 0.8
GNP per capita (Baht) 38,613 69,047 74,585 77,246 75,577 76,790
GNP per capita (US$) 1,509 2,771 2,943 2,462 1,827 2,070
CPI (% change) 6.0 5.8 5.9 5.6 8.1 1.4
Gross domestic investment (% GDP) 41.1 41.6 41.7 35.0 25.2 25.9
Private 35.0 32.2 30.8 24.1 13.9 13.9
Public 6.1 8.9 10.2 11.5 11.3 12.0
Gross national savings (% GDP) 33.7 34.9 33.2 32.9 37.4 34.5
Net national savings (% GDP) 25.1 23.7 21.1 19.7 37.4 34.5
Private 14.9 12.8 10.1 11.5 29.0 27.1
Public 10.2 10.9 11.0 8.2 8.4 7.4
External account (US$ billion)
Balance of payments 3.8 7.2 2.2 -9.5 1.4 2.5
Current account balance -7.3 -13.5 -14.7 -1.3 14.3 7.2
(% of GDP) -8.6 -8.1 -8.1 -0.8 12.3 5.5
Trade balance -9.8 -15.0 -16.4 -2.8 12.1 10.5
Exports 22.9 55.4 54.4 57.1 52.7 53.5
(% change) 15.1 24.8 -1.8 4.8 -7.5 1.5
(% of GDP) 26.8 33.0 30.0 37.1 45.4 40.5
Export volume (1990=100) 100.0 202.0 182.0 195.8 211.3 ..
(% change) .. 14.2 -9.9 7.6 7.9 ..
Imports 32.7 70.4 70.8 59.8 40.6 43.0
(% change) 29.8 31.8 0.6 -15.5 -32.1 5.9
(% of GDP) 38.3 41.9 39.0 38.9 35.0 32.6
Import volume (1990=100) 100.0 175.3 158.8 142.0 103.4 ..
(% change) .. 16.3 -9.4 -10.6 -27.2 ..
Net services balance 3.7 3.1 4.4 4.3 5.2 ..
Net capital movement 9.7 21.9 19.5 -9.5 -9.9 -5.8
Total external debt 29.3 82.6 90.5 93.4 86.2 80.7
of which:
public debt 11.5 16.4 16.8 24.3 31.5 33.9
private debt 17.8 66.2 73.7 69.1 54.7 46.8
Total debt service ratio (%) 10.8 11.4 12.2 15.6 20.8 ..
Table I.1 (cont'd)Thailand WT/TPR/S/63
Page 3
1990 1995 1996 1997 1998a1999b
Fiscal accounts (% of fiscal year GDP)c
Overall public sector balance 4.7d2.7 2.8 -2.1 -2.8 -5.8
Central government balance 4.7 2.9 1.9 -1.4 -2.4 -4.0
Revenue and grants 18.9 19.3 19.0 17.6 15.1 14.9
Expenditure and net lending 14 16.4 17.1 19.0 17.5 18.9
Total central government debt (end of
fiscal year)19.0 4.8 3.9 4.6 .. ..
Monetary statistics
M2 (Baht billion) 1,529 3,311 3,727 4,339 4,753 4,778
(% change) 26.7 17.0 12.6 16.4 9.5 6.1
Private credite (% change) 33.2 24.1 14.4 30.5 -7.9 -8.4
Interest rate (prime rate; year end) 16.3 13.8 13.0-13.2 15.2 11.5-12.0 8.7-9.0
Interest on fixed deposits (1 year) 13.0-15.5 10.2-11.0 8.5-9.2 10.0-13.0 6.0 5.0
Exchange rate and reserves
Baht: US$ (end of period) 25.29 25.19 25.61 47.25 36.69 37.20
Baht: US$ (period average)f25.59 24.92 25.34 31.37 41.37 37.10
Terms of trade (1990=100) 100.0 98.5 96.5 99.8 91.7 96.6
Real effective exchange rate (1990=100) 100.0 97.7 105.6 97.0 88.4 88.2
Gross official reserves
(US$ billion, end of period) 14.3 37.0 38.7 27.0 29.5 32.2
(months of imports) 5.2 6.3 6.6 5.4 8.7 9.0
.. Not available.
aP r e l i m i n a r y .
b Estimated (annualized based on Jan-June 1999).
c Fiscal year is from 1 October to 30 September.d Central government balance.
e Excludes non-financial public enterprises.
f Since July 1997, the figures are represented by average inter-bank exchange rate.
Source: Bank of Thailand, Quarterly Bulletin .  Available at:  http://www.bot.or.th/research/public/thaiecon/tkei.htm.
