Created: 4/1/1971

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Intelligence Memorandum

Economic Prospects In Thailand

1 Seertf

ERpril L9 71

Copy No.



Economic Prospects in Thailand


Thailand achieved rapid economic growth in, essentially without inflation. The ability to continue this impressive performance, however, is threatenedlowdown in foreign exchange earnings resulting from poor export markets and expected reductions in US expenditures related to the Vietnam conflict. Foreign exchange problems began to appear90 and are expected to continue. This memorandum assesses the actual impactthese problems90 and the likely effects in the next few years.

Pi scussion


1. Thailand's economy grew at an impressive rate throughoutesult of rapidly rising demand, first led by exports, andy US military expenditures associated with the Vietnam conflict. table political climate coupled with liberal economic policies encouraged private investment and enabled production toto rising demand. During the, gross domestic product {measured in2 prices) grew at an average annual rate ofne of the highest sustained rates in less developed Asia. Private savings increased rapidly-Export earnings and capital inflows from abroad exceeded import growth and enabled Thailand to nearly triple its holdings of foreign exchange reserves3 million at the end02 million at the end

No-e: This memorandum uas prepared by the Office of Economic Research and coordinated within CIA.


Exportsey role in stipulating rapid economic growth. Thailand's merchandise exports grew at an average annual rate1 oxnodity export growth has slowed sharply to an average ofnnually, and receipts from services have become the most dynanic source of foreign exchange. These receipts more than quadrupled5argely reflecting US expenditures associated with the Vietnam buildup.

Rapid growth of private investment atear on the average in theas itselfesponse

to the export boom in commodities and services but in recent years hasorae-.tum of its own, based on the economy's sustained growth and stability. In turn, large investments greatly raised production in the modern urban sector, trade, services, and manufacturing. The government followed policies favoring private initiative and directed its expenditures almost exclusively toward improving the country'sand security. Government investment was onlys lartje us private investiner.t. Government budget deficits were modest,arge part of government investment was financed out of current budget surpluses.

exports of goods and servicesinvestment booming, the government wasfollow consistently conservative fiscalpolicies without dampening economicrewardigh degree of monetary and The money supply increased lessin all but three years ofhe wholesale andindexes rose- an average of only

ear, less than the average for industrial countries.


monetary stability in Thailandthe result of government policies,had powerful effects on private economic It hasigh rate ofand the holding of privatein relatively illiquid forms, such asrather than currency. Private savings

ear,t GDP0 The public's holdings of all forms of financial assets grew rr.ore than two-fold0 while income doubled. Currency, however,in relative importance from one-half of total financial assets0 to about one-quarterhile holdings of time deposits and savings bonds more than doubled to about one-half of the cotal. Government policies have encouraged these financial trends not only by promoting price stability but also by providing tax incentives to individuals and firms to hold their savings in the form of savings deposits or premium bonds by allowing tax exemptions on interest on such accounts. This pattern of private financial behavior is unusual in developing countries. Itigh degree of confidence in the stability of the currency.

Economic Developments9

economic growth continuedisappointing exportwith reductions in US militaryofficial transfers and Vietnam-related, caused sharp drawdowns in foreign At the same time, rising Thaibrought about increased use ofof government budgets. Merchandisehave grown only slightlyenerally deteriorating world market forcesprincipal export commodities, Whereas priorxport stagnationthan offset by the tremendous rise inservices, earnings from this9 and further0 byonsequence of declines in US military Official economic aid also has declined atrate of about 1S%he peak year.

Economic Growth

problems did not preventeconomic growth9C,of exceptionally good harvests. preliminary data, GDP, measured inrose slightly moreevelbillion 0 the Thaigrewower rate thanlose to the average.

See Tables .


Overall economic growth was particularly high9 because agricultural production grew (compared with ar. average annual rate of growth of about Paddy output continued to recover from the severe setback7 and rose 8% evel of4 million tons-Production of most other commodities was at record levels due to favorable weather and, in some cases, to strong foreign market demand. Preliminaryindicates that the increase in agricultural output in 0 was probably also above the ong-term average, although smaller than inarge rice stocks left over from9 harvest and falling domestic prices were instrumental in keeping paddy output at9 level. Most other crops fared better and were led by increases in corn and tapioca which benefited from strongin foreign markets.

