Thailand is one of the most important economic players in Southeast Asia. Not only is it one
of the outright largest economies in the region, but it's also an essential provider of some of
the world's most essential, yet underappreciated goods. It's strategically located along the
busiest trade routes in the world, and it's become a surprisingly popular center for a new
age of labour that's bucking the trend of global migration. But the truly remarkable
thing about Thailand is that it's still growing. Now for a developing and industrializing economy,
this may not sound too surprising. However, there are a lot of economies in the world today
that should be highly successful because of endowments in natural resources,
large labour forces, great geographic positions, or just because they have major industries that
still aren't. Thailand, on the other hand, has been one of the most politically unstable
countries on the planet. Over the last century, the small country has averaged about two military
coups every ten years. Its government has been couped more times than it's been peacefully
re-elected, which makes managing economic affairs difficult to say the least.
Beyond this, the country was one of the most heavily impacted regional economies by the
Asian financial crisis, the GFC, and the COVID pandemic, but its overall growth outlook is still
relatively positive. So what has made the Thai economy so weirdly resilient to these economic
challenges? What has been fueling the most recent round of growth? And finally,
are the current set of challenges going to be as easy to work through? Once we've done all that,
we can put Thailand on the Economics Explained Leaderboard.
Before we dive in, let me share something that keeps me focused and energised while researching
these fascinating topics. When I'm in deep focus mode, diving into the complexities of
global economies like Thailand, I sometimes forget about easy but crucial things like drinking enough
water throughout the day to stay hydrated. That's where today's sponsor element comes into play.
Element is a zero sugar electrolyte drink mixed with everything you need and nothing you don't.
It provides the electrolytes your body needs, sodium, potassium, and magnesium
without any added sugar, artificial ingredients, or colouring. It's a healthy alternative to
sugary electrolyte drinks and it's trusted by many Olympic athletes, including the USA
weightlifting team and even by the Navy SEALs. Proper hydration is key to everyone,
whether you're pushing your physical limits just as the Olympic athletes, travelling a lot,
or just trying to stay focused and having enough energy during the day.
I like to keep a stack of packets on my desk to help me stay hydrated throughout the day.
If you want to try Element, right now they're offering a free sample pack of all eight flavours
with any purchase. Best of all, it's risk-free. If you don't love it, they'll refund your order,
no questions asked. To get your free sample, go to drinkelement.com
slash economicsexplained or click the link in the description.
To understand how Thailand operates economically, there are a few historical
developments worth mentioning that make it unique compared to its neighbours.
Aside from a few little invasions here and there, the country is the only
Southeast Asian territory to avoid direct colonial rule. Moreover, while acting as a zone
separating French and British colonies, it managed to act as a hub for trade,
and after the opening of the Suez Canal, Thailand became the primary exporter of rice in the region,
a trend that continues to this very day. Although this may appear to be a profitable
series of events to both the leadership and the people of Thailand, its economic prosperity
was often separated from the public by technocrats managing the bulk of exchanges as it continued
to industrialise. Domestic benefits were not yet realised, and this continued to be a trend for
decades. In fact, Thailand's economy as it exists today really got started in the mid 1980s,
when the plaza record depreciated the US dollar against the currency of the UK, France, West
Germany and especially Japan. Of course, Thailand was not involved in this deal at all, and they
didn't even use any of the currencies directly impacted, but this new agreement, mostly amongst
countries on the other side of the world, changed the kingdom in profound ways. The first phase was
initiated when Thailand re-pegged its currency, the baht, at 25 per US dollar in 1984. The goal
of the plaza record was to devalue the dollar. In theory, it would reduce the US trade deficit,
making exports more competitive in an effort to stabilise trade with Japan. Either way,
this also devalued Thailand's native currency because it was pegged to the US dollar. The
accord made the Japanese currency more valuable, making their exports more expensive, and therefore
less competitive, which pushed Japanese manufacturers to find creative ways to cut costs.
The Chinese market was still just opening up, so Japan started looking at the strategic
trade advantage Thailand held at the crossroads of the South China Sea and the Malacca Strait,
a channel primed for shipping between the Indian and Pacific oceans. This could not have come at
a better time as Thailand had been making an effort to deregulate industries and open its doors to
more foreign investment, which played a massive role in enticing Japanese firms to make the leap,
and plant factories and operations in the country, trading up the workforce to change them from
farmers to factory workers. This also paired well with and encouraged Thailand to make the
leap from agrarian self-sufficiency to a model of exporting the goods it could produce most
competitively and importing whatever it needed with the money it made from selling those goods,
leading to a range of those long-awaited domestic benefits. This process of industrialisation
also helped agriculture, which changed from pretty basic subsistence farming to relatively
mechanised agriculture during this time, allowing more people to put down their farming tools and
get higher paying jobs than factories. Now this is a story that has happened in dozens of countries
across the world over the last four decades, but what made the Thai economy so interesting is how
weirdly resilient it was to the upcoming economic challenges. This can be explained by looking
at the events leading up to the Asian financial crisis. For a time, economic changes for Thailand
led to a boom in the market with the baht linked to the US dollar at a set rate. This link ensured
that foreign investments were more enticing because investors didn't have to worry about returns
being impacted by foreign exchange fluctuations, that is, as long as the Thai currency remained
in line with the US dollar. Of course, there were also other traits that added fuel to the fire.
