A return to export-led growth, muddling ahead, and instant amnesia?

29 June 1999

As we approach the second anniversary of The Float on 2 July, the world’s pundits are looking again at Thailand. A year ago, they were falling over one another to pronounce the Asian economies dead and buried. Now they are sifting through the ashes, looking for a phoenix or two. All that neo-colonial triumphalism was very satisfying for a short time. But making money out of miracles is better in the long run. So the world’s pundits are asking: Is it over? What happens next? Will Thailand boom again?

Most of the pundits are still fixated by finance. Hence their answers are mixed. The currency looks okay, and the banks are settling. But balance sheets are still blasted. The stock index is wobbly. And the NPLs refuse to be talked down. But maybe the pundits are looking with only one eye open.

Don’t forget exports. In a recent Far Eastern Economic Review, Jagdish Bhagwati issued this reminder. We can sweat over financial packages, huff and puff about corporate restructuring, and get over-excited about blips on the stockmarket. But "the export-orientation engine was the defining, dominant explanation" of Asian growth, Bhagwati reminds us. And exports, he believes, can still deliver Asian growth in the future.

Right on cue, the monthly figures for Thai exports in April rose 2.5 percent (in US$), the first year-on-year rise in fifteen months. Preliminary figures for May rose by 6.4 percent. Imports shifted up too, and both the finance minister and the shippers claim that the rise is due more to industrial inputs and raw materials, than to luxury cars and fancy alcohol. So was that it? Was that the crucial moment when we passed the sign saying "bottom" and began climbing up out of the pit? Can Thailand go back to export growth as Bhagwati claims? Is this what the pundits are looking for?

Not everyone agrees. The pessimists say the world has changed and Thailand’s old route of export growth is no longer there. The old way depended on two things – a general trend of growth in Asia (especially Japan), and cheap labour costs. The pessimists argue that Asia is now sluggish, over-supplied, and hyper-competitive; while Thailand has lost its earlier competitive advantages.

Maybe. But what do the export figures from the last few years tell us?

First, they show that Asian markets have been sluggish but this looks to be changing. Between 1995 and 1998, Thailand’s exports to Japan and to ASEAN fell by around a fifth. But the drop has levelled out. The renewed growth in Thai exports this year is mostly to Asia. And other Asian countries are experiencing the same upward lift in trade.

Next, the figures show that over the last three years, Thailand’s total exports have shown no growth. But this total picture is deceptive. The stagnation has not been universal. Some products have done awfully. Others have done rather well.

What are the successes? Not agricultural goods and resource-based industries (seafood, fruit) where Thailand might have some "natural" competitive advantage. Their exports fell between 1995 and 1998 (by 21 and 12 percent in US dollars) mainly as a result of low international prices.

Not traditional labour-intensive industries like textiles, garments, shoes, toys and artificial flowers. These have all fallen dramatically. Their total exports last year were 30 percent down on 1995.

The export growth has all come in technology-based products such as computer parts (up 40 percent in US$ between 1995 and 1998), telecommunication equipment (up 23 percent), heavy electrical equipment (up 24 percent), optical goods (up 26 percent), and chemicals (up 40 percent). The star has been automobiles and parts. Their exports have doubled. Nor are these just rises from a small base. Together this last list of products accounts for a third of all Thai exports. Taking all "medium-tech" products together, they grew by 13 percent over the last three years and now account for 45 percent of all Thai exports.

Of course these recent growth rates are modest compared to the go-go numbers of the boom years. But the point is this. There has been a clear pattern in Thai exports since the late 1980s (see chart). The shares of agriculture and of labour-intensive industries have been falling steadily. The share of medium-tech manufactures has been rising steadily. The crisis has not changed this pattern one bit. The growth in the share of medium-tech manufactures is almost a straight line. In the first quarter of 1999, this share has edged up by another percentage point.

Over the last couple of years, there have been several expensive studies on Thailand’s export competitiveness. But the export performance figures themselves are quite eloquent. If Thailand has an export future, it lies with electronics, electrical, automotive and the like.

The problem is that these industries use a lot of imported inputs – up to 90 percent in some cases, but more like 60-70 percent overall. The value which Thailand adds, and the profit which Thailand gets, is relatively small. This could be improved by developing more local suppliers. The experience of Korea and Taiwan is that such development requires some government help. Disk-drive manufacturers have already suggested several schemes to government. Japan’s MITI has been pushing the Ministry of Industry for the last three years to launch support schemes for electronics, automotive and other sectors. The Ministry’s response has been positive, but the progress is slow.

In sum, there are faint signs of life in the old export machine which has been the driver of Thailand’s economic growth for as long as anyone can remember. The pick-up may not be rocket-propelled, but it probably will come. There are signs too that Thai economic policy-makers will stride into this new era with the same sense of hard-headed resolution they have shown in the past. In other words, back to muddling through.

The big risk is that the prospect of growth will cause instant amnesia. Over recent months there have been lots of commitments and promises about reviving agriculture, promoting rural industries, restructuring the tax system, reforming the bureaucracy (really), providing proper social welfare, punishing financial criminals, getting the military out of business, helping small and medium enterprises, rooting out corruption, and lots more besides. Will a couple of months of export growth, and a few more notches on the stockmarket index, wipe these memory cells clean?