The pace of investment has slowed. 9 the growth of public investment was cut to only 4% in order to increase military spending. Private investment, however, continued to be highly dynamic, rising by . A further slowdown was expected0 with public investment planned

to grow only aboutnd private investmentby an. Excess capacity developed in several industries and service sectors partly because of declining US military expenditures.

Declining Foreign Exchange Reserves

10. Continuing deterioration of the balance of payments caused Thailand's first foreign exchange drawdownecade9 and the drawdown was accelerated in Holdings of foreign exchange reservesillion95 million through the firstonthsotal crop of. International reserves amounted9 million at the end ofqual to about onths' imports at the 0 rate.*

* Thailand's foreign exchange reserve position is reported as net of commercial bank liabilities -Cross foreign exchange reserves reported in the IMF's International Financial Statistics bulletin amounted to5 million at the end33 million through reflecting drawdownsillionillion, in the tuo years.

prime factor in theduring9 was an increase of 7%

in the trade deficit pite of anise in exportss imports expanded inith the rapid growth of GOP. This, combineddecline in service receipts from US military spending associated with the Vietnam conflict,5 million deficit on current account. Net capital inflows and officialremained at about the same level ass increases in receipts were largely offsetharp rise in payments for debt service and purchases of participating equity shares in the World Bank, and were insufficient to cover the rise in theaccount deficit.

the first nine monthsC,balance of paymentsargerthan in the corresponding period ofbecause of an increased trade deficit andservice receipts and transfer paynents.

The current account deficit grew slightly3 million. The overall deficit amountedcomparedillion deficit recorded in tho comparable period Exports stagnated and service receipts were somewhat lower than Import growth slowed considerably, however, amounting to onlyhrough September.

growth of exports has been theproblem in the last few years. exports grew at an average rate ofrice sales were particularly strongin value. Rubber and tin prices werecontrast, theaw anexport growth of only 7ut the volume of fell by about one-third, as some ofrice marketsapan, Ceylon, andeduced or eliminated theirice prices fell sharply while thesales leveled off, but higher prices forcorn, and kenaf were largely responsible for

an 8% rise in total export earnings.

the first nine monthsincreasednd preliminarythat there was no export growth for the Export prices for ricewas marginally ahead Pricesother commodities, particularly rubber,somewhat lower than in

15- The sharp slowdown in import growth 0 in spite of apparently continued rapid growth of GDP is attributable partly to increased import duties (averaging aboutf import duty in July,road spectrum of consumer goods, and to cuts in investmentarticularly oublic sector investment. Through the first half of the year, imports roseompared withrowth in the comparable period In the third quarter, imports declined omparedise ofn the same period This sharp drop, however, probably reflects the influence ofdevelopments and is unlikely to continue even with the higher tariffs and stagnant government investment.

Fiscal Developments

The Thai government in recent years hasto contend with substantial budget deficits. The deficit had already gone from less than 2baht 8 million, f expenditures) 6 toillionf exoenditures) in There was no change ut in fiscal year (fy)o moreillionccurred.

Growing deficits are due to rising military expenditures coupledlowdown in the growth of revenues. Military spending has risen at ratesnnuallyargelyesult of rising requirements for expenditures fromsuppression and maintenance and reequipment of forces. Total government spending was held down by holding capital expenditures near8 level, as shown in the following tabulation for fy* Declines in export duty collections, mainly on rice, haveignificant factor in the slower growth of total revenue In calendar9 and revenues grew by onlynd compared with an average annual rate

, as receipts from the rice premium were cut in half.

* The Thai fiscal year runsctober througheptember.


-OA. a

. I

OS. 9

Government revenue

Government a/



JJ. j

it. t

:s. <

Transfers to local govern-erts . statend IFCT

Budge: dtfioit

f total (ur#

a! sf rounding, io tht relate


18. As shown in the following tabulation for, the government has relied increasingly on the central bank to finance budget deficits asof foreign assistance have not increased and bond sales have declined.

