From “East Asian” Crisis To “Hamburger” Crisis

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References รงัสรรค์ ธนะพรพนัธุ ์“เศรษฐกิจไทยหลัง

วกิฤตการณ์ปี 2540” โครงการจดัพมิพค์บไฟ 2545

ดร . ทรงธรรม ปิ่ นโต วกิฤติการเงินสหรฐั“ : กระทบไทยเพยีงใด ตลุาคม ” 2551

ดร . อัจนา ไวความดี จะหวงัพึง่นโยบาย“มหภาคได้มากแค่ไหน ธนัวาคม ”2551

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References• เกศสรนิทร ์ตันสวุรรณรตัน์

“วกิฤติการเงินสหรฐั : กระทบการท่องเท่ียวไทยเพยีงใด ”พฤศจกิายน 2551

• Brunnermeier, M. K. 2009. “Deciphering the Liquidity and Credit Crunch 2007–2008.” Journal of Economic Perspectives 23 (1): 77–100.

After the 1997 Crisis• Slow recovery since 1999 after the 1997

crisis:1999: 4.4% 2004: 6.3%

2000: 4.8% 2005: 4.6%2001: 2.2% 2006: 5.2%2002: 5.3% 2007: 4.9%2003: 7.1%

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After the 1997 Crisis• Non-performing loans declined and

financial institutions recovered• Exports became an important

stimulus for the economy again• Weaker baht boosted exports,

imports fell because of low investment

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After the 1997 Crisis• Surpluses in trade and current

accounts from 1998 to 2004• But a deficit in 2005 when world oil

price went up sharply• And another deficit in service and

current accounts in 2008 when political violence adversely affected tourism

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After the 1997 Crisis• Foreign debt repayments caused

deficits in capital account• But the overall balance of

payments was mostly in surpluses, adding international reserves continuously

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After the 1997 Crisis• In 2006, the baht gained much

strength + large short-term capital inflows, prompting the BOT to adopt the 30% reserve requirement to discourage the inflows

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Thailand’s Balance of Payments 1997-2008, (bill. Baht)1997 1998 1999 2000 2001 2002

Exports 1,790 2,181 2,150 2,731 2,808 2,838Imports -1,875 -1,678 -1,800 -2,514 -2,696 -2,719Trade balance -85 503 350 217 112 118Net services 45 89 120 154 164 184Current A/C -40 592 470 372 276 302Capital A/C -162 -413 -298 -405 -213 -182BOP -299 58 173 -58 58 181

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2003 2004 2005 2006 2007 2008Exports 3,233 3,823 4,407 4,838 5,171 5,833Imports -3,078 -3,764 -4,733 -4,804 -4,773 -5,827Trade balance 156 59 -327 34 398 6Net services 42 51 24 50 86 -16Current A/C 197 110 -302 84 484 -10Capital A/C -334 149 448 258 -86 415BOP 2 230 221 478 586 812

Thailand’s Balance of Payments 1997-2008, (bill. Baht)

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After the 1997 Crisis• Low inflation, except during 2005

and 2008 when world oil prices climbed (peaked at $147 per barrel in July 2008)

• Higher, but not serious, inflation

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The “hamburger” Crisis• Most serious problem for the Thai

economy now is the impacts from the “hamburger” or subprime mortgage crisis

• High loan defaults in U.S. real estate weakened financial institutions in U.S. and other countries, reduced total credits, and caused economic recession worldwide

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The “hamburger” Crisis• The Thai economy has felt the

impacts of the crisis since the later part of 2008:– Large withdrawals of funds by foreign

investors from the stock market led to sharp drops of stock prices (SET index from >800 in mid-2008 to <400 in early 2009)

– Foreign direct investment also decreased15

The “hamburger” Crisis• The Thai economy has felt the

impacts of the crisis since the later part of 2008:– World trade shrank, and Thailand’s

exports declined in every market for most products – expected decline of about 20% in 2009, and even bigger decline for imports, causing a trade surplus