3. In 1996, an unprecedented drop in the actual value of exports (which had grown by almost a
quarter the previous year alone) was another sign of trouble, given the key role of exports in past
expansion (Table I.1).  Furthermore, commercial banks reported a significant increase innon-performing loans, which highlighted the vulnerability of Thailand's financial system.  There
followed a dramatic flight of capital and heavy losses of foreign reserves, which culminated in a large
devaluation of the Thai currency (the baht) in July  1997 (Table I.1).  In turn, the currency depreciation
immediately translated into heavy losses in corporations' balance sheets because of their high reliance
on foreign debt (see below), and many went bankrupt.  The outcome of this financial crisis was that
real GDP declined by nearly 2% in 1997 and by 10% in 1998.  Increased unemployment, from 1.7%
in 1995 to 4% in 1998, and falling personal incomes resulted in an estimated one million additionalpeople falling below the poverty line.  Hence, the financial crisis became a full-blown economic crisis
of major proportion with far-reaching social consequences.
4. The origins of this crisis and the resulting sharp recession have been attributed mainly to
generalized weaknesses in the governance of the financial and corporate sectors, notably poor
accounting practices and a lack of transparency in management, together with inadequate supervisionof banks and financial institutions.  Moreover, the maintenance of a fixed nominal exchange rate led
banks and companies to borrow heavily from abroad in foreign currencies, mostly on a short-term and
unhedged basis, thereby exposing themselves to the ri sk of exchange rate decline.  Further, in theWT/TPR/S/63 Trade Policy Review
Page 4
absence of adequate company data, many investments were not based on accurate assessments of
financial risks so that domestic and foreign-owne d capital was increasingly channelled into poorer
quality investments, resulting in particular in over-investment in real estate.1
5. During the months immediately following the crisis, the Thai economy underwent internal
and external adjustments of major proportions.  A shar p drop in private investment resulted in a fall in
domestic demand and a major contraction in imports (Table I.2).  The current account moved to asurplus of US$14 billion (12% of GDP) in 1998 from a deficit of US$14 billion (8% of GDP) in 1996.
A correspondingly large  swing also occurred on the capital account, which moved from net inflows of
nearly US$20 billion to net outflows of nearly US$10 billion.
Table I.2
Thailand's balance of paymentsa, 1994-99
(US$ million)
1994 1995 1996 1997b1998b1999c
Overall balance 4,168.2 7,204.3 2,155.0 -9,538.1 1,392.9 -4,537
Current account balance -8,078.0 -13,549.0 -14,686.6 -1,284.9 14,299.8 11,635
Goods and services -7,478.2 -11,924.3 -12,061.9 1,561.5 17,317.9 ..
Goods -9,017.5 -14,999.8 -16,481.7 -2,704.8 12,158.2 ..
Exports 44,457.0 55,443.8 54,416.0 57,051.2 52,715.7 55,000
Imports 53,474.5 70,443.7 70,897.8 59,756.0 40,557.5 45,765
Services (net) 1,539.3 3,075.6 4,419.8 4,266.3 5,159.8 2,158
Services receipts 11,640.1 14,848.1 17,009.0 15,374.0 13,044.7 18,386
Transportation 1,840.0 2,454.4 2,617.0 2,389.6 2,274.6 ..
Travel 6,064.3 8,037.8 9,089.7 7,389.0 6,669.2 7,980
Government services, n.i.e. 214.8 193.7 303.7 139.6 80.9 ..
Other services 3,521.0 4,162.2 4,998.5 5,455.8 4,019.9 ..
Services payments 10,100.8 -11,772.5 -12,589.2 -11,107.7 -7,884.9 16,226
Transportation 1,106.5 -1,454.5 -1,554.9 -1,390.8 -951.6 ..
Travel 4,062.0 -4,272.4 -4,287.3 -3,275.6 -1,919.0 3,000
Government services, n.i.e. 164.7 -203.0 -272.4 -205.1 -122.4 ..
Other services 4,767.6 -5,842.6 -6,474.6 -6,236.2 -4,892.0 ..
Income (net) -1,729.5 -2,109.5 -3,384.3 -3,361.4 -3,433.1 ..
Income receipts 2,561.1 3,800.9 3,970.1 3,689.7 3,397.1 3,195
Investment income 1,281.2 2,106.1 2,163.6 2,035.0 1,992.9 1,795
Income payments (income only) 4,290.6 5,910.4 7,354.4 7,051.1 6,830.2 6,655
Current transfers 1,129.8 484.8 759.6 515.0 415.0 242
General government 61.2 41.6 30.4 17.3 27.9 ..
Other sectors 1,068.6 443.2 729.2 497.8 387.0 ..
Capital account 12,161.6 21,874.8 19,476.3 -9,495.1 -9,950.5 -6,472.0
Direct investment 872.2 1,180.7 1,404.8 3,592.8 6,730.7 ..
Thai -492.3 -887.0 -931.1 -265.3 -120.4 ..
