1. Overall Development Performance
1.1 The Thai economy has grown rapidly and has become increasingly internationalized. During the Sixth Plan period, the Thai economic growth has skyrocketed with gross domestic product (GDP) expanding at an average of 10.5 percent per year, twice the Plan target, representing the highest average growth rate of the past twenty five years. Furthermore, the economic structure has become more outward-oriented and internationalized, as indicated by the increase in the proportion of international trade to GDP from 60 percent in 1986 to 80 percent by 1991.
Key factors which have brought about the high growth rates include growth of the export sector, investment and tourism, all of which had grown considerably faster than the projected rates. World economic conditions were also conducive to Thailand's economic expansion, in particular the lower oil prices and lower interest rates. At the same time, increase in world commodity prices and the realignment of foreign exchange rate of industrialized countries brought further benefits during this period. Comparative advantages in natural and human resources, and the reasonably low wages, made Thailand highly competitive in the world market, leading to further expansion of investment and exports.
On a macroeconomic level, cautious fiscal and monetary policies, together with political stability were also instrumental in boosting business confidence, propelling the Thai economy to grow far beyond the Sixth Plan targets, and making Thailand the fastest-growing economy in the world during the past 5 years.
1.2 The country's fiscal and monetary position was characterized by stability, higher income, and growing employment opportunities. Sustained high growth had a number of beneficial effects on the economy, including on the country's fiscal and monetary position, employment and income. More specifically :
1.2.1 The country's fiscal and monetary position was secure and stable. The rapid economic growth and the cautious management of fiscal and monetary policy helped strengthen fiscal and economic stability during the Sixth Plan period.
The volume of international reserves rose close to US$ 17,000 million by mid-1991 with a significant reduction in the national debt burden. The proportion of debt repayment, covering both principal and interest payments in relation to export earning, declined from 20.6 percent in 1986 to 10.5 percent by 1991. The proportion of external debt to GDP also declined from 38.5 percent to 34 percent during the same period.
A surplus was achieved in public sector finances starting for 1988onwards, as revenue collection was higher than planned, while disbursements of public expenditures were low owing to delays of project implementation. Fiscal surplus rose from a low of 11,000 million baht in 1988 to 184,000 million baht by June 1991, representing about 50 percent of the government budget. The historically high level of fiscal surplus has enabled the government improve fiscal policy management by restructuring tax policy, reducing machinery import taxes, car import taxes and prepayments of loan.
1.2.2 Inflation. However, prices have tended to rise steadily. Inflation rate rose form 2.5 percent in 1987 to 6 percent by 1991. This was caused to a large extent by domestic demand for goods and services increasing more rapidly than production capacity. At the same time, world inflation rates have also risen, resulting in an average inflation rate of about 5 percent, which is considered manageable.
1.2.3 Greater employment opportunities and higher wages. The high economic growth has led to a substantial increase in employment, particularly in the industry and services sectors, with an average employment growth of 554,000 persons per year during the Sixth Plan period. Consequently, the unemployment rate has been reduced to 0.6 percent in 1991. This means that in practice there is virtually no open unemployment, with the exception of some seasonal unemployment during the dry season. At the same time, pressure for wage increases has resulted in higher income and better purchasing power.
1.2.4 Doubling of per capita income. During the Sixth Plan period, per capita income has increased from 21,000 baht in 1986 to 41,000 baht by 1991, due to an average GDP growth rate of 10.5 percent. This, coupled with a decline in the population growth rate to 1.4 percent by 1991, resulted in improvements in the general standard of living, contributing to the national poverty alleviation efforts.
1.3 Overall development pattern is still unbalanced in a number of ways. Although the high economic growth has had significant beneficial effects on the overall economy, the pattern of growth has led to several structural imbalances, which may become long-term development issues for the country, namely :-
1.3.1 Income disparities among households of different socio-economic status and between rural and urban areas have increased to an alarming level. Socio-Economic Surveys as conducted by the National Statistical Office indicate that income share of the top 20 percent, or the wealthiest group of households, has increased from 49.3 percent during 1975/1976 to 54.9 percent by 1987/1988, while income share of the lowest 20 percent, or the poorest group of households, has actually declined from 6.1 percent to 4.5 percent during the same period.