Money Supply and Prices

19- Despite falling foreign exchange reserves and rising budget deficits, confidence in the economy and currency was undisturbed. Deficit financing of government expenditures was partly offset by foreign exchange drawdowns, and ahigh rate of private saving deposits balanced most of the continued rapid increase of bank credit to the private%he same as

savings have kept pace with risingf GDP inrise in financial assets was in the formsavings deposits, compared with. During the first increases in private savings deposits nearly the entire increase in financiala result, money supply, which grew by about 5%

rose less thann January-September0 .

slow growth of money supply andagricultural productionreflecting good and difficulties in foreign markets nd, lesser degree, excess capacity in industryin price stability. The consumerrose less than three percent9 andstable wholesale prices fella yearly basis but fluctuated during theseasonal agricultural factors.

Prospects Over the Next Few Years


outlook for the next few years isfurther slowdown in overall economic growthof the influencelow growth ofand declines in service receipts and US military expenditures aredeclineevel5 millionthe8 level, because of theof construction and maintenance activitiesbases in Thailand. We project privateto increaseillionThai government policies becomefavorable to the foreign investors;investment is likely to continueif overall economic growth slows markedly.



programs indicate little changeoverall level of foreign economicthe next two years. About half of themillion! could be in the form of US No substantial change in this programprojected- Theidcomes predominantly fromand the United states. Aid forcould be implemented in the next two years

by and large has already been committed.

Merchandise Exports

short-term prospect foris for an average annual growth ofimprovement over that achieved0 butthat of earlier years. Although thefor rico will probably remain soft,declines in prices are not likely,has already adjusted to the loss ofmarkets for rice. Rice exportsSt annually. Earnings from rubber,other hand, could drop in spite ofof close toecause of offsetting Exports of corn and tapioca willgrow at lower rates than in the pastannually) because of processing problemsand inadequate storage andfor corn. International Tinshould limit tin exports to about 4% The outlook for shrimp, tobacco, andof other newer export commodities ismore favorable (annual growth ratesfor individual items are indicated),productsroup contribute only about

o total export earnings.

the pressing need for largerdiversified export earnings, Bangkok'sare still aimed predominantly atsales of existing products. Apromotion effort was launched inthe first half of the year ricerunning moreetter than indeclines, however, largely negated thevolume, with the result thatrice were less thanbove thelevel. Moreover, volume also fell inhalf, so that the volume of sales for

the full year was about at9 level.

manufacturing basedprovided raw materialsargeThailand, particularly in such areas as fruit canning, and the like. Alsouse its cheap labor to process importedraw materials for export as Taiwan and

Korea have been doing. To date, however, only one industrial estate is being developed, and neither the government, through the use of tax and other incentives, nor the Board of Investment has been active in export industry promotion. It isin any event, that industrial exports could be developed quickly enough to make acontribution to earnings in the next two or three years.

Import Capacity and Requirements

merchandise exports growing

ear and US military expenditures and official aid declining, total foreign exchange earnings probably will increaseear, even if private foreign investment grows substantially, as shown in the tabulation andelow:

Million US S

70 1 2 3


Merchandise exports

Atrowth Atrowth

US military

Other services

Official aid

Private foreign inves tment

Total foreignearnings . import capacity)

At 4%

At 6%

- 10


hatrowth aboveyear would require reductions in reserves. otherrowth rate of importand services probably would support aboutgrowth of GDP, or not much more thanrecent rate.

Government Internal Policies

extent of the economic slowdown andresulting drop in foreign exchange reservesinfluenced by government fiscal and In the past, private credit hasto expand sufficiently to fuelin the private sectorinterestbeen raised at times, but credit has not Fiscal policies, however, haveand will probably remain so evenseems to be little possibility ofbudget deficits. The1 budgetfor an increase in expenditures of onlythat of FYnd preliminary statements

by the head of the National Budget Bureau suggest that the proposed2 budget will be onlyver that of The small planned increase in budgeted expenditures for1 reflects cuts in economic development spending and delays in normal maintenance expenditures. It is unlikely, however, that the slowdown in budget expenditures can long continue, becauso of the large and growing requirement of both the military and civilian sectors.

30. The military threat along the Cambodian and Laos borders and growing insurgency in the north and northeast will probably raisefor defense and security expenditures. We assume an average annual increasen these expenditures2light drop in spending These are probably minimum Current civilian expenditures probably will growate not far. Despite apay hike, salaries in the public sector continue to lag behind those in the private sector, and inadequate past funding in areas such asand social services will raise theneeded in the future. Moreover, expenditures



for local government and state enterprises are likely to increase."

