The financial liberalization trend prodded along by the Bank of Thailand not only expanded the size and the scope of the sector, but also made it become more open. The government’s ultimate purpose of the liberalization was to provide domestic investors access to foreign funds so that Thailand could transform itself into a true industrialized economy. Unfortunately, the opening up of the financial sector left the country in an uncharted territory. Confidence in the Thai economy back then meant easy offshore money for everybody with foreign market access. Encouraged by the fixed exchange rate, Thai financial institutions, like many other Thai corporates, borrowed freely and imprudently from abroad. And in pursuit of quick profit, many of these foreign borrowings were converted into baht loans without proper currency hedging. Exacerbating the problem was the fact that many of the domestic loans went into real estate deals, rather than into productive investments. A property price bubble ensued, and the Thai financial institutions, lacking the necessary credit skills, accepted inflated property values as the basis for new loans. These pyramid-like financing schemes placed a serious strain on the system, and their eventual collapse resulted in a flood of non-performing loans for the unwary lenders. 2  BIS Review 62/2002  Admittedly, the Bank of Thailand also shares the blame of what went wrong in the financial sector. Although the liberalization policy was probably correct given the circumstances, its potential benefits were undermined by the lack of strong institutional underpinnings.

As global competition intensifies, Thailand can neither simply keep growing on the back of capital accumulation nor dwell on massive production of low value-added goods. Desirable product features such as high quality and consistency are needed to sustain export competitiveness, and to maintain linkage to the global arena with clear focus on market awareness and adaptability. Recently, there have been positive signs in some industries such as jewelry, garments, and food, where production technology has been upgraded to increase competitiveness of these industries and to move them up the value chain. Unfortunately, while such developments are encouraging, they have not been adequately spread out to other industries. By the time these adjustments are completed, it may have been too late, probably rendering losses in a number of industries. What we need now is a national agenda that comprehensively looks at competitiveness of all parts of the real sector. Industries that can no longer compete in the world market will have to be gradually phased out. Other industries that depict competitive edge and growth potential in the global arena will warrant further plans to upgrade technology, increase added values, and develop marketing strategies. These plans will have to be implemented through a concerted national effort so as to ensure better resource allocation along with greater value creation. Reforming the real sector would however need to be complemented by strengthening of the financial sector. A notable example of such a strategy is the establishment of the Thai Asset Management Corporation or TAMC.