The Thai economy is one of the most robust in Asia. In the 1960s it was a predominantly agricultural economy largely dependent on its rich produce of crops such as rice, cassava, maize, rubber, and sugar cane, along with its seafood production, primarily of shrimp. Its strategic location and bountiful natural resources has enabled the country to maximize trade opportunities. The 1980s to mid-1990s marked its boom years and its emergence as a diverse, modern, and industrialized economy.
The economy's growth can be attributed to several factors. First, Thailand has pursued a rational approach to industrialization. Prior to its attempt at industrialization, Thailand already had a stable agricultural sector which became the springboard for industrialization. In the 1960s, its first attempt at industrialization was characterized by the strategy of import substitution which centered mainly on food processing. Hence, Thailand used the produce of its agricultural sector to initiate a shift into industrialization. The availability of local laborers, combined with abundant natural produce, enabled the country to increase production and shift to manufacturing or processing products for export purposes. This led to the rapid expansion of the manufacturing sector and a marked increase in exports. This approach enabled Thailand to avoid the usual path taken by newly industrialized economies (NIEs) of pursuing industrialization at the expense of the agricultural sector. The strategy was to gradually build upon existing resources in order to facilitate the development of the economy.
A second important factor was Thailand's diversification of its economy. This is a pervasive trend in the development of the economy, which is rooted in the innate flexibility of the Thai people. This is exemplified by the stages of growth of the industrial sector which began with simple agri-based manufacturing, and steadily progressed to more sophisticated industries through the use of available resources such as rich natural resources and cheap labor. Diversification was also aided by huge inflows of foreign direct investment geared towards a wide range of products, namely electronics, chemicals, property, and processed food. In the 1980s, foreign direct investment totaled US$8 billion, with US$2.5 billion coming from Japan and the rest from Chinese, Korean, and American investors. In fact, 50 percent of the country's industrial output and 20 percent of its industrial workforce are attributable to foreign investors who are attracted by lower manufacturing costs, according to Thailand's Turn.
A third factor in Thailand's growth is government stability. The administration of Prime Minister Prem Tinsulanonda, which lasted from 1980 to 1988, developed a continuity in policies and programs that inspired the confidence of the private sector in both the government and the economy. This translated to a greater willingness to invest in the growing manufacturing industry and support further expansion of export activities.
Fourth, the dynamism of the private sector propelled export production. In 1981, a landmark policy was implemented which facilitated the formation of the Joint Public-Private Consultative Committee on Economic Problems that enabled businesspersons to influence public policy through their associations. This, in turn, led to an increased participation of the private sector in the development of state enterprises. Economic development in the country was largely propelled by the private sector, which invested heavily in industrial growth; the government had a limited role in determining the direction of the economy.
These factors have contributed greatly to the growth of the country's major economic sectors, namely agriculture and fishing, manufacturing and industry, and services, particularly tourism. In 1991, 98.6 percent of all Thai business enterprises were mainly small and medium enterprises, accounting for 90.7 percent and 7.6 percent, respectively. The Ministry of Industry defines small-scale enterprises as those with a maximum of 50 employees with an equity of 10 million baht, while medium-scale enterprises employ 50-200 personnel and have an equity of 10-100 million baht.
The country's inability to produce oil has negatively impacted its growth, particularly during periods of oil crisis such as the world oil crisis between 1970 and 1979. The country's dependence on oil has been reduced with the discovery of its first natural gas field in the Gulf of Thailand in 1981. The country also taps alternative domestic sources of energy such as hydropower, liquefied natural gas, and coal. It is also in the process of studying the use of nuclear power.
At the end of 1990, the country's long-term external debt stood at about US$16 billion. However, annual debt service payments were only equivalent to 10 percent of the total earnings from exports, which means that the debt payments were manageable. The 1997 Asian financial crisis reversed this situation as the combination of US$90.5 billion in debt in 1996-97 and high levels of non-performing loans caused the near collapse of Thai-land's financial sector. The troubles of the financial sector spilled over to the other sectors of the economy which were dependent on the financial sector for credit. Banks had to set aside finances to cover loans which creditors were not able to pay, so they no longer had any money to lend borrowers who were capable of paying. This forced the government to increase its allocation for foreign debt payments to take the pressure away from the financial sector. This resulted in a significant increase in public sector debt, which was only equivalent to 4 percent of GDP in 1996 but rose to 18 percent of GDP by mid-1999.
To alleviate the effects of the crisis, the International Monetary Fund (IMF) gave Thailand a US$17.2 billion assistance package in August 1997. With the help of these funds, reforms in the financial sector were implemented along with the restructuring of the industrial and agricultural sector to increase productivity. Policy reforms to increase accountability and transparency, as well as social reforms to improve education, social services, and human resource development are also being implemented by the government with assistance from the IMF, the Asian Development Bank (ADB), the Overseas Economic Co-Operation and Development (OECD) Fund, and the World Bank.