In the past two years the government has reactedora rapid growth of currentthan of revenues by holding down capital These expenditures arc likely to growannually in the next two or three years, even thoughconomic plan callsore substantial7 million1 in. Total government expenditures thus are likely to rise someearhile projected net revenues fron foreign aidlight decline.

Domestic revenue will depend, of course, on the growth of the economy, imports and exports, as well as on changing tax rates. As will be shown below, economic growth will probably be too slow to generate the revenue needed to prevent budget deficits from rising if tax rates remain unchanged. And, if tax rates are increased, growth of the economy and imports will be further hampered, with some loss of revenues.

while the government may accept substantial budget deficits, it is probably not prepared to

use fiscal toolseans of "pump priming." Growth of exports of goods and services in the past have been the main stimulus to the growth of thelowdown in exports will slow economic growth unless it is compensated for by increased spending in other areas. The government could raise its spending, especially for investment, well beyond the above projections. But it will probably prefer toower rate of economic growth and, in any case, could not sustain rapid economic growth for long, because of the balance-of-payments problem, as shown below.

rowth and

prospect for the next few years issharp slowdown in economic growth, asare unlikely to increase enough toslowdown in export earnings. Slowerin turn will mean slower growth of imports.

* Planned expenditures of local and stateout of the central budget are to4 million annually, comparedillion.



The reduction in import growth, however, will probably not be large or quick enough to prevent balance-of-payments deficitsarge fall in foreign exchange reserves.

pattern of development reflectsof the Thai economy. Private by the buoyancy of private foreignprobably will continue to grew rapidlyeven after economic growth declines. government policies toward foreignmarkedly less favorable, confidence inof the economy may remain strong for Consumption expenditures will follow thepersonal income, but mostlyag. growth of GDP is likely to slowless than that of exports in the next two

or three years, and the same will tend to be true of imports, which depend fairly directly on the growth of non-agricultural GDP.

The foregoing projection of export earnings and of government expenditures, when introduced into an econometric model of the Thai economy (see therojected growth rate of between ndear for GDP. Growth ofof goods and services declines to aboutell aboverowth of foreign exchange earnings- Thus evenrop of about one-half in the rate of economic growth thedeficit may be expected to increase unless the government takes steps to restrict imports.

The result would be continuing heavyof Thailand's foreign exchange reserves (see The following tabulation shows the reserve drawdown calculated by means of the econometric model on two alternative assumptions as to export growth rates. If the drawdown is of this magnitude, foreign exchange reserves will be only one-half to one-third the current level by the end

Million US S

Export Growth Rate

2 3 Total




33. Those projections are based on economicof the past decade and, as such, are tenuous. In the far different environment of the next two or three years, the pattern of development could change. Private investors could loseand quickly cut their expenditures, thereby pushing GDP below the projected growth rate of about St. esponse would cut import growth more than that of GOP because of the large import content of investment expenditures, and there would De smaller reserve drawdowns than projected above. Nevertheless, with the drawdown aroundeveln averageS1S0 uillion in the next two or three years seems to be aexpectation.

39. These projections assume only moderatein Thai government spending and in the budget deficit. As mentioned earlier, the Thais would be reluctant to stimulate economic growth by means of larger budget deficits. But in any case there is little opportunity for such "pump priming" because



of the balance-of-payments situation. As shown in the following tabulation of foreign exchange increases in government spending sufficient to sustain growth of GDP at theistorical rate would lead, barring import restrictions,iping out of foreign exchange reserves ir. about two and one-half years.

