Government House--2 February--Bisnews
Prime Minister of Thailand on "Whither the East Asian Miracle" to the World Economic Forum, 29 January 1998, Switzerland
President Cotti, Chancellor Kohl, Professor Schwab, Excellencies, Distinguished Participants, It is a great pleasure to address this distinguished gathering of the World Economic Forum. I wish to take this opportunity to offer you a perspective of an Asian on the current economic crisis in the region. I shall not attempt to look too far into the future, but will concentrate mostly on the current situation in Thailand and East Asia and, more importantly, the direction in which we shall be moving. Distinguished Participants, Last year has seen East Asia's reversal of fortune. Not all that long ago, the East Asian economies were so successful and so consistent in their economic performance that they were regarded by the World Bank as a "miracle".
In the space of a few months, however, as the region's financial crisis took hold, a question being asked with ever greater frequency is: Has the success story come to an end? It is a fact that East Asia's growth was unrivalled by other regions. East Asia succeeded because it had--indeed has--strong economic fundamentals. East Asia has a population of nearly two billion, or one person in nearly every three on earth. This pool of human resources is young, hard working, and enterprising. With their rising effective demand and purchasing power, these people have also made East Asia a growing market for their own as well as the world's products.
In addition, East Asia has the world's highest savings rate. Averaging around 30 percent of GDP, these savings have helped finance the region's investments and capacity for further growth. East Asia is well endowed with natural resources. From minerals in the ground to resources in the sea, East Asia has energy and fuel as well as the foodstuffs to feed its industries and people.
All these factors, combined with outward-looking economic policies, integration into the global economy, and a dynamic private sector have allowed East Asia to capitalise on its comparative advantage, producing the synergy that propelled the region's economies to success. Thailand is no exception. Furthermore, although never colonised, Thailand has always been receptive to new ideas and adaptable to change. Our democratic institutions have evolved for over 65 years and are stable. Our society of 60 million people is cohesive and united, with one of the freest presses in the world.
Over the past two decades, the Thai economy was one of the fastest growing economies in the world. Indeed, Thailand is one of the world's five and Asia's only net exporter of food. While we remain the world's largest exporter of rice, natural rubber, and tapioca, manufactured products now account for over 70 per cent of our total exports. Our people are more prosperous and are enjoying a better quality of life and world investors have received high returns on investment. Indeed, a few years ago, The Economist magazine predicted that Thailand would become the world's eighth largest economy by the year 2020.
In the midst of a regional environment of rapid economic growth, Thailand along with other East Asian economies liberalised her trade, investment, and financial regimes. The economic potentials of Thailand served as a strong magnet that drew in huge flows of foreign capital. Such flows led to the rapid expansion of the financial, capital, and property markets in Thailand. The resulting wealth effects led to spending and investment that were not always prudent. There was careless lending and even more reckless borrowing. We realised that such a situation could lead to a bubble economy and had to be rectified speedily. However, mismanagement occurred, especially in using our reserves in a futile attempt to defend our currency and in using public money to rescue unviable finance companies.
In a globalised world, such mismanagement is quickly disciplined by the markets. At the same time, because of the linkages and similar problems in other economies in the region, the crisis spread rapidly. In just over half a year, the region's stock markets and currencies have plummeted. Indeed, since the beginning of the crisis in July, the Indonesian Rupiah lost over 80 per cent of its value, the Thai Baht 52 percent, and the Korean Won 47 per cent.
Given the so-called "contagion effect" and the severity of the problems, the international community cannot afford to be complacent. In this globalised era, no country can completely avoid being affected by what happens halfway around the world. International repercussions are inevitable, given that East Asia now accounts for around one-third of the world's GDP and trade. Nearly thirty per cent of U.S. exports goes to East Asia, while the figure for the European Union is almost ten percent.
Major economies must recognise that their conduct of macroeconomic policies will inevitably have an impact upon other countries as well as the global economy as a whole. The maintenance of currency stability in China is a crucial factor in sustaining stability of other currencies in Asia. The effective stimulation of Japan's domestic economy will provide an engine for recovery in the region as a whole. Continued and expanded market access to Europe and North America will be equally important. These issues should receive prompt attention by the major industrialised economies, in particular from the G-7 countries, working in concert with other large economies such as China.