Agricultural workers continue to be the group with the lowest income, with about half of the national average income. Other low income groups, such as general manual workers and low-ranking civil servants, still have higher average income than agricultural workers.
Furthermore, regional disparities have also been on the rise as the Bangkok Metropolis and surrounding towns continue to have a dominant role and rapid economic growth rate. In 1981, Bangkok contributed about 42 percent to GDP. By 1989, this share increased to 48 percent, while in most other regions, these shares had actually declined. For instance, the shares of the northeast, the north, and the south declined from 14.7 percent to 12.9 percent, 13.5 percent to 11.4 percent, and 10 percent to 9 percent respectively during the same period.
1.3.2 Infrastructure bottlenecks have become more severe during the Sixth Plan period. Virtually all types of basic infrastructure services were inadequate to meet the strong demand resulting from the rapidly growing economy. This was the case despite special additional investment programs undertaken during the Sixth Plan period. In addition, the policy to promote private sector provision of infrastructure services has not been implemented in and effective and timely manner, impeding both current and future development efforts.
1.3.3 Savings and investment gap has widened. Although there has been a reasonable degree of fiscal and monetary stability during the latter part of the Sixth Plan, the savings-investment gap grew alarmingly with the current account deficit reaching 8.5 percent of GDP in 1991. This was caused by the growth in the proportion of investment to GDP from 24 percent in 1987 to 36.5 percent by 1991. At the same time, savings in relation to GDP grew from 23 percent to 28 percent during the same period. This problem requires close monitoring, together with the formulation of appropriate measures.
1.3.4 Thai society has a greater difficulty adjusting to the new economic changes. The structural changes from a fundamentally agriculture-based economy to a more industrialized one has transformed the Thai society from being a primarily rural society to a more urbanized one. Traditional ways of life are undergoing changes toward a more modernized lifestyle, with impact on the spiritual, moral, cultural, and general patterns of living. These changes have brought about numerous urban- related problems, in particular increase in crime. During the past 10 years, although the number of crimes has been reduced from 185.5 cases to 154.5 per 100,000 population, the nature of crimes committed have become more severe and complex. Similarly, drug addiction continues to be a major problem. The number of drug-related arrests increased 2.8 times from 21,730 cases in 1980 to 60,546 cases in 1989. In addition, the problems of urban poverty and urban slums have also become serious.
1.3.5 Deterioration of natural resources and the environment. The rapid and high economic growth rates in the past were associated with extensive exploitation and destruction of natural resources, particularly land, forests, water, fish, and mineral resources. Inefficient natural resources management has contributed to a more rapid deterioration and depletion of natural resources. For instance, the national forest are declined from 109.5 million rai, representing 34 percent of total land area in 1978, to less than 90 million rai or less than 28 percent by 1989.
Furthermore, expansion of economic activities, particularly industry and tourism, coupled with urban population growth, have resulted in increasingly more serious pollution problems of various kinds, such as contaminated water, polluted air, noise pollution and industrial and hazardous wastes. The quality of water in major rivers, including the Chao Phraya and Tha-Chin rivers, and along tourist destinations in coastal areas had deteriorated beyond acceptable levels. The deterioration of natural resources and environmental problems have direct impact on the quality of life of the people. All of these problems represent constraints for future development.
1.3.6 The bureaucratic system is unable to adjust to changes and cannot adequately respond to national economic and social transformation. While the economy and society are changing rapidly, the bureaucracy has been unable to restructure and adjust itself to respond to this dynamic because of constraints in manpower, legal framework, rules and regulations, administrative system, and organizational structure of the government. All of these need major modifications.
With respect to manpower, the government is facing problems of braindrain from the public to private sectors, particularly in science and technology areas facing shortages of manpower. A major reason is the much lower pay in the government sector. Another reason is the government organizational structure, which offers very few top administrative and technocratic positons, thereby limiting opportunities for career advancement.
