Globalisation Case Study – Thailand

The Impact of Globalisation to Thailand and its Environmental Consequences

From 1960 to 1996: A period of Industrialisation leading to High and Stable growth

Globalisation in Thailand dated back as early as the 1960s when the Thai government announced the first Five-Year Plan which tried to industrialize its agrarian economy through import-substitution policy. During the 1970s and 80s, import substitution was replaced with policies to boost exports. Along with the early policy of foreign trade and exchange liberalization, Thailand??™s economic structure became an export-led which diversified into chemicals, textiles, electronics, iron and steel, and minerals by drawing on relatively abundant and inexpensive labour and natural resources. Overall, Thailand took substantial advantage of globalization through international trade and foreign investment which underlay its economic success in the years up to 1997. From 1960 to 1996, the average real GDP growth per annum was a respectable 6.6% which well reflected Thailand??™s three decades of strong performance.

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1997 Asian Financial Crisis: Negative Impact of Globalisation

Prior to 1997 Thailand??™s open financial policy managed its economy with a pegged exchange rate to the U.S dollar that effectively reduced transaction costs associated with exchange rate volatility. It allowed Thailand to experience rapid growth with massive amount of capital flows which came in the form of foreign direct investment. Nonetheless, the potential downside of such policy appeared to be overlooked by the government, which led Thailand expose to a capital market that relied heavily on external investment and hot money. In 1997, the ???Asian Financial Crisis??? was triggered in Thailand due to a loss of foreign investors??™ confidence in the ability to service their financial debts. On 2nd July, Thailand??™s local currency was hit by massive speculative attacks when currency speculators and many Thai residents sold their baht and buy the US dollar, causing capital flight out of the country. Thailand experienced a sharp capital outflows accounting for 13% of GDP and the government was forced to change its monetary policy to float the baht which resulted in rapid exchange rate depreciation that even deepened the economic crisis. Furthermore, due to the integrated and deregulated nature of world financial markets, Thailand??™s crisis was immediately transmitted to its neighbouring countries such as Indonesia, South Korea, Malaysia and Philippines through the phenomenon of contagion, which refers to the spread of economic downturn from one economy to another region that is highly integrated with.

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The International Monetary Fund immediately responded to the Asian Financial Crisis by instructing Thailand to adopt a series of structural adjustment policies which involved cutting government spending to reduce deficits and aggressively raising interest rates to stem exchange rate depreciation. However, the IMF did not achieve a very positive outcome as the SAP is a recessionary policy that even worsened Thailand??™s economic downturn.

From 2001 to 2006: Recovery from Asian Financial Crisis

Since then, the Thai government proceeded to recover its economy by stimulating domestic demand and reducing Thailands reliance on foreign trade and investment. The monetary policy implemented was based on floating exchange rate with a low interest rate environment which was closely monitored with inflation rate and exchange rate reserve, thus boosting domestic demand to supplement the strategy of export-led growth. This effectively brought about Thailand??™s economic recovery from the 1997 Asian Financial Crisis as Thailand was able to repay its debts to the IMF 2 years ahead of schedule.

Furthermore, Thailand??™s economic structure is refined by embracing a ???dual track??? policy that combined domestic stimulus with traditional promotion of open markets and foreign investment. Thailand has continued to be an active participant in the global trade liberalization process through various trading blocs, such as the Asia-Pacific Economic Cooperation forum (APEC) and the Association of South East Asian Nations group (ASEAN), and is now in the process of developing free trade agreements and closer economic cooperation with countries across the world. For instance, the recent signing of bilateral trade agreements with Australia and New Zealand will allow Thailand to further achieve the benefits of free trade including higher economic growth and living standard and more efficient allocation of resources. Moreover, Thailand is actively negotiating bilateral agreements with USA and Japan, in the hope of getting equal access to these more powerful economies and thus benefit from their strong economic performance.

According to the Asian Development Bank report, Thailand??™s economic growth has averaged 6.2% between 2002 and 2004 but slowing down to 4.5% in 2005. Still, this performance was remarkable, in particular helping Thailand to quickly recover from the tsunami which battered tourism industry in the southwest of the country. At the same time, the government??™s dual track policy took effect as domestic consumption remained a major contributor to GDP growth adding 3.4 %. While investment only accounted 2.9% and net export contracted to 2.1%, this however indicated that Thailand??™s economy has entered into a healthier and more balanced stage without relying solely on export and foreign investment.