If countries in other regions remain aloof or pursue policies that further deteriorate the situation in Asia, we shall face not only recession on a global scale, but will raise fundamental questions about the value of economic liberalisation which we all desire. This would be deeply regrettable. Liberalisation, I believe, is the right approach, is consistent with changes that are shaping our world, and is in the common interest of all. Indeed, I am pleased that President Clinton, in his recent State of the Union Address, recognised these points and underlined the security dimension of the issue. In the medium and long terms, we should collectively think of how we can strengthen the international financial and monetary system in order to prevent a similar crisis from arising and spreading in the future. We must be able to cope with the volatility of capital flows in today's world. The advent of the Euro will be another important factor that would have to be taken into account, particularly given its potential to affect the international payments system.
Leaders in many regions of the world have come to recognise the imperative to act and initiatives have been taken, such as the Manila Framework agreed by the Asia and Pacific Finance Deputies and endorsed by the APEC Leaders in Vancouver. I am confident that at the Asia-Europe Summit in London this April, similar attention will be given to the financial crisis in Asia, with a view to establishing an early-warning system, collective surveillance of monetary systems as well as measures to strengthen the IMF's capacity to respond to financial crises.
In addition, developed economies must fully recognise the differences in levels of development and preparedness among developing economies and should stand ready to provide technology, expertise, and experience in order that all countries can respond effectively to the imperatives of liberalisation and globalisation. Notwithstanding co-operative endeavours at the regional and international levels, affected economies must address their own problems by relying on their own efforts. They must improve their economic policies and make their environment more conducive to the strengthening of their economic systems, both in the short and long term. In Thailand's case, the Government and the IMF have been working closely together and have agreed upon the need to strengthen our fiscal and monetary discipline as well as tough and decisive actions to restructure our financial institutions. This we have already done when we closed more than half of our finance companies and we will continue to strengthen our commercial banking system. We have also been able to meet all the targets set and, in some cases, have even exceeded them. These reforms, however, entail a painful adjustment process and, in the short term, will also affect our rate of economic growth. As these reforms may also have social impacts, the Government has worked with the World Bank and the Asian Development Bank to strengthen our existing social safety net that has long relied upon the cushion provided by our traditional extended family networks and the absorptive capacity of our rural agricultural sector. It is also crucial for us to display our firm commitment and determination to undertake such reforms. Equally importantly, I believe we must also use this opportunity to push through other economic and social reforms, in addition to those already addressed under the framework of the IMF.
Indeed, the importance of good governance must be recognised. Disclosure of information to the public must be carried out efficiently and transparently. Both the public and private sectors must undertake policies and measures that are consistent with and support one another. Bureaucratic reform and the judicial system must be strengthened to make them more efficient and effective. All of the above are indispensable if we are to strengthen our institutions so that they can cope with global changes. Everything, from accounting practices to the supervision and regulation of financial institutions must be done according to international standards. Increased competition through liberalisation must also be allowed to continue. These reforms will, however, only succeed if the people understand their importance and co-operate. And this is possible only through good governance on the basis of democratic principles. Governments must be ready and willing to provide the public with facts. They must also be ready to urge their people to share part of the pain so as to achieve a better future.
Reform, rejuvenation and recovery will take time to complete. Confidence first of all needs to be restored. This is the crux of the problem. But I see no reason why the countries of East Asia cannot surmount the obstacles. Similar reform policies have been pursued in the past to reinforce our comparative advantages, and to address our deficiencies. The fundamentals that underpinned our growth are still there. The severity of this economic crisis is unprecedented. It cannot be resolved overnight. We have to accept reality and work hard, and go through a painful process of structural adjustment. But as the track record shows, the peoples of East Asia are fast learners, and we are pragmatic. With determination and perseverance, and with support of our friends, we can remake ourselves to meet the challenges of this fast-changing world. I firmly believe that in not too long a time, East Asia will resume its place as one of the engines of world growth. We shall endeavour to remain a strong partner in prosperity into the 21st century for Europe, North America and other regions of our global community. Thank you. End.