The existing legal framework and government rules and regulations have not been modified to be in harmony with changing economic and social conditions. Furthermore, the highly centralized administrative system and organizational structure of the government are in need of appropriate decentralization of power and authority to the provincial and local authorities.
1.4 Summary of results of development during the Sixth Plan period. The Thai economy has been able to grow with a respectable degree of stability and security, providing a generally better standard of living for the people. However, the exceptionally high economic growth rates have led to the imbalances mentioned earlier, which will be obstacles and constraints for high quality and sustainable development in the long term. Therefore, the Seventh Plan has to define an appropriate direction for development to serve as a firm foundation for well- balanced and sustainable growth.
2. Main Development Objectives of the Seventh Plan
Evaluation of past development efforts suggests that the development objectives of the Seventh Plan will have to be carefully balanced in terms of quantitative and qualitative development dimensions, as well as social equity aspect in order to bring about more sustainable development for the country. Therefore, the three main development objectives of the Seventh Plan have been set out as follows.
2.1 Maintain economic growth rates at appropriate levels to ensure sustainability and stability.
2.2 Redistribute income and decentralize development to the regions and rural areas more widely.
2.3 Accelerate the development of human resources, and upgrading quality of life, the environment and natural resource management.
In order to bring about the pattern of more sustainable development mentioned earlier, it is essential to accord equal priority to the three main development objectives.
3. Opportunities and Constraints of National Development
In order to bring about well-balanced development and to attain the three main development objectives, the following opportunities and constraints need to be taken into consideration for the next five years.
3.1 Development opportunities
Opportunities conducive to development and which open new avenues for sustainable and stable development include the following.
3.1.1 There are bright prospects for further export expansion to the European Community, and the North American Free Trade Area (NAFTA) which includes the United States of America, Canada, and Mexico. Furthermore, there are encouraging trends in the Asia-Pacific Economies including market-opening measures in Japan and the Asian Newly Industrialized Economies (NIEs), as well as the expansion of new markets in the Middle East, South America, and reconstruction of Indochina. All these trends and opportunities will contribute to the further expansion of Thai exports. These bright export prospects have been made possible because of the effective implementation of industrial investment promotion policy for export development during the Sixth Plan. Export products also have generally high value added, supporting satisfactory export growth rates during the next five years.
3.1.2 Opportunities to further expand and diversify industrial base are plentiful, both in terms of expert-oriented, and in import-substituting industries, especially the petrochemical, engineering, electronics and basic industries. This is likely to be the case because of the strong likelihood that Japan and the East Asian NICs will continue to relocate their industrial base to this region, as the Western Asia-Pacific region with growing income and purchasing power as well as trade potentials becomes the new global economic center.
3.1.3 Prospects for trade and investment opportunities in neighboring countries are improving. The evolving situation and new political development in Indochina and other neighboring countries of Thailand, coupled with a new policy to open up trade and investment relations with the Indochinese countries and Burma, will enhance the position of Thailand as the frontline economy of the region.
3.1.4 Drive to promote Thailand to become the region's economic and financial center. The policy to liberalize the financial sector and foreign exchange market since May 1990, together with measures to develop the domestic financial and capital markets will encourage more investment in the country. These policies and measures will also enable the financial system to evolve in line with global enonomic and social changes. All these trends will help promote Thailand to become the region's economic and financial center.
3.1.5 Increasing opportunities to expand purchasing power and growing domestic demand for goods and services. Domestic demand will tend to grow during the next five years, stimulating substantially continuous economic expansion even in the face of uncertainties in global economy.
3.1.6 Opportunities for productivity increase. Past and present investment in restructuring the agriculture, industrial, and services sectors have gradually increased production efficiency and productivity through the application of appropriate technology to the production process, and the application of high technology in several sectors, including modern agriculture, electronics industry, food processing, telecommunications, banking and finance. Furthermore, in agriculture, management efficiency has been boosted by encouraging agricultural workers to prepare production plans at the household level, thereby increasing considerably the productivity of the sector.
