FROM RICE TO PETROCHEMICALS
Economic reforms in the 1980s paved the way for Thailand to move away from agriculture and embrace industry, writes Apornrath Phoonphongphiphat
The end of the Vietnam War and the withdrawal of American troops from Thailand in 1975 forced the government to do something to save the country from economic collapse.
Thailand was facing a great economic slowdown caused by a lengthy global oil crisis.
Gen Prem Tinsulanonda, the 16th prime minister of Thailand, led the country from 1980 to 1988 during eight years of difficult economic reform that turned Thailand from a poor country to a middle-income country with an important role in international trade today. That included the baht’s devaluation and the transformation from an agriculture-based economy to an industrial-based one that increased jobs, exports and the trade balance.
Relying heavily on exports of primitive agricultural products when the baht was pegged to the US dollar had made the currency’s value unrealistically high and cut export value substantially, resulting in a huge trade deficit.
That forced the government to devalue the baht for the first time in history by 15% in 1981 to help drive exports. The government then devalued the baht for the second time in the same year and again in 1984.
A headline in the Bangkok Post on Nov 3, 1984, read “Baht devalued: Rate i s now 27 baht to the US dollar”. A following report was headlined “Devaluation move surprises bankers”.
This time the baht was devalued by 17.3%, from 23 to 27 baht against the dollar, in an attempt to correct Thailand’s trade deficit of 38 billion baht and to improve its ability to pay foreign debts, which amounted to 248 billion baht as of June 1984. The move was criticised by some cabinet members who said devaluation would have a negative impact on the economy.
At the time, exports of unprocessed farm products were not enough to revive the economy. Unemployment remained high as all economic activities were concentrated on Bangkok, leaving the rest of the country as a poor agriculture-based society at risk of being influenced by communism.
To tackle the communist insurgency in Thailand after the Vietnam War, Gen Prem, now the Privy Council president, issued an amnesty on April 23, 1980, allowing all student activists who joined the Communist Party of Thailand from 1974-79 to return home and become workers to drive the economy.
The government also started a decentralisation policy to allocate more fiscal budget to remote provinces and narrow the earnings gap.
But earnings from exporting rice and natural rubber were not sufficient to lift Thailand away from the status of a poor country, especially as the country relied heavily on importing consumer products, which caused a massive trade deficit.
The government floated the idea of setting up the Board of Investment to support measures to help investors, mostly foreign, to start investing in basic industries to cut the heavy reliance on imports.
The industrial sector passed through several development stages until Thailand started exploring its natural gas resources and found proved reserves in the Gulf of Thailand.
Gas became a major power resource that supplied the new generation of Thai industry that included sectors with higher technology such as garments and computer chips.
The gas discovery also meant the start of Thailand’s petrochemical industry, which aimed to use by-products from the gas separation process as feedstock to produce products and plastics that are major raw materials for hundreds of industries that were developed later.
With further development since the early 1990s, industry has become a major driver of the economy, accounting for 37% of gross domestic product, while the agricultural sector’s contribution has fallen to only 8%.