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The “hamburger” Crisis• The Thai economy has felt the

impacts of the crisis since the later part of 2008:• Less foreign tourists visited Thailand,

not only because of world economic crisis, but also because of Thailand’s political violent protests, and the new 2009 flu

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The “hamburger” Crisis

• The Thai economy shrank for 4 quarters consecutively since Q4 of 2008:• 2008 Q4 : -4.2%• 2009 Q1 : -7.1%• 2009 Q2 : -4.9%• 2009 Q3 : -2.8%• all year 2009 expected -3%

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The “hamburger” Crisis

• High unemployment in export manufacturing sector

• Large negative impacts on tourism sector, particularly small/medium operators

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 2006 Q3

4.8

  Q44.5

2007 Q1

4.4

  Q24.4

  Q35.1

  Q45.7

2008 Q1

6.0

  Q25.3

  Q33.9

  Q4-4.2

2009 Q1

-7.1

Q2-4.9

Q3-2.8

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2121

The “hamburger” Crisis

• Negative inflation as many prices fell

• Economic recession in Thailand is largely due to falls in exports (X), private investment (I), and household consumption (C)

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Components of 2551 2552GDP (million

baht) Q1 Q2 Q3 Q4 Q1Private Consumption (C)

560,505

570,995

556,681

574,892

545,923

Government Spending (G)

90,650

92,413

111,578

92,986

93,219

Private Investment (I)

258,950

237,715

253,488

271,137

135,633

Exports (X)795,5

74793,5

84833,240

725,422

664,705

Imports (M)602,4

43610,6

40656,104

606,187

413,235

GDP at constant prices

1,129,471

1,074,430

1,080,67

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1,085,47

6

1,049,11

0

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The “hamburger” Crisis

• Several governments, including the Thai government, tried to lessen the impacts of this crisis by boosting government spending to add to aggregate demand as an economic stimulus (following Keynes’ idea)

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The “hamburger” Crisis• First stimulus package (SP1): Midyear

2009 budget increase of over 100,000 million baht, running a budget deficit of 4.9% of GDP, spending on free education (15 years), 2000 baht handout, free buses, trains, electricity and water, 500-baht-a month for the old, a labor training program, etc.

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The “hamburger” Crisis• SP2: (Thai Kem Kaeng ไทยเขม้แขง็)

government spending of 1.43 trillion baht over the next 3 years in “long-term” investment projects, e.g. roads, railway, water supply and irrigation, education, energy, etc.

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The “hamburger” Crisis

• Government needs to borrow heavily, expected to push up public debt to over 50% of GDP

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The “hamburger” Crisis• Monetary Policy Committee eased

monetary policy, reducing the policy interest rate from 3.75% in end of 2008 to 1.25% by first half of 2009

• High liquidity in the money market, but banks are cautious in lending to small/medium businesses

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The “hamburger” Crisis• Fast track credit special program by

government-owned banks, e.g. Government Savings Bank, SME Bank, Government Housing Bank

• Thai banks are not directly affected because they did not invest in “subprime” debts, but NPLs in the country tends to rise with recession

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The “hamburger” Crisis• Most analysts expect the world economy

to slowly recover, beginning the end of 2009; the Thai economy should benefit from recovered demand for Thai exports, and positive growth is expected in 2010

• High economic growth in China and India play some role in world recovery

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Any differences between the East Asian Crisis and the “Hamburger” Crisis?

• Different kinds of causes and origins• For Thailand, impacts from external

sources through export and investment, not serious for financial institutions

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Any differences between the East Asian Crisis and the “Hamburger” Crisis?

• Impacts on the baht, foreign reserves, and foreign debts are completely different

• Inflation and interest rates move down this time

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Any differences between the East Asian Crisis and the “Hamburger” Crisis?

• Government is more ready and willing to spend and stimulate this time to offset economic slowdown

• Worldwide impact is serious, but less impact on the Thai economy (compared with the 1997 crisis) 33