Foreign 1,364.5 2,067.7 2,335.8 3,858.1 6,851.1 4,289.0
Table I.2 (cont'd)
                                                     
1 Foreign direct investment in real estate accounted for 42.6% of total FDI in 1995 (see below).Thailand WT/TPR/S/63
Page 5
1994 1995 1996 1997b1998b1999c
Portfolio investment 2,462.3 4,223.5 3,540.8 4,288.4 -64.3 ..
Assets (net) -4.7 -1.9 -41.1 -468.0 -218.8 ..
Liabilities 2,467.0 4,225.4 3,581.9 4,756.4 154.4 ..
Other investment 8,827.1 16,470.7 14,530.7 -17,376.3 -16,616.8 ..
Errors and omissions 84.7 -1,121.6 -2,634.7 1,241.9 -2,956.4 33.5
Reserve assets -4168.2 -7,204.3 -2,155.0 9,538.1 -1,392.9 37.3
Memorandum
Baht:  US$ (period average) 25.15 24.92 25.34 31.37 41.37 37.1
.. Not available.
a Balance of payments in Bahts converted into US dollars using period average market exchange rate.
b Provisional.c Estimate.
Source: Bank of Thailand (1998), Quarterly Bulletin , Vol. 38, No. 4 December 1998, Table 44.  Available at:
http://www.bot.or.th/research/public/bulletin/tab44.htm.
6. In response to the crisis, the authorities initially tightened monetary and fiscal policy to
restore confidence in the economy, but later relaxed both as the recession turned more severe than
anticipated (see below).  Measures were also introduced to deal with insolvent institutions, strengthentransparency and disclosure requirements, and overhaul prudential regulations.  The deep-seated
structural nature of these problems, reflected in the large number of failed companies and the large
amount of non-performing loans (some 46% of total loans in mid-1999) suggests that a return to
sustained strong growth rates may take some time to materialize.
Per cent
      
Thai authorities.Chart I.2
Gross domestic product by industrial origin, 1995 and 1997
Total: Baht 4,188.9 billion
Source :Crops
6.2%
Transport &
communication
7.3%Banking &
 insurance
7.5%
Trade
16.2%Manufacturing
28.2%
Other services
12.8%Construction
7.3%Other non-agr.
9.6%
Total: Baht 4,827.2 billion1997 1995
Services
60.8%Other agriculture
4.9%Crops
6.3%
Transport &
communication
7.4%Banking &
 insurance
6.9%
Trade
15.2%Manufacturing
28.8%
Other services
13.5%Construction
6.8%Other non-agr.
10.2%Other agriculture
5.0%
Services
59.8%Agr.
11.1%Agr.
11.3%
7. Notwithstanding the crisis, Thailand has, by and large, resisted protectionist pressures.  The
Government has maintained an outward-oriented tr ade and investment strategy;  indeed, it furtherWT/TPR/S/63 Trade Policy Review
Page 6
opened its foreign investment regime in 1998, a move that bolstered the economy during the crisis, as
foreign capital inflows reinforced domestic companies in difficulty.  The Government also unilaterally
cut tariffs in 1999, albeit after substantial increases in 1997.  Meanwhile, the main changes in the
country's economic structure between 1995 and 1998 consist of a relative contraction in construction
and banking, the sectors hardest affected by the crisis (Chart I.2).  Changes in the structure of
employment continued to reflect the modernization of the country:  the share of agriculture fell from51% of total employment in 1993 to 44% in 1996 and 43% in 1998.
(2) M
AIN POLICY DEVELOPMENTS
(i) Macroeconomic policies
(a) Monetary and exchange rate policy policies
8. Monetary policy has traditionally been aimed at achieving exchange rate stability.  Except for
a few small adjustments, the baht was effectively pegged to the U.S. dollar throughout the 1960s and
1970s, trading within a narrow range of between B 20 and B 21 per U.S. dollar.  In 1984, the value of
the baht was fixed to a basket of currencies of Thailand's major trading partners, and fluctuated
between B 25 and B 27 per U.S. dollar from 1986 to 1996.2
9. Growth in total domestic credit considerably exceeded nominal GDP growth throughout the
1990-96 period, and inflation began to creep up from 1994 with the consumer price index increasing
at an annual rate of 7.7% at the end of 1997.  In response to the rapid credit growth, the monetary
authorities introduced measures aimed at slowing down credit expansion.  However, as the private
sector had direct access to foreign short-term fi nancing at seemingly fixed exchange rates, notably
through the International Banking Facilities (IBFs), attempts to curtail credit growth through tighter
monetary policy were ineffective.