3.1.7 Higher basic quality of the Thai labor force. Generally speaking, the basic quality of the Thai labor force is good, since six years compulsory education has been made widely available, covering about 97 percent of the age group, leading to a literacy rate of about 86 percent of the population. These statistics must be considered among the most impressive in the region. With good basic education, the Thai labor force is highly trainable, well-disciplined and is readily acceptable to industrial enterprises. The Thai labor force has a further advantage in that the females in the labor force have played a very important economic role in comparison with neighboring countries in region.
3.1.8 High priority in mobilizing funds for rehabilitation of natural resources enviroment. The high and sustained economic growth during the past has strengthened the government's fiscal position and has made it possible to mobilize the necessary funds for the rehabilitation of natural resources and the environment during the Seventh Plan period. Furthermore, the population at large, including children and youths have become acutely aware of the importance of the environment. Therefore, the people are now more willing and ready to cooperate with the government in seriously addressing problems of deterioration of natural resources and the environment.
3.2 Constraints for future development.
Domestic and external constraints on the Thai economy during the next five years include the following.
3.2.1 Comparative advantages in human resources are being eroded in terms of quantity, quality, and wage level. Although the basic quality of the Thai labor force is good, there are labor shortages, including skilled labor, technicians, and professionals, which will continue to remain bottlenecks for the immediate future. At the same time, there exists a surplus of labor, which is unskilled and inexperienced and therefore in low demand in the labor market. As a consequence, wage disparities among different labor skill levels will continue to widen and further worsen income distribution.
3.2.2 Cultivable land size has decreased and land prices have increased. Forest encroachment, expansion of the industrial and services sectors, urban growth, and land speculation have all contributed to pushing up land prices considerably since 1988. These factors will lead to future development constraints in the form of land scarcity and high prices, which, in turn, will affect the international competitiveness of the Thai economy.
3.2.3 Private savings have not increased at a sufficiently high rate to meet rapidly expanding investment demand. The widening savings-investment gap since the Sixth Plan period will continue to be high. During the Seventh Plan period, it is expected that the gap will remain at about 5.0-6.0 percent of GDP. An important reason is the slow growth rate of savings, particularly of households and businesses, which lag behind investment demand.
3.2.4 Infrastructure services will continue to be deficient during the next three years because demand will increase in line with economic growth, while investment in the provision of infrastructure services continues to experience delays as a result of inefficient management. In addition, towards the end of the Sixth Plan periold, construction of various large-scale infrastructure projects faced problems of higher input costs and shortage of construction companies, resulting in further delays. Finally, the policy to promote the private sector role in infrastructure investment could not be effectively implemented as it was unacceptable to some state enterprises. The public sector also lacked clear guidelines, operating criteria, operational procedures, and mechanisms to promote the private sector role in an appropriate manner.
3.2.5 Deterioration of natural resources and environment. Past development has involved wasteful and uneconomical exploitation of natural resources, including land, forestry, water, fisheries and mineral resources, resulting in rapid resource and environmental deterioration. The rural population, whose principal livelihood relies on these resources, have been negatively affected, making it more complex and time consuming to solve rural poverty poverty problems. Furthermore, forest encroachment has also led to the extinction of valuable species of plants and animals.
Moreover, the rapid economic expansion in the past, along with the changing economic structure which has become more industrialized and service oriented, and the transformation of rural societies to urban communities, have led to more serious pollution problems, including water, air, solid wastes and toxic chemicals. These problems have severe impacts on people's living conditions.
3.2.6 The government's administrative system, legal framework, rules and regulations are out of date, and are in need of overhaul, requiring the introduction of new rules and regulation to cope with the changing situation. These constraints are important in hindering effective private business operations and overall government administration.
