From “East Asian” Crisis To “Hamburger” Crisis

From “East Asian” Crisis To “Hamburger” Crisis

References • รังสรรค์ ธนะพรพันธุ์ “เศรษฐกิจไทยหลังวิกฤตการณ์ปี 2540” โครงการจัดพิมพ์คบไฟ 2545 • ดร. ทรงธรรม ปิ่นโต “วิกฤติการเงินสหรัฐ: กระทบไทยเพียงใด” ตุลาคม 2551 • ดร. อัจนา ไวความดี “จะหวังพึ่งนโยบายมหภาคได้มากแค่ไหน” ธันวาคม 2551

References • เกศสรินทร์ ตันสุวรรณรัตน์ “วิกฤติการเงินสหรัฐ: กระทบการท่องเที่ยวไทยเพียงใด” พฤศจิกายน 2551 • Brunnermeier, M. K. 2009. “Deciphering the Liquidity and Credit Crunch 2007–2008.” Journal of Economic Perspectives 23 (1): 77–100.

After the 1997 Crisis • Slow recovery since 1999 after the 1997 crisis: 1999: 4.4% 2004: 6.3% 2000: 4.8% 2005: 4.6% 2001: 2.2% 2006: 5.2% 2002: 5.3% 2007: 4.9% 2003: 7.1%

After the 1997 Crisis • Non-performing loans declined and financial institutions recovered • Exports became an importantstimulus for the economy again • Weaker baht boosted exports, imports fell because of low investment

After the 1997 Crisis • Surpluses in trade and current accounts from 1998 to 2004 • But a deficit in 2005 when world oil price went up sharply • And anotherdeficit in service and current accounts in 2008 when political violence adversely affected tourism

After the 1997 Crisis • Foreign debt repayments caused deficits in capital account • But the overall balance of payments was mostly in surpluses, adding international reserves continuously

After the 1997 Crisis • In 2006, the baht gained much strength + large short-term capital inflows, prompting the BOT to adopt the 30% reserve requirement to discourage the inflows

Thailand’s Balance of Payments 1997-2008, (bill. Baht) 10

Thailand’s Balance of Payments 1997-2008, (bill. Baht) 11

After the 1997 Crisis • Low inflation, except during 2005 and 2008 when world oil prices climbed (peaked at $147per barrel in July 2008) • Higher, but not serious, inflation

The “hamburger” Crisis • Most serious problem for the Thai economy now is the impacts from the “hamburger” or subprime mortgage crisis • High loan defaults in U.S. real estate weakened financial institutions in U.S. and other countries, reduced total credits, and caused economic recession worldwide

The “hamburger” Crisis • The Thai economy has felt the impacts of the crisis since the later part of 2008: • Large withdrawals of funds byforeign investors from the stock market led to sharp drops of stock prices (SET index from >800in mid-2008 to <400 in early 2009) • Foreign direct investment also decreased

The “hamburger” Crisis • The Thai economy has felt the impacts of the crisis since the later part of 2008: • World trade shrank, and Thailand’s exports declined in every market for most products – expected decline of about 20% in 2009, and even bigger decline for imports, causing a trade surplus

The “hamburger” Crisis • The Thai economy has felt the impacts of the crisis since the later part of 2008: • Less foreign tourists visited Thailand, not only because of world economic crisis, but also because of Thailand’s political violent protests, and the new 2009 flu

The “hamburger” Crisis • The Thai economy shrank for 4 quarters consecutively since Q4 of 2008: • 2008 Q4 : -4.2% • 2009 Q1 : -7.1% • 2009 Q2 : -4.9% • 2009 Q3 : -2.8% • all year 2009 expected -3%

The “hamburger” Crisis • High unemployment in export manufacturing sector • Large negative impacts on tourism sector, particularly small/medium operators

The “hamburger” Crisis • Negative inflation as many prices fell • Economic recession in Thailand is largely due to falls in exports (X), private investment (I), and household consumption (C)

The “hamburger” Crisis • Several governments, including the Thai government, tried to lessen the impacts of this crisis by boosting government spending to add to aggregate demand as an economic stimulus (following Keynes’ idea)

The “hamburger” Crisis • First stimulus package (SP1): Midyear 2009 budget increase of over 100,000 million baht, running a budget deficit of 4.9% of GDP, spending on free education (15 years), 2000 baht handout, free buses, trains, electricity and water, 500-baht-a month for the old, a labor training program, etc.

The “hamburger” Crisis • SP2: (Thai Kem Kaeng ไทยเข้มแข็ง) government spending of 1.43 trillion baht over the next 3 years in “long-term” investment projects, e.g. roads, railway, water supply and irrigation, education, energy, etc.

The “hamburger” Crisis • Government needs to borrow heavily, expected to push up public debt to over 50% of GDP

The “hamburger” Crisis • Monetary Policy Committee eased monetary policy, reducing the policy interest rate from 3.75% in end of 2008 to 1.25% by first half of 2009 • High liquidity in the money market, but banks are cautious in lending to small/medium businesses

The “hamburger” Crisis • Fast track credit special program by government-owned banks, e.g. Government Savings Bank, SME Bank, Government Housing Bank • Thai banks are not directly affected because they did not invest in “subprime” debts, but NPLs in the country tends to rise with recession

The “hamburger” Crisis • Most analysts expect the world economy to slowly recover, beginning the end of 2009; the Thai economy should benefit from recovered demand for Thai exports, and positive growth is expected in 2010 • High economic growth in China and India play some role in world recovery

Any differences between the East Asian Crisis and the “Hamburger” Crisis? • Different kinds of causes and origins • For Thailand, impacts from external sources through export and investment, not serious for financial institutions

Any differences between the East Asian Crisis and the “Hamburger” Crisis? • Impacts on the baht, foreign reserves, and foreign debts are completely different • Inflation and interest rates move down this time

Any differences between the East Asian Crisis and the “Hamburger” Crisis? • Government is more ready and willing to spend and stimulate this time to offset economic slowdown • Worldwide impact is serious, but less impact on the Thai economy (compared with the 1997 crisis)

From “East Asian” Crisis To “Hamburger” Crisis