Prime Minister of Thailand on "Whither the East Asian Miracle" to the World Economic Forum, 29 January 1998, Switzerland
President Cotti, Chancellor Kohl, Professor Schwab, Excellencies, Distinguished Participants, It is a great pleasure to address this distinguished gathering of the World Economic Forum. I wish to take this opportunity to offer you a perspective of an Asian on the current economic crisis in the region. I shall not attempt to look too far into the future, but will concentrate mostly on the current situation in Thailand and East Asia and, more importantly, the direction in which we shall be moving. Distinguished Participants, Last year has seen East Asia's reversal of fortune. Not all that long ago, the East Asian economies were so successful and so consistent in their economic performance that they were regarded by the World Bank as a "miracle".
In the space of a few months, however, as the region's financial crisis took hold, a question being asked with ever greater frequency is: Has the success story come to an end? It is a fact that East Asia's growth was unrivalled by other regions. East Asia succeeded because it had--indeed has--strong economic fundamentals. East Asia has a population of nearly two billion, or one person in nearly every three on earth. This pool of human resources is young, hard working, and enterprising. With their rising effective demand and purchasing power, these people have also made East Asia a growing market for their own as well as the world's products.
In addition, East Asia has the world's highest savings rate. Averaging around 30 percent of GDP, these savings have helped finance the region's investments and capacity for further growth. East Asia is well endowed with natural resources. From minerals in the ground to resources in the sea, East Asia has energy and fuel as well as the foodstuffs to feed its industries and people.
All these factors, combined with outward-looking economic policies, integration into the global economy, and a dynamic private sector have allowed East Asia to capitalise on its comparative advantage, producing the synergy that propelled the region's economies to success. Thailand is no exception. Furthermore, although never colonised, Thailand has always been receptive to new ideas and adaptable to change. Our democratic institutions have evolved for over 65 years and are stable. Our society of 60 million people is cohesive and united, with one of the freest presses in the world.
Over the past two decades, the Thai economy was one of the fastest growing economies in the world. Indeed, Thailand is one of the world's five and Asia's only net exporter of food. While we remain the world's largest exporter of rice, natural rubber, and tapioca, manufactured products now account for over 70 per cent of our total exports. Our people are more prosperous and are enjoying a better quality of life and world investors have received high returns on investment. Indeed, a few years ago, The Economist magazine predicted that Thailand would become the world's eighth largest economy by the year 2020.
In the midst of a regional environment of rapid economic growth, Thailand along with other East Asian economies liberalised her trade, investment, and financial regimes. The economic potentials of Thailand served as a strong magnet that drew in huge flows of foreign capital. Such flows led to the rapid expansion of the financial, capital, and property markets in Thailand. The resulting wealth effects led to spending and investment that were not always prudent. There was careless lending and even more reckless borrowing. We realised that such a situation could lead to a bubble economy and had to be rectified speedily. However, mismanagement occurred, especially in using our reserves in a futile attempt to defend our currency and in using public money to rescue unviable finance companies.
In a globalised world, such mismanagement is quickly disciplined by the markets. At the same time, because of the linkages and similar problems in other economies in the region, the crisis spread rapidly. In just over half a year, the region's stock markets and currencies have plummeted. Indeed, since the beginning of the crisis in July, the Indonesian Rupiah lost over 80 per cent of its value, the Thai Baht 52 percent, and the Korean Won 47 per cent.
Given the so-called "contagion effect" and the severity of the problems, the international community cannot afford to be complacent. In this globalised era, no country can completely avoid being affected by what happens halfway around the world. International repercussions are inevitable, given that East Asia now accounts for around one-third of the world's GDP and trade. Nearly thirty per cent of U.S. exports goes to East Asia, while the figure for the European Union is almost ten percent.
Major economies must recognise that their conduct of macroeconomic policies will inevitably have an impact upon other countries as well as the global economy as a whole. The maintenance of currency stability in China is a crucial factor in sustaining stability of other currencies in Asia. The effective stimulation of Japan's domestic economy will provide an engine for recovery in the region as a whole. Continued and expanded market access to Europe and North America will be equally important. These issues should receive prompt attention by the major industrialised economies, in particular from the G-7 countries, working in concert with other large economies such as China.