10. Selling pressure on the baht started in late 1996 and built up in the first half of 1997
(Chart I.3).  The Government, confronted with mounting speculative attacks and a near-depletion of
its reserves, let the exchange rate float on 2 July 1997.  The baht subsequently depreciated by
approximately 50% until it reached its lowest level since the adoption of the floating exchange
system, at B 56/U.S. dollar, in mid-January 1998.  Since then, the baht has strengthened in response to
improvements in the trade balance and the current account, which reflected the fall in domesticinvestment relative to national savings (Table I.1).  Moreover, the abolition of the two-tier foreign
exchange market and the greater confidence in Th ailand's commitment to financial restructuring
helped to attract foreign capital, especially that  associated with the recapitalization of commercial
banks and joint-venture companies.  The baht was trading at 38-40 to the U.S. dollar in late
September 1999.  The authorities are now committed to the maintenance of a market-determinedexchange rate.
11. Although averaging over 8% for 1998 as a whole, inflation decelerated to 4.3% by the end of
that year and 1% inflation was expected in 1999, reflecting the subdued state of the economy and a
two-year reduction in the VAT from 10% to 7%, which took effect in April 1999.  Interest rates also
have declined continuously since mid-1998 (Table I.1).  The large decrease in bank credit partlyreflects the repayment of foreign currency loans fr om the International Banking Facilities, as Thai
corporations are starting to take advantage of lo wer baht interest rates.  Overall, following the
introduction of a market-determined exchange rate system, monetary policy appears to have been
successful in restoring a stable environment supportive of trade and investment.
                                                     
2 The exchange rate against the U.S. dollar was an nounced daily by the Exchange Equalization Fund,
which stood ready to trade U.S. dollars with commercial banks at that rate.Thailand WT/TPR/S/63
Page 7
65707580859095100105110115
Q1-95 Q2-95 Q3-95 Q4-95 Q1-96 Q2-96 Q3-96 Q4-96 Q1-97 Q2- 97 Q3-97 Q4-97 Q1-98 Q2-98 Q3-98 Q4-98 Q1-99 Q2-99 657075808590951001051101151990=100 (US$/ Baht)Chart I.3
Thailand's exchange rate indicators, 1995-99p
Data from 3rd quarter 1998 are provisional.
WTO Secretariat based on data from the Bank of Thailand and JP Morgan.Note:
Source :Nominal exchange rate
(period average)Real effective exchange rate
(b) Fiscal policy
12. Thailand has traditionally maintained cautious fiscal policies;  its budget was in surplus for
nine consecutive years through to fiscal year 1996 (Table I.1).  However, as a consequence of the
weakening economic performance, the budget slipped to a deficit in fiscal year 1997.  Fiscal policy in
1998 went through two distinct phases.  In the first period, emphasis was placed on economic
stabilization and regaining confidence.  Thus, the Government implemented measures to cut
expenditures as well as to increase tax revenues, notably through tariff increases, in order to ensure aB 70 billion fiscal surplus, a condition under the performance criteria in the second Letter of Intent to
the IMF (November 1997).  Subsequently, as increasin g evidence confirmed a severe contraction, the
Government increased public sector expenditure.  In fiscal year 1998, the Thai Government recorded
a deficit of 2.6% of GDP (excluding expenditure on financial restructuring and state enterprises),
expected to increase to 3% in 1999.
13. In March 1999, the Government announced an economic stimulus package, recognizing that
it was "not likely that private demand by itself will recover sufficiently to spur economic growth
under prevailing conditions".
3  The package consisted of additional public expenditure aimed at
creating employment for underprivileged groups and those hardest hit by the crisis;  of income tax and
VAT tax cuts;  and of measures to reduce energy prices.  The total cost of the package wasB 130 billion, approximately 2.7% of GDP.  A s econd package, aimed at encouraging private
                                                     
3 Ministry of Finance (1999).WT/TPR/S/63 Trade Policy Review
Page 8
investment, was approved by the Cabinet on 10 August 1999.  The package consisted of tax and
non-tax measures (see section (ii)(b) below).4
(ii) Structural policies
(a) Financial sector regulation
14. As noted above, the collapse of the baht was not primarily the result of macroeconomic
imbalances, but rather the consequence of weaknesses in the financial system and governance.  Since1990, access to foreign capital markets had been progressively liberalized.  This opening brought
many benefits to the Thai economy, including large foreign portfolio and direct investment inflows,
and a lowering of the costs of funds.  However, certain measures dramatically increased investors'
willingness to undertake risky financing.  In particular, the establishment in 1993 of
International Banking Facilities
5, encouraged by generous tax relief, resulted in a rapid rise in bank
loans, on which the private sector depended for nearly 90% of its financing.6  A combination of
inadequate financial sector supervision, poor assessment and management of financial risk, and the
maintenance of relatively fixed exchange rates led banks and corporations to borrow large amounts
from abroad, mostly short term, denominated in foreign currency, and unhedged.  As time went by,
this inflow of foreign capital tended to be used  to finance poorer quality investments, an inflated
property market as well as an overvalued stock market, and ultimately resulted in the crisis described
above.