Million US S

Merchandise Export

Growth 2 3 Total

Financial Stabi1ity

of the main constraints onhas been the fear of generatingwill probably notroblem in the nextthree years. The basic reason is that thein foreign exchange reserves is likelythan compensate for the deficit in thebudget. In the past, with the balance ofnormally in surplus and, therefore, an

expansionary source in the economy, large deficits on government accounts would have been inflationary. But with the balance of paymentsarge and growing contractionary influence on the economy, increased budget deficits are needed as an offset. If, moreover, past trends in private financialcontinue, the growth of private savings da-posits will more than compensate for the increase in private bank credit.

overall monetary trends will then There would be annual declinesmoney supplys shown in Tablepast private monetary behavior continuing,in the econometric model, and withexpenditures at projected levels. Evenhigher deficit spending, thewould either decline or increase onlyshould be noted that there was little ifin the money supplyear

the budget deficit was already large and the loss of reserves was much smaller than it will be in the next three years. Although it is conceivable that

exchange reserves willhange ir, private monetary behaviorhift from savings deposits to currency holdings and aincrease in the rate of spendinghere seems to be no serious basis for concern about internal monetary stability in Thailand so long as recent government policies continue- indeed the government may have to discourage the growth of private savings depositsrder torop in the money supply. The crucial problem is clearly the balance-of-pay-ments problem. Thailand is in danger, even with conservative fiscal policies, of seeing its reserves fall within the next two years to the extent that it will have to take drastic measures to bring foreign payments into balance.

Thailand'5 Economic Options

thus seems to be little doubtwill face increasingly difficultin the next two or three years. Ain both economic growth and foreignseems inevitable. Moreover, evenare still large, declines at thecould not be allowed to continue for long.

As indicated above, they would leave as littleillion in reserves by the endquivalent to some three months' imports. The Thais would undoubtedly take strenuous steps long before this to conserve their reserves- If, for example,0 million level wasinimum, the government could be expected to take actionr even earlier. The Thai government has even mentioned0 million level as being "critical". Especially if this refers to netit isery comfortable level by international standards. But the Thais give more importance than most to maintenance of theirposition.

the long term thecan better be solved by stimulatingby restricting imports. There is muchgovernment can do to promote bothindustrial exports. For agriculturalcan build farm-to-market roads, providesubsidize fertilizer, buildimprove extension programs, andbusiness initiative. For industrial exports.



it can provide tax benefits, establish industrial estates outside the customs barriers, and encourage private foreign investors. But while theis doing some of these things, it has not yet given exportigh priority. Industrial exports, for example, are planned tonnually and would then amount to lessf projected total exports Quite possibly the Thais believed that the availability of foreign exchange from US expenditures and aid in the past several yearstrong export program They may change their views, but even if this occurs soon, it will be too late toa serious balance-of-payments problem in the next two or three years.

even though export promotion maypriority, and unless they arc willing toreserves fall sharply, the Thais willto restrict imports. This could be doneimport taxes, devaluing thoimports or foreign exchange,spending by means of credit controls, or

by several of these in combination.

Thais would probably preferimport taxes. They raised tariffs lastmay do so again this year. Byincreases on consumer goods imports,expect some stimulation of domesticconsumer goods production is fairlybut there is little short-termof substituting domestic productionof industrial materials and even lessand equipment. Even in consumershort-term import substitutionare not large, because consumer goodsupf the total (compared

. Devaluation would have the disadvantage, compared with higher tariffs, of not beingamong inports, so that it would tend to raise costs more and promote substitute production less. But it has the advantage of encouraging capital inflows while discouraging capital outflows.

limitations on short-tern importpossibilities apply also to the userationing of imports or foreignthis approach would have the disadvantagebureaucratic controls and corruption.

Although some production could be aided by import controls, the long-tern impact on privateand economic growth would probably be In any case, controls, once imposed, night be difficult to remove and would tend to draw the government's attention inward away froa export promotion. They would also createand inflationary pressures that wouldimpede exports. Moreover, private firms and individuals night reduce their savings rate, and speculation an to government licensing policy could further stinulate inflation. Finally,controls would encourage an outflow of capital that would be hard to stop.

47. Credit controls almost certainly would not be used as the sole means of restricting imports for fear of too severely depressing domesticactivity. But whatever method isut in import growth sufficient to halt thein foreign exchange reserves probably could not be achieved without depressing the rate of economic growth The effect of the drop in the growth rate would depend largely onproduction. Over the past decade the average annual growth of agricultural production has been The exceptional growth rate of the past two years was the result of excellent weather.


