It is highly unlikely that Thailand will face another crisis like the one of 1997, at least not in the next five years. As you can remember, the events prelude to the last crisis include the massive short-term foreign borrowing by the private sector (especially after the establishment of the BIBF), accompanied by a property bubble and excessive capacity expansions in many sectors. While the country was experiencing current account deficits, the banking sector’s annual loan growth exceeded 20% and the positive balance of payment was mainly as a result of short-term foreign inflows. In other words, the Thai economy was using short-term foreign borrowings to finance its trade deficits and other investments, which, in hindsight, proves to be unwise.

In addition, many of the early warning signs were ignored by the authorities then, due in part to frequent government changes and constant meddling with top officials at the Finance Ministry and at the Bank of Thailand. This also resulted in poor crisis management when the Baht was under attack vis-à-vis Malaysia, which shut down its foreign exchange windows and did not need to resort to the IMF.

In the course of the past six years, all the above situations have reversed. As we graduate out of the IMF program, our trade and current accounts are now in surpluses. The country’s external debt level now stands at a manageable 50% of GDP, falling from roughly 70% three years ago. Most importantly, these external debts now have long-term maturity owed by the public sector. Despite the government’s budget deficit policy, actual deficit spending amounts to roughly 2% of GDP with comfortable interest service coverage at this time.

The country’s financial system is in the final phase of asset write-offs and recapitalization. Earnings of listed companies continued to post strong growth as their debt/equity leverage declined. As a result, government’s revenue collections are expected to rise as corporations used up their tax shield from previous losses. As energy costs stabilize after the Iraqi war, continuing improvements in the country’s trade balance and GDP can be expected. The present backdrops, therefore, are indicative of an onset of a healthy long-term economic recovery with low exposure to any systematic risks.

Non-performing loans (NPLs) are still a serious problem among Thai financial institutions. NPLs are still high in some state commercial banks such as the Thai Military Bank and state financial institution such as IFCT. This problem has not received serious attention from the government.

Over a five-year horizon, the country’s education, both in quantity and quality, remains the key concern. The transformation of the Thai economy from an agricultural to a manufacturing base should be credited for the unprecedented boom from 1986 to 1996. In that time, the foundation works for the infrastructure, utility, communications, and other backbone systems were implemented. Reforms in key government sectors and privatization of state enterprises should now serve as the platform for future growth. Therefore, domestic consumption and exports will remain the country’s engines of growth in the coming years.

However, with China now emerging as the world’s production base, Thailand needs to climb up the value-added chain, which requires a workforce that is educationally equipped as in Korea and Taiwan. Unfortunately, the education advancement process here may require more than a decade of serious overhaul before bearing meaningful results. In such a scenario, the Thai economy’s composition may gradually need to change to move service-oriented industries or that which utilize more domestic natural resources.