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Environmental Consequences

Globalisation has also fostered massive environmental problems to Thailand??™s local environment as the country actively engages in global economic activities to gain export revenue and become industrialized. The escalating number of fishing firms has resulted in the disappearance of almost half of the coastal mangrove area by 1993. Tourism development has also devastated coral reefs and other fragile ecosystems. In 1997, the effects of the Asian Financial Crisis were mixed, as a fall in production and consumption led to less pollution. However, spending by firms and state agencies on pollution control and natural resource management also fell dramatically. In addition, the financial crisis fuelled encroachment upon illegal logging and mining in a search for income. By 2003, half of the Thailand??™s forest has been removed and a third of the surface water became unsafe for consumption.

Bibliography
Website-
1. Bank of Thailand- http://www.bot.or.th/BOThomepage/index/index_e.asp
2. Commanding Heights: Thailand on PBS- http://www.pbs.org/wgbh/commandingheights/lo/countries/th/th_full.html
3. How the IMF helped create and worsen the Asian financial crisis- http://www.essentialaction.org/imf/asia.htm
4. Sauwalak Kittiprappas. The Asian Financial Crisis and Social Changes in Thailand. Thailand Development Research Institute (TDRI). Available at: http://www.thaieconwatch.com/articles/theasian.pdf
5. Dave Farber (1998). THE ASIAN FINANCIAL CRISIS—-HOW AND WHY IT HAPPENED. Available at: http://www.interesting-people.org/archives/interesting-people/199809/msg00003.html
6. The IMFs Response to the Asian Crisis. International Monetary Fund. Available at: http://www.imf.org/external/np/exr/facts/asia.htm
7. Charles W.L.Hill. The Asian Financial Crisis. University of Washington. Available at: http://www.wright.edu/~tdung/asiancrisis-hill.htm
8. Australia-Thailand Free Trade Agreement (TAFTA) – Trade issues. Australian Department of Foreign Affairs and Trade. Available at: http://www.dfat.gov.au/trade/negotiations/aust-thai/
9. Asia Times IMF sees recovery in Thailand, but . . . Inter Press Service. Available at: http://www.atimes.com/asia-crisis/BB12Db01.html
10. Asian economic woes Thailand: The crisis starts. BBC News. Available at: http://news.bbc.co.uk/1/hi/special_report/1997/asian_economic_woes/34487.stm
11. Background Note: Thailand. U.S. Department of State. Available at: http://www.state.gov/r/pa/ei/bgn/2814.htm
12. Fixed Exchange Rate- http://www.clevelandfed.org/research/Et97/0997/fixexc.htm
13. Somprawin Manprasert, PH.D. Overview of the Thai Economy. Available at: http://pioneer.netserv.chula.ac.th/~msompraw/Overview.pdf
14. Somchai Jitsuhon. Sources of Thailand Economic Growth: A Fifty Year Perspective (1950-2000). Available at: http://www.gdnet.org/pdf/jitsuchon.pdf
15. Foreign Direct Investment: Performance and Attraction- The Case of Thailand. The Brooker Group plc. Available at: http://www.imf.org/external/pubs/ft/seminar/2002/fdi/eng/pdf/brimble.pdf
16. Thailand – LOCATION, SIZE, AND EXTENT, TOPOGRAPHY, CLIMATE, FLORA AND FAUNA. http://www.nationsencyclopedia.com/Asia-and-Oceania/Thailand.html
17. East Asian financial crisis – Wikipedia, the free encyclopedia. http://en.wikipedia.org/wiki/Asian_financial_crisis
18. Thaksin Shinawatra – Wikipedia, the free encyclopedia. http://en.wikipedia.org/wiki/Thaksin_Shinawatra
19. Hot money – Wikipedia, the free encyclopedia. http://en.wikipedia.org/wiki/Hot_money
20. Economy of Thailand – Wikipedia, the free encyclopedia. http://en.wikipedia.org/wiki/Economy_of_Thailand

Books-
1. Tim Dixon and John O??™Mahony (2006). Australia in the Global Economy 2006 Edition. Leading Edge Education.
2. Tim Riley (2006). Year 12 Economics 2006: Global Environmental Consequences of Economic Development, pp.68-69. Tim Riley Publication Pty Ltd.

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