46. orsening balance-of-payments problem threatens to greatly reduce Thailand's rate of economic growth. Economic growth averagedn thesesult of rapid increases in exports and an increasingly self-sustainingof private investment, while merchandise exports leveled off beginning in the, thereassive increase in US militaryin Thailand and in US economic aid. Generally conservative government policies gave ample rein to private business initiative, induced high rates of private savings, and kept prices virtually stable.

49. After years of running large surpluses, the balance-of-payments shiftedeficit The deficit grew0 and is expected to increase further in the next few years. US

- 19



military expenditures and economic aid have been declining. Export earnings are growing only slowlyesult of poor market conditions for rice and rubber and lackigorous exportpolicy in the past few years. Thailand's foreign exchange earnings are unlikely to grow morennually In this situation. Thailand's foreign exchange reserves, which peaked at aboutillion inill quickly fall to dangerously low levels unless thereharp decline in the growth of imports, which can occur only if economic growth is greatly slowed.

these trends in exports, acurrent government fiscal and monetaryprobably resulteclining economicto. But even sorop5G% in the growth ratewould not stemof reserves, which could declineannually in the next two or three years,

or one-half to two-thirds from the present level. Bangkok would almost certainly take action to balance international payments before confidence in Thailand's currency became undermined.

Thailand can obtainaid, it will have little choice butits imports. The government wouldprefer to raise import duties, as it didand devaluation, direct import controls,domestic credit could also be used toimports. In the longer term, there areopportunities for diversifying theexports and developing new Export expansion has not had ain government policy, however, and even

trong program is developed soon, it could have little impact in the next two or three years.

of its predominant dependencefor most producer and investmentprobably cannoturther dropeconomic growth rate when importapplied. Cuts in imports of consumersave some foreign exchange withoutthe growth rate, but these imports makeabout one-fifth of the total. performance could keep overallgrowthespectable level, butcombined with the foreigncould bring economic stagnation.



53. ew years of slow growth would not necessarily have serious consequences. Thereanger, however, that Bangkok in its effort to hold down imports will abandon the generally liberal, outward-looking policies that have been successful in the past. The favorablefor rapid expansion of exports In the long run, which is probably the soundest basis for sustained domestic growth, would then go begging. Banqkok's reaction to foreign exchange difficulties in the next year or two could, therefore, influence

Thailand's economic developmentong time to come.



hailand: Exports

exports (million Baht] Of which:

6 9 3



and Kenaf

export volume

metric tons)


and Kenaf

prices of principal exports (Baht per metric ton) b/



Tin c/




Including minor shipments of tin concentrates Tii Derivsd from unrounded data. Tin mttQl only.



of iCftCS a/

md private transfers


Exports oports rade Non-rionetery 9dd Services (netl freight and lniurjftct cn merchandise Omer transportation Travel

Investment lam_ Other services Private transfer*

TO til

8. Official transfer payments

C. Capital novajienta

Private Direct nt silent Loans toenterprise Other private Lonq*term loans Short-termovtmBtnt Loans

Loig-term assets

liaoilLtiet to IBM. IDA, and ABO OtMr capital


3. Recorded MLence hrough C>

Set crrort and omissions F. Monetary movement* c/ Net CHf accounts

Private institutions' liabilities Pciva- institutions' assets Central Institution* isoMtuy gold































S| SI1 S3 i|1 |

'i i ,


Tabic 7

Thailand: Projected Monetary Factors a/

Million US 5

rowtii of Merchandise Exports

With Probable Trends in with Additional ovgrntngnt Spendinq Government Spending


ionary factors

government deficit ?rivat* bank credit








exchange drawdown Private bank savings

















deficit Private bank credit







exchange drawdown Private bank savings












3ud:ttzi0iic niilioi, SuffiaitKtr.-sz..



Econometric Model of the Thai Economy

CIA's macroeconomic model of thi Thai economy has been used in slightly revised form from that presented in ERf The revision consists of the addition of equations to reflect the behavior of the monetary sector andevised import equation. The modelynamic investment demand model which projects CD? and its various components, disposable income, government revenue, imports, and, in this presentation, private credit and savings in the monetized sector. for most variables are calculated from annual data in the 7 Monetary behavior is based on data.