(b) Measures to encourage private investment
15. In order to promote economic recovery, support economic restructuring, and enhance the
long-run competitiveness of the private sector, a package of measures was introduced in August 1999.
The package included cuts in tariffs on capital goods, raw materials, and products not produced
domestically;  removal of the import duty surcharge on items with a tariff rate exceeding 5%;  andgreater depreciation allowances with regard to fixed assets for tax purposes (Chapter III(4)).  In
addition to these border and internal tax measures, the package contained non-tax measures to support
business restructuring efforts, particularly debt financing.  More specifically, to further reduce
reliance of the private sector on bank financing and hence lower the debt to equity ratio of Thai
businesses, these non-tax measures included the establishment of three new funds:  the Equity Fund;the Thailand Recovery Fund;  and the Fund for Venture Capital Investment in SMEs.  The Equity
Fund will be established by the International Fina nce Corporation (IFC) to invest in large-scale
enterprises in Thailand.  The fund will have initial start-up capital of US$500 million (approximately
B 18.5 billion), which may subsequently be increas ed to US$1 billion (approximately B 37 billion).
Nationals or residents of Thailand will hold 55% of the fund, consisting of the public sector (20%),the Thai private sector (20%), and IFC (15%).  The remaining 45% will come from international
private investors.  The Asian Development Bank (ADB) has been mandated to establish the Thailand
Recovery Fund to invest in competitive, medium-s cale enterprises in Thailand.  The fund will have an
initial start up capital of US$100 million (approximately B 3.7 billion).  Both of the above funds will
be professionally and privately managed on a commercial basis.  The Cabinet has also approved theestablishment of the Fund for Venture Capital Investment in SMEs, for which the Ministry of Finance
                                                     
4 The package also provides for long-term fixed-rate mortgage financing and allows the
National Housing Authority to take over and complete unfinished residential projects.
5 An International Bank Facility (IBF) is a tax-exempt entity specialized in short-term borrowing from
abroad and lending in the domestic market.
6 According to the authorities, the tax relief is intended to equalize the cost of funding between loans
booked in other financial centres and those booked in Bangkok.Thailand WT/TPR/S/63
Page 9
has allocated B 1 billion drawn from structural adjustment loans, in order to strengthen the
competitiveness, management, and financing capability of SMEs.
16. Another element of the August 1999 package in favour of SMEs consists of measures to
improve their access to financing through credit guarantees on the uncollateralized portion of SME
loans.  The Government has arranged over B35 billion in credit for SMEs through the specialized
financial institutions and the Bank of Thailand, and approved the recapitalization of the SmallIndustry Credit Guarantee Corporation and of the Sm all Industry Finance Corporation.  The plan also
includes the establishment of Financial Advisory Centers for SMEs as well as the establishment of a
special stock market for SMEs.
7
(c) Corporate governance
17. The problems in the financial sector, notably poor assessment and management of financial
risk, were common to the entire corporate sector, as witnessed by the Thai-wide corporate
restructuring that was undertaken in 1998 to reduce the number of bankruptcies and liquidations.  One
central issue was the absence of rules requiring the provision of credible and reliable financial
information by businesses.  Further, it would appear that accounting and auditing practices in general
failed to reveal problems, such as the maturity and currency mismatches that eventually caused the
companies' failure.  Reforms introduced to remedy these problems as well as the new bankruptcy and
foreclosure legislation to facilitate the corporate restructuring process, are briefly described in
Chapter III.
(d) Privatization and competition policies
18. Privatization of Thailand's state enterprises has been a government priority over the past
decade and is currently seen by the authorities as one of the keys to restoring economic vitality.  The
main aspects of the privatization programme, part of which is encountering fierce opposition fromvarious labour unions and thus leading to delays in the passage of legislation through Parliament, are
described in Chapter III;  the main sectors concerned, namely energy, telecommunications and
transport, are reviewed in Chapter IV.  At the same time, new competition legislation has been
introduced to ensure that the privatization process does not result in the creation of private
monopolies.  These reforms, once implemented, should  lead to enhanced opportunities for trade and
investment in these sectors.  Moreover, by increasing competition, they should also contribute to
greater efficiency in the provision of energy, telecommunications, and transportation services.
Improved efficiency in these sectors, leading possibly to lower prices, would be beneficial not just to
consumers but also to domestic producers (including exporters) who use such services as inputs.
Indeed, the prices paid for these and other inputs as well as their quality are important determinants ofdomestic producers' international competitiveness.
(e) Trade and foreign direct investment policies
19. As noted above, trade policy has remained broadly outward-oriented even in the wake of the
crisis.  Although several border tax increases have taken place both to raise government revenue and
assist the corporate sector, a unilateral package of tariff reductions was announced in August 1999(covering mostly inputs and intermediate products).  Export promotion has also gained emphasis as a
means of assisting economic recovery.  (See Chapter III(3)).