If countries in other regions remain aloof or pursue policies that further deteriorate the situation in Asia, we shall face not only recession on a global scale, but will raise fundamental questions about the value of economic liberalisation which we all desire. This would be deeply regrettable. Liberalisation, I believe, is the right approach, is consistent with changes that are shaping our world, and is in the common interest of all. Indeed, I am pleased that President Clinton, in his recent State of the Union Address, recognised these points and underlined the security dimension of the issue. In the medium and long terms, we should collectively think of how we can strengthen the international financial and monetary system in order to prevent a similar crisis from arising and spreading in the future. We must be able to cope with the volatility of capital flows in today's world. The advent of the Euro will be another important factor that would have to be taken into account, particularly given its potential to affect the international payments system.
Leaders in many regions of the world have come to recognise the imperative to act and initiatives have been taken, such as the Manila Framework agreed by the Asia and Pacific Finance Deputies and endorsed by the APEC Leaders in Vancouver. I am confident that at the Asia-Europe Summit in London this April, similar attention will be given to the financial crisis in Asia, with a view to establishing an early-warning system, collective surveillance of monetary systems as well as measures to strengthen the IMF's capacity to respond to financial crises.
In addition, developed economies must fully recognise the differences in levels of development and preparedness among developing economies and should stand ready to provide technology, expertise, and experience in order that all countries can respond effectively to the imperatives of liberalisation and globalisation. Notwithstanding co-operative endeavours at the regional and international levels, affected economies must address their own problems by relying on their own efforts. They must improve their economic policies and make their environment more conducive to the strengthening of their economic systems, both in the short and long term. In Thailand's case, the Government and the IMF have been working closely together and have agreed upon the need to strengthen our fiscal and monetary discipline as well as tough and decisive actions to restructure our financial institutions. This we have already done when we closed more than half of our finance companies and we will continue to strengthen our commercial banking system. We have also been able to meet all the targets set and, in some cases, have even exceeded them. These reforms, however, entail a painful adjustment process and, in the short term, will also affect our rate of economic growth. As these reforms may also have social impacts, the Government has worked with the World Bank and the Asian Development Bank to strengthen our existing social safety net that has long relied upon the cushion provided by our traditional extended family networks and the absorptive capacity of our rural agricultural sector. It is also crucial for us to display our firm commitment and determination to undertake such reforms. Equally importantly, I believe we must also use this opportunity to push through other economic and social reforms, in addition to those already addressed under the framework of the IMF.
Indeed, the importance of good governance must be recognised. Disclosure of information to the public must be carried out efficiently and transparently. Both the public and private sectors must undertake policies and measures that are consistent with and support one another. Bureaucratic reform and the judicial system must be strengthened to make them more efficient and effective. All of the above are indispensable if we are to strengthen our institutions so that they can cope with global changes. Everything, from accounting practices to the supervision and regulation of financial institutions must be done according to international standards. Increased competition through liberalisation must also be allowed to continue. These reforms will, however, only succeed if the people understand their importance and co-operate. And this is possible only through good governance on the basis of democratic principles. Governments must be ready and willing to provide the public with facts. They must also be ready to urge their people to share part of the pain so as to achieve a better future.
Reform, rejuvenation and recovery will take time to complete. Confidence first of all needs to be restored. This is the crux of the problem. But I see no reason why the countries of East Asia cannot surmount the obstacles. Similar reform policies have been pursued in the past to reinforce our comparative advantages, and to address our deficiencies. The fundamentals that underpinned our growth are still there. The severity of this economic crisis is unprecedented. It cannot be resolved overnight. We have to accept reality and work hard, and go through a painful process of structural adjustment. But as the track record shows, the peoples of East Asia are fast learners, and we are pragmatic. With determination and perseverance, and with support of our friends, we can remake ourselves to meet the challenges of this fast-changing world. I firmly believe that in not too long a time, East Asia will resume its place as one of the engines of world growth. We shall endeavour to remain a strong partner in prosperity into the 21st century for Europe, North America and other regions of our global community. Thank you. End.