3.2.7 Pattern of morbidity and mortality from new diseases are on the rise. The rapid transformation from a basically rural society to urban economy, and changes in population structure involving an increasing share of the middle-aged and the elderly, have increased morbidity and mortality rates from relatively new diseases such as AIDS, respiratory tract diseases, cancer, mental illness and nervous breakdowns.
3.2.8 The government will have a heavier burden to provide welfare services for the underprivileged. This is because of the changing family structure from extended families with serveral generations staying together, to nuclear families of various types, such as families where the heads migrate to cities leaving behind the children and the elderly, or families with working mothers. Such a changing family structure tends to undermine the sense of security, reassurance, caring and warmth generally associated with the family institution. Furthermore, the changing family structure and the rapid urbanization are also important causes of imbalances between modern economic development and mental, spiritual and moral development. These imbalances are destabilizing and will have impacts on the peace and calm of society in the future. They can also cause other problems, such as family disintegration, maltreated and abandoned children, drug addiction, and threats and risks to society and property. Therefore, the government needs to have preventive measures to assist the underprivileged to be able to help themselves and participate in national development.
3.2.9 Uncertainties in the world economy. The formulation of the Seventh Plan has to be based on a number of assumptions and forecasts of the economic situation, which are subject to unforeseen changes. Therefore, it is necessary to be prepared to face any untoward events with caution. The following issues deserve particular attention.
(1) World economic slowdown. The world economy is forecast to slow down. Therefore, the growth in world trade will also slow down. This is because of attempts of the industrial countries to solve their problems of economic imbalances. Within the United States of America, the government's attempt to solve domestic economic problems is delaying the pace of US economic recovery. At the same time, the unification of Western and Eastern Germany has kept German economic growth rates in check. Only the economies of Japan and the NICs are forecast to have satisfactory levels of growth. But even this latter group of countries will be affected by the economic slowdown of the Western industrial countries, resulting in lower average growth rates in comparison with the rapid growth rates of the late 1980's.
(2) Uncertainties in oil prices, commodity prices, foreign exchange and interest rates, all of which are key economic variables, will have to be closely monitored because changes in these variables have direct impact on the balance of payments, trade, current account and the domestic price level.
(3) Direction in international trade will be influenced by important world economic and trade policy changes, particularly the single European Community (EC) by 1992, and on-going political transformations in the Socialist countries of Eastern Europe. There is likely to be increasing volume of capital transfers within the EC, and to the Eastern European countries. In addition, the North American Free Trade Area (NAFTA) among the USA, Canada, and Mexico, and the US policy to slove trade and current account deficits are likely to have an impact on trade and investment in Thailand.
(4) Protectionism and trade competition may become more intense. Results of bilateral and multilateral trade negotiations on agricultural and industrial products and services, and the economic groupings of countries are likely to lead to an increasing number of goods and services being covered under international trade agreements, which can affect either positively or negatively the development of the industrial and services sectors of Thailand.
4. Overall National Development Targets.
In order to attain the three development objectives to 1) maintain economic growth rates at appropriate levels to ensure sustainability and stability, together with 2) redistribution of income and development benefits to the regions and rural ares, and 3) development of human resources, quality of life, environment and natural resources, and by taking due consideration of the aforementioned development opportunities and constraints, it is deemed appropriate to set quantitative and qualitative target of the Seventh Plan as follows.
4.1 Economic growth targets
4.1.1 Overall economic growth rates to be set at 8.2 percent per year.
4.1.2 Per capita income to increase from 41,000 baht per person in 1991 to 71,000 bath by the end of the Seventh Plan, representing an income growth rate of 7 percent per year in real terms.
4.1.3 The agricultural sector to grow at no less than 3.4 percent per year.
4.1.4 The industrial sector to grow at 9.5 percent per year.
4.1.5 Exports in value terms to grow at 14.7 percent per year while the volume of exports to grow at 9 percent per year.
4.1.6 Commercial energy production to grow at 8 percent per year from 280,000 barrels of crude oil per day in 1990 to 410,000 barrels of crude oil per day by 1996.
4.1.7 The provision of basic infrastructure services is set to grow as follows.(more)