20. With regard to investment, the authorities are more selectively supportive of foreign
participation.  In services, the authorities have allowed majority foreign equity participation to
                                                     
7 Ministry of Finance (1999).WT/TPR/S/63 Trade Policy Review
Page 10
encourage foreign capital injections in certain troubled domestic companies, notably failed banks and
financial companies.  In manufacturing, 100% foreign-owned ventures have recently received
investment approval, also with a view to encouragin g direct investment inflows.  Generally, however,
statutory rules requiring a majority equity participation of Thai capital remain in place.  As a result,
the legal and regulatory statutes on foreign direct investment are currently more restrictive than actual
market access conditions (Chapter II(4)).
21. In contrast, long-term government objectives regarding foreign market access have been more
clearly defined in the plans announced for the privatization of several specific energy sectors (notably
gas, electricity and petroleum) as well as for telecommunications services.  Although these reforms
have yet to be passed into law, the authorities favour eventual competition, including from majority
foreign companies, in the supply of these services.
(3) DEVELOPMENTS IN TRADE AND FOREIGN DIRECT INVESTMENT
(i) Trade patterns
22. Trade has been badly affected by the financial crisis of 1997.  Import volumes declined by
over 40% between 1995 and 1998, when they were back down to their 1990 level (Chart I.4).  After
doubling between 1990 and 1995, export volumes actually declined in 1996.  Over the two years 1997and 1998, export volumes expanded by approximately 8% presumably in response to a devaluation of
nearly 50%.  Thus, the share of exports has increased substantially with the contraction of GDP
(Table I.1).
(a) Trade by sector
23. The decline in imports between 1995 and 1998 fell disproportionately on motor vehicles
(Chart I.5), reflecting the fall in incomes, a nd on iron and steel and on machinery following the
slowdown in manufacturing production.  (As can be  seen from Table AI.1, imports of automotive
products fell by 90% between 1995 and 1998).
24. Changes also took place in the structure of exports.  Exports of textiles and clothing and other
consumer goods declined relatively as regional demand fell, while exports of computers and
telecommunications expanded most, both relative to total exports and in dollar terms.  Exports of
these products increased from US$3.5 billion to US$14 billion between 1990 and 1998, and they nowaccount for over a quarter of total Thai exports (Table AI.2).
25. While imports are essentially composed of manufactured products, changes between 1995
and 1998 mirror the contraction in the manufacturing sector:  imports of raw materials and
intermediate products, in particular, declined substantially.  In addition, recent duty increases and the
depreciation of the baht have cut the demand for luxury and durable goods, such as vehicles(Table AI.1).
26. Thailand has continued to run steady surpluses on the services account, which partly offset its
trade deficits (Table I.2).  Steady growth in earnings from tourism peaked in 1996, when inbound
receipts were estimated at over US$9 billion.  However, arrivals grew by less than 1% in 1997, and
income fell to US$6.6 billion in 1998.  In 1999, travel receipts are projected to increase toUS$8 billion.  Thailand also traditionally records a surplus in its trade in transportation services.Thailand WT/TPR/S/63
Page 11
100150200250300350400
1990 1991 1992 1993 1994 1995 1996 1997 1998 a 1999 a
100120140160180200220240
1990 1991 1992 1993 1994 1995 1996 1997 1998 a 1999 aChart I.4                            
Evolution of Thailand's external trade, 1990-99 
(a)  Export indices (f.o.b.)
1990 = 100                                 
(b) Imports indices (c.i.f.)
Bank of Thailand, Quarterly Bulletin, various issues. Source : Preliminary. a1990 = 100                                 Volume index Value index (US$)WT/TPR/S/63 Trade Policy Review
Page 12
Chart I.5
Merchandise trade by product, 1995 and 1998 a
1995 1998a
(a)    Ex ports (f.o.b. )
Total: US$56,344.6 million
(b)    Im ports (c.i.f.)
Total: US$70,780.8 million Total: US$45,861.0 million
a               WTO Secretariat estimates.
b               Includes "others" and "special transactions" category.
Source:   UNS D, Comtrade database  (SITC Rev.3).Per cent
Other machinery
 & transport
equipment
7.4%Other a
13.4%
Mining
1.3%
Other non-electric 
machines
14.3% Office 
machines &
 telecom equip.
14.6% Automotive 
products
7.3% 
Other 
machinery & 
transp equip.