Foreign investors could charge relatively high interest rates on their loans, which encouraged
institutions to take out loans in their home currency to exchange them for Thai baht. Furthermore,
borrowers could take out and return loans as a result of Thailand's acceptance of Article 8 of
the International Monetary Fund in 1990 to open Thailand's financial system to the international
community. This lending strategy was a way to make pure profit with higher interest rates on
Thailand's peg currency. This meant that there was lots of money flowing into Thailand to fund
its expansion, which was great. But at a certain point, the country didn't need any more investment,
and all it was doing was driving up asset prices. The massive inflow of hot money, risky loans,
and crony capitalism made Thai banking under-regulated when getting loans to corporations.
Without proper risk assessment and Thailand's connections to the US dollar, the system morphed
into an unstable house of cards with three major events that caused it to finally come toppling
down. The first was that the USA increased its interest rates in the mid-1990s to fend off inflation.
This decision effectively made this baht exchange method of taking out loans in one country and
giving out loans in Thailand less profitable. The rising interest rates ultimately caused the
dollar to appreciate, which caused the baht to appreciate as well, which led to a fall in
international exports. The second was China, which finally managed to open its doors enough to
compete on the world stage, exporting enough to finally challenge even its more distant neighbours.
The third was unprofitable industries like real estate that couldn't make a return on their
investment at high interest rates. The expansion was largely fueled by investments into land,
residential property, condos, and offices, breeding a highly speculative market in the sector,
which made it very vulnerable. As the bubble burst, loans were defaulted on mass,
crushing banks that played the precarious game. This didn't bode well for Thailand.
In the eyes of those putting money into the machine, Asian markets, Thailand in particular,
were now seen as sinking ships and everybody wanted to jump fast. So, they were all getting
their money back, which pushed the value of the Thai baht down in foreign exchange markets,
but because the value of the currency was pegged, the government had to raise the price back up
by selling its US dollars. Sticking with the metaphor, the hole was now punctured and Thailand
was forced to get rid of everything in an attempt to stop the sinking. And this was where things
got really bad. Hemorrhaging cash as well as international faith, Thailand had no choice
but to raise interest rates in the short term by 25%. Now, in theory, when things are running
smoothly, this seems like a power move. Basically, if one sees 10% interest rates, it might look like
a good investment. But if one sees 20% interest rates, it starts to look like a desperate attempt
to get money by any means necessary. And that's exactly what happened. With Thai foreign exchange
reserves drained, the country's stock market crashed. Along with other Asian currencies,
the baht fell sharply. Capital inflows slowed, some even reversed. By the end of 1997, the
baht lost almost half of its value, falling from around $26 to $53 by January of 1998.
On top of everything, unemployment tripled from 1.5% to 4.5%, which might not sound
bad from the perspective of an advanced economy where unemployment rates are normally around 4%,
but Thailand has very little social safety and it also has much lower employment standards,
which means its rate is normally much lower. In short, if it gets this high, it's game over
for many and people will inevitably experience severe poverty. But out of the chaos that erupted
in Asian markets, there was a silver lining for Thailand and it had to do with the way that they
spent money when times were good. Much of the investments the country received were put towards
infrastructure, building roads, ports, construction of electrical grids, airports, housing and anything
else that the country could think of to improve productivity. This meant that even though the
coffers were empty, Thailand had many of the tools at its disposal for a quick rebound,
and this is what started the revival in the early 2000s. Another aspect of Thailand's
return to growth had to do with its currency, which was allowed to float and fall in value,
which made exports more competitive once again. The country's decision to join the
International Monetary Fund or IMF in 1949 turned out to be fiscally responsible as well.
After paying off loans, they were subsequently bailed out of striking two decades in advance
of initial projections, and they did this by focusing on the real economy within their borders,
all while adding a high level of prudence and general discipline to their export-led economy.
This development in particular was almost a blessing in disguise as they learned early that
a heavy reliance on financial institutions and speculation would lead them vulnerable if they
were confronting similar crises. By embracing exports, they ended up being one of the few
major nations to circumvent full-on exposure in the wake of the 2008 global financial crisis.
Of course, nobody completely dodged the bullet, but it allowed Thailand to bounce back much faster
than many of its competitors. Additionally, as referenced earlier, utilizing them like a straight,
Thailand's legendary reputation for rice exports was a godsend, and even that is a bit of an
understatement. See, rice is considered to be an inelastic good, meaning that when the price
has said good changes, the quantity demanded doesn't change that significantly because it's
more or less an essential form of sustenance to billions of people. And given the location of
Thailand close to a large number of countries that consume rice as a mealtime staple, their
sake and necessity, there was always going to be a large consumer base eager to purchase it,
meaning that even though it may not be the most profitable export, it was always going to be in
demand. That location is good for more than just competitive global trade too. There's also the
environment that comes along with it. Whether it's the beaches of Koh Samui, the lush landscape of
Phuket or partying in Bangkok, Thailand stands as a cultural monument right for tourism.
