- (1) In 1988, the government completed a previous program requiring the elimination of all quantitative restrictions on imports of capital and internediate! goods.- In July- 1991, another program was issued establishing the gradual reduction of tariffs through June 1995 and simplifying and rationalizing the tariff code.<sup>49</sup>

- (2) In 1991, the Foreign Investment Act liberalized the environment for foreign investment in the Philippines.

- (3) In September 1992, the govenmment also took several extraordinary steps to deregulate the foreign exchange market by allowing exporters to retain up to 100% of their revenues and eliminating all the restrictions on the use of foreign currency for both current and capital account transactions.

The case of the Philippines, like the case of Argentna, is a difficult one to evaluate, mainly because the policies being applied are very recent. However, the inflation rate increased slightly during 19881992, while the real exchange rate appreciated by 14%.50 Overall, in spite of the very little room for both monetary and fiscal policy (specially the former), the ongoing stabilization -program reduced inflation in 1992- and built up international reserves. The current account deficit clearly shows that the extemal trade balance has been the most affected by the surge of capital inflows in the Philippines, with a worsening of the deficit of eight percentage points of GDP during 1988-1992. This also shows the effectiveness of the liberalization of the foreign trade regime in recent years.

# 5.9 Thailand

Begiing in 1986, Thailand's economic growth has been very impressive compared with almost any country worldwide, averging 11% on an annual basis during 1986-90. The growth in 1991 and 1992 has been slightly lower than in the previous years, reaching 8% and 7.5% respectively, which in part can be explained because of the tight fiscal and monetary policies being pursued in Thailand durng 1988-91 and their effects on private domestic demand.<sup>51</sup> The main reasons explaining Thailand's econonic growth are the increase in private investment and the increase in manufacturing exports. -Gross investment as a percentage of GDP rose 17 percentage points between 1986 and 1991. In particular, Thailand has benefited from a surge in foreign direct investment from Japan and other Asian NIEs and from an increase in foreign trade in the region. The flow of foreign capital to Thiand fcr the last five years has been on average higher than 10% of GDP and has been originated by private demanLd. The surge in exports is explained by both, the abolition of export taxes in 1985 and the depreciation fthe Baht in 1984.

In recent years, the fiscal balance has movedfrom a deficit of 5% of GDP in 1984-85 to a surplus of 5% of GDP in 1989-90. The turnaround inm the fiscal accouints resulted from both, an increase in tax revenues and a reduction in expenditures, although the latter has been more important than the former.

> **49** However, a temporary import surcharge of 90%D was introduced in 1991 as away to balance the fiscal deficit due to-the poor response of tax revenues to the tax **reform.** 'iis surcharged was discontinued after one **year.:** -

- **50** Notice that because of the cyclical behavior of both indicators, the results **are** yey different if we :consider the period starting in 1986 instead. However, given the size. of the capital flows to Philippines, the 19S892 period seems more relevan **t** o evaluate.

**_5I_** The overall public sector balance, measured in percentage points of **CGD.** increased from a-surplus of 1.3% in 1988, to 4.1% in 1989, 4.7%/o in 1990, and 3.0% in 1991 (fiscal year ending September 30). Source; IMF. Other reasons. also help to explain the slowdown .in economic growth duing. 1991 and -1992 in.Thailand (see the. latest paragraph in this section). - . .... ..

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