5.1%
Other semi-
manufactures
7.3%Other b
9.6%Food & agricultural 
raw materials
7.9%
Mining
10.0%
Chemicals
10.5%Total: US$54,325.7 millionFood
19.3%
Other electrical 
machines
6.1%Manufacturing
82 1%bManufacturing
77 7%bManufacturing
74 0%bManufacturing
76 0%bPrimary
Prod
26.0% Primary
Prod
24.0% Agricultural 
raw materials
5.4%
Office machines & 
telecommunications 
equipment
20.7% Textiles & 
clothing
12.3% 
Other consumer 
goods
14.6% Other electrical 
machines
5.6%
Other 
machinery &
transp equip
9.4%Other a
16.0%
Mining
2.9%Food
17.3%
Agricultural 
raw materials
3.7%
Office machines & 
telecommunications 
equipment
26.0% Textiles & 
clothing
9.5% 
Other consumer 
goods
8.9% Other electrical 
machines
6.2%
Iron & Steel
7.3%
Other non-electric 
machines
9.2% Office machines
& telecom equip.
20.8% Automotive 
products
1.3% 
Other machinery & 
transp equip.
6.1%
Other semi-
manuf
7.1%Other b
9.0%Food & agricultural 
raw materials
9.8%
Mining
12.4%
Chemicals
11.7%Other electrical 
machines
8.1%Iron & Steel
4.5%Thailand WT/TPR/S/63
Page 13
Chart I.6
Merchandise trade by partner, 1995 and 1998 a
1995 1998 a
(a)    Ex ports (f.o.b. )
Total:   US$56,344.6 million Total:   US$54,325.7 million
Total:   US$70,780.8 million Total:   US$45,861.0 million
a                 WTO Secretariat estimates.
b                 Includes the nine members as of 1995: Singapore, Malaysia, Indonesia, Philippines, Viet Nam, Brunei 
                   Darussalam, Myanmar, Lao P.D.R., and Cambodia.              
Source: UNSD, Comtrade database (SITC Rev.3); and Bank of Thailand.Per cent
Other Asia 
35.1%Other
9.2%
North
America
19.0%European Union
15.1%
Other
10.2%
North America
12.7%(b)    Im ports (c.i.f.)
Other Asia 
47.8%European Union
16.0%Singapore
14.0%
Japan
16.8% United-States
17.9%
Other Asia 
30.6%Other
9.8%
North
America
23.5%European Union
17.9%Singapore
8.6%
Japan
13.7%
United-States
22.4%
Other
11.1%
North America
13.6%
Other Asia 
49.9%European Union
11.5%
Japan
30.5%United
States
12.0%Japan
21.9% United
States
13.0%ASEAN 
21.7%ASEAN 
18.2%
ASEAN (9) b
13.9%ASEAN (9) b
13.3%WT/TPR/S/63 Trade Policy Review
Page 14
(b) Trade by country
27. The share of total exports destined for Asian countries declined between 1995 and 1998,
mainly on account of lower exports to Japan and Singapore.  Thai exporters have succeeded in
redirecting exports from Asia to the United States (and to a lesser extent the EU) remarkably rapidly
(Chart I.6 and Table AI.3).  In 1995, the Associatio n of South-East Asian Na tions (ASEAN) countries
emerged as the largest market for Thai exports, a position it retained in 1996 with 19% of the total.Since 1997, stagnant demand in the ASEAN countries caused a shift in Thai exports towards the U.S.
market.
28. Japan remains the leading source of Thai imports, although its share declined relative to total
imports between 1995 and 1998, as the collapse in investment cut demand for machinery and other
imports traditionally imported from parent companies in Japan.  Thailand's trade deficit with Japanaccounted for nearly 85% of the total deficit in 1995, but fell to less than a quarter of the total in 1997.
Despite the contraction in imports from Japan, the share of imports from Asia has increased due to
higher imports from oil-producing countries, possibly reflecting the coming on stream of new refining
capacity in Thailand.
29. By contrast, the share of imports from the six original ASEAN members has increased from
12.7% to 13.6%.  (As can be seen from Chart I.6, the share of total imports from the current nine
ASEAN members has also increased.)  The drop in Thailand's total imports from 42% of GDP to 36%
over the 1995-98 period, combined with the fall in  GDP suggests that preferential trade agreements
involving ASEAN may have diverted imports in fa vour of suppliers located in ASEAN countries.
(ii) Trends in foreign direct investment (FDI)
30. Economic recovery has benefited from the substantial increase in foreign direct investment
since 1997, as foreign companies took advantage both of the exchange rate depreciation and of thenew regulations allowing full foreign ownership of locally registered companies.  FDI reached almost
US$7 billion in 1998 (6% of GDP), up from US$2 billion in 1995 (Table I.3(a)).  However, FDI
declined substantially in 1999, suggesting that the increase may be in response to the regulatory
changes regarding foreign ownership rather than new investment prospects.  The stock of FDI in
Thailand has been estimated at US$23 billion
8.
31. The manufacturing industry, most notably electronics and transport equipment and
petroleum-related industries, has been the main beneficiary of the increased inward FDI
(Table I.3(a)).  The financial sector has also bene fited from increased capital inflows related to the
recapitalization (Chapter IV(5)).  In addition, recent data suggests that investment flows may be
returning to real estate after the collapse of the real estate "bubble" in 1997.