This in conjunction with the aforementioned improvements in infrastructure has made it a
global hotspot, but there were and are still considerable hoops to jump through to sustain
that. Before the pandemic, it was actually the eighth most visited country on the planet with
Bangkok being the most visited city in the world. It's tourism that's earned a spot amongst Thailand's
biggest industries accounting for some 20% of gross domestic product. In 2019, Thailand earned
90 billion US dollars from domestic and international tourism, but the pandemic caused revenues to
crash to 24 billion dollars in 2020. Surprisingly though, even with this loss of foot traffic
and the gradual recovery, Thailand is still doing okay. There are a large number of travelers who
visit Thailand and can't help but stay for long periods of time. The country has become a hotspot
for digital nomads who are attracted to the country for its low cost of living, good internet,
and relatively pro-business culture. Its growth has been slower than the 1980s and 1990s,
but that's potentially a sign of things being more stable and sustainable.
After all, a rapid rise in GDP is not often indicative of lasting prosperity.
Of course, it's easy to assume that this might turn into an all too familiar situation where foreign
workers and other buyers flood in to make large acquisitions while locals sacrifice affordability
to favour foreign participation, but Thailand appears to have that handled.
The country is very welcoming and accommodating of foreign workers and even foreigners who want
to set up their own businesses in the country or buy a home, but there are severe limitations on
things like property ownership not used as a primary residence. This tends to create just
enough incentive for foreign participation while not giving up sovereign wealth sectors significantly.
The nomads get the pleasure of participating in a growing market while the Thai people get
to feed off the largest slice of the pie. It's a method that theoretically provides universal
benefits to all and this could be a big win for Thailand because these people bring a lot of money
to the local economy and also spread their technical knowledge in something being dubbed
reverse brain drain. So with so much going for it, Thailand could be the economy to watch in the
region as China is currently struggling with the same problems that they have already dealt with
three decades ago. But there is one thing, Thailand does have a bit of a coup problem.
There are many with the most recent occurring in 2014 and there have been 19 since 1932.
Now this would kill most economies as tourists would be too scared to travel there, businesses
would be too scared to operate without constant paranoia and investors would be worried about
the next government's seizing power just to take their assets away. But, and this is a big but,
in Thailand this hasn't really happened because it has an elite coup culture. In fact the country
is so used to coups at this point that it's just become the expectation and most industries
operate in the country with the understanding that if a new government wants to seize power,
they can't mess things up too badly. This may seem incredibly odd from an outside perspective,
but this is essentially how it all works. Thailand's interventionist pattern has been
reinforced by the special status of the king and the royal family who have been protected by the
army at any cost. Defending the institution of the monarchy which is officially considered the
pinnacle of Thailand's sacred and secular life is the primary requirement of national security.
Because of this all military coups that have occurred in Thailand during this time have
hinged on public approval which protects the monarchy particularly when it comes to dismantling
oligarchies and vast fortunes. The recalibration of economic power is almost inevitably a post-coup
outcome going right back to 1932. The coups will most likely continue to occur, but it basically
ends up being an isolated feudal skirmish for the approval of a family they have generationally deemed
to be sacred and untouchable, effectively leaving foreigners and most citizens to conduct business
as usual to maintain the status quo. And for this reason, and many others, Thailand is a bit of an
economic paradox, one with many lessons for the rest of the world. If nothing else, its handling
of skilled migration into a still relatively poor population is something that puts other far more
established countries to shame. How much of this method can be applied to one's respective country
as up for debate, but for the Thai economy at least for now everything seems to be on the right
track, at least until the next coup comes along. Okay now it's time to put Thailand on the economics
explained leaderboard. Starting as always with size, the country has a GDP of just over half a
trillion dollars making it the fourth largest economy in Asia, behind only Indonesia, Japan and
of course China, and this makes it a major global economy by size alone and it gets a 7 out of 10.
That GDP is spread out over a population of 71 million people, which means despite its strong
nominal figures it only has a GDP per capita of 6,910 dollars or roughly half the global average.
This is improving for all of the reasons we explore in this video, but for now Thailand is
still early on the development process and it gets a 3 out of 10. Stability and confidence is
not great. While it's home to the world's most considerate political coups, they do still have
an impact on regular economic functions. Throw in ongoing issues with corruption and a reliance on
a few select industries and the country can't get more than a 5 out of 10. Growth has been very
strong. While not as rapid as the first wave of industrialization in the 1980s, the country has
still almost doubled its economic output over the last decade. That's even after the crash in
tourism caused by the global pandemic and industry that's recovering quickly and should be reflected
in next year's output figures. Even still for now it gets a 9 out of 10.
Industry is strong and impressively diverse. The country is still a large agricultural power,
but it also exports a range of relatively advanced products. It doesn't however have much in the
way of its own homegrown global companies or industries and its heavier reliance on tourism
means it can only get a 6 out of 10. Altogether that gives Thailand an average score of 6 out of 10,
exactly in line with Bangladesh and the Philippines, two of its closest regional rivals.
You should be able to click to the video we made on both of those economies on your screen now.
Thanks for watching mate, bye.