Model Performance9

Newly available data permitted the testing of the model9 (see Actualwas somewhat better than that predicted, partly because of the exceptional harvest. national accounts were revised inhe accounts8 and subsequent years are in the revised form. 3ecause the model was constructed with the unrevlsed series, revised data89 were linked to the old data series. Thebetween the two sets of data are small, with GDP varying no more thann any one year.

Endogenous Variable Additions

Private Bank Credit


Students' T

of observations

Private bank credit is as reported in the individual statements of the commercial banks and theSaving Bank. In the absence of any significant

alternative capital markets in Thailand,banking and the provision of credit should be an important indicator of the pace of private economic activity, It is derivedunction of orivate GDP from the nodel.





Private bank savings is composed of commercial bank time deposits and Government Saving Bank deposits and savings bond liabilities. Government savings accounts are included in the totals because they are largely those of state Private bank savings are derivedunction of total private savings, which in turn are determined through the model as disposable income less private

Endoqenous Variable Revisions



on-agricultural GDP

r2 = 7umber of1

* Thai land's mon*tary accounts were revised in0 changes consisted of including commercial bank savings under the quasi-money account rather than as demand deposits. The unrevised series is used in this memorandum because itonger time span and because the regression fit is better-



Imports in the current year depend onGDP in the current year. Non-agricultural GDP has grown faster than the economy throughout the pasr. decade, and this trend is expected toNational accounts data on GDP, by industrial origin, were used in the regression ofactivities in thend alsolose

fit: NACDP *GDP (r2. exogenous variable Revisions X2 Official Aid (AI3>

on Baht

Official aid declined9evelillion baht. The total encompasses both grants and loans (drawing*). The slight2 assumes an increase in the level -of government loans, primarily to state enterprises, associated with funding of new projects withof Thailand's new economic plan

X3 Net Foreign Investment IN'FI)


Net foreign investment amountedillion bahtnly slightly higher than in the previous year. 9ase, net foreign investment was arbitrarilyillion baht yearly, similar to that of the previous model.

X4 OS Military Expenditures ll'Sx:



These estimates are revised Bank of Thailand factions5 and agree with current mission estimates. The course of military de-opments related to the Indochina conflict, how-r, could alter the figures significantly.



. 4.






following form of the model was utilized in uter simulation:

Yl (GDP) 54 (GDP)

Y2 (DEF)8 (Govermaent Deficit)

Y3 (YD)8 (Disposable Income)

Y4 (GIG) -1 *7 (Gross Government Investment)

Y5 1GXP) -3 (Gross Private Investment)

Y6 (CGOV)1 X5 X68 (Government Consumption)

V7 (CPVT)43 (Private Consumption)

Y8 (RG) -91 (Total Government Revenue)

Y9 (CPVT*GIP*X) (Domestic Revenue Base)

Y10 C0 +MILEX) Y8 - Y66 X8 (Funds Available)

Yll (M)Imports)

Y12 8 (Total Imports, Including Military Goods)

Y13 (X) 4 (Total Exports)

Y14 (PGDP) - Yl - 6 (Private GDP)

Private Bank Credit)








7 (private savings)

y17 (ls)y16 (private bank savings)

y18 (bpm) u (balance of payments imports)

y19 (bpx)balance of payments exports)

y20 (dcd) 42 (domestic government deficit)

y21 3 -x9 (foreign exchange drawings)

y22 (mgap) - - - (money supply)

1 (non-agricultural gdp)

the exogenous variables are as follows:

xixgos (exports of goods and services excluding us military spending)

id (official aid)

f1) (net foreign investment)

sm (us vietnam-related military spending)

ili (local thai government spending on military expenditures)

x6gc (increased government spending on consumption)

i (increased government spending on investment)

ilex (thai government expenditures of foreign exchange for military goods)

x9otp (official transfer payments)



Imports and exports are convertedational accountsalance-of-payments basis, and together with official transfer payments and net foreign investment yield the degree of foreign exchange reserve drawdown. The money gap shows th expected impact of foreign exchange drawdowns, domestic budget deficits, demand for private bank credit, and the supply of private bank savings on money supply. aluables areariables lagged one year.


Thai aed In

Additional data series (or regressions used in this nana rand nr. ara praiiented Below.*

Million Haht










For data net prattnfd in this nimorandu*. f fO-lt. Thailand: Kecentc- and



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