32. The main increase in FDI has come from Japan, which provided almost a third of all inflows
in 1998, up from 28% in 1995.  This partly reflected the purchase of shares in Japanese subsidiaries
based in Thailand to take advantage of the new provisions allowing full foreign ownership.  The
second largest FDI source has traditionally been th e United States, although inflows from the EU and
Singapore have soared in 1998 according to the latest estimates (Table I.3(b)).
                                                     
8 UNCTAD (1999).Thailand WT/TPR/S/63
Page 15
Table I.3
Net inflows of foreign direct investment
(a) By sector, 1995-99a
(US$ million and share in per cent)
1995 1996 1997 1998b1999a
Total 2,068 2,336 3,858 6,851 1,983
of whichPer cent
Agriculture 0.4 0.1 0.0 0.0 0.1
Mining & quarrying 2.8 0.9 0.6 1.2 -0.6
Industry 28.3 31.2 49.6 42.1 34.8
Food & sugar 1.9 2.0 5.9 1.5 2.7
Textiles 1.9 2.2 1.3 1.9 0.7
Metal & non metallic 4.6 5.0 5.6 6.7 9.9
Electrical appliances 11.7 10.6 15.7 5.2 6.4
Machinery & transport equipment 7.2 4.8 10.9 13.7 11.1
Chemicals 4.7 8.1 5.1 4.4 1.9
Petroleum products -8.0 -11.0 0.4 6.4 0.3
Construction materials 1.2 0.2 -0.3 0.0 0.6
Others 3.0 9.5 5.0 2.3 1.2
Financial institutions 1.3 3.2 3.2 10.5 9.4
Trade 22.3 24.0 28.8 17.3 26.1
Construction 1.8 3.1 4.9 3.1 -0.4
Services 4.4 5.5 7.7 6.1 18.6
Real estate 42.6 33.2 2.9 10.3 2.4
Others -3.9 -1.1 2.3 9.4 6.8
(b)  By principle partner, 1995-99a
(US$ million and share in per cent)
1995 1996 1997 1998b1999a
Total 2,068 2,336 3,858 6,851 1,983
of whichPer cent
United States 13.0 18.9 22.0 19.0 15.4
EU(15) 7.6 7.2 9.1 17.4 31.8
Netherlands 4.3 -1.8 3.8 6.4 10.4
France 3.6 1.3 0.0 4.5 11.9
United Kingdom 2.8 2.5 3.1 2.8 4.6
Germany 1.9 1.9 1.8 1.9 5.3
Belgium -5.0 2.5 -0.1 0.7 -1.2
ASEAN 8.0 13.6 9.1 11.6 33.0
Singapore 6.8 12.1 8.4 11.1 32.5
Malaysia 0.6 0.9 0.3 0.4 0.5
Philippines 0.0 0.1 0.2 0.2 0.0
Indonesia 0.6 0.4 0.2 0.1 0.0
Japan 27.8 23.1 36.0 31.9 12.7
Hong Kong, China 13.9 9.5 12.6 9.6 5.1
Chinese Taipei 4.8 6.1 3.9 1.6 1.7
Other 24.9 21.7 7.4 8.9 0.4
a Annual estimate based on first two months.
b Provisional.
Note: Direct investment = equity investment plus loans from related companies.
Source: Bank of Thailand (1998), Quarterly Bulletin , Vol. 38, No. 4, Tables 50 and 51, December.WT/TPR/S/63 Trade Policy Review
Page 16
(4) OUTLOOK
33. In July 1999, the Thai economy was already showing signs of a gradual recovery, as
witnessed by a number of indicators.  For exampl e, manufacturing output has been growing again
since February 1999;  electricity usage per workin g day in the industrial sector in May 1999 was 32%
above its September 1998 level;  imports of raw materials and intermediate products were increasing
again after January 1999;  and year on year export growth in dollar terms has been positive sinceApril 1999.  The authorities expect a real rate of GDP growth of 3-4% for 1999.
34. Key macroeconomic indicators also point to a particularly favourable environment for trade
and investment:  inflation was nil, the baht's value is now market-determined and stable,
money-market interest rates have fallen to below pre-crisis levels, and equity prices were well above
their lows although still considerably below their peak s.  The very large swing in the external current
account balance resulted in a satisfactory level of gross official reserves, which provided six months
of import coverage by the end of August 1999.
35. There are still however a number of downside ri sks.  The continuing need to restructure
corporate debt (as manifested by the high level of non-performing loans) could hamper the recovery
of private investment.  Legislative and regulatory reform, although well under way, is still incomplete.In addition, regional economic and socio-political developments, as well as trends in foreign exchange
and commodity markets may affect Thailand's recovery.  Nonetheless, the current situation could
provide substantial opportunities for foreign direct investment and trade as the economy returns to
growth.