Thailand; economy is poised for recovery in 1987 – Business outlook abroad; current reports from The Foreign Service

THAILAND Economy Is Poised For Recovery in 1987 After a four-year period of relatively sluggish growth, Thailand’s economy is poised for a recovery in 1987. The new administration of the Royal Thai government, elected in July, is calling for greater emphasis on free trade and a more substantial role for the private sector, including in certain sectors now controlled by state enterprises.

In 1985 Thailand’s GDP growth rate dropped to less than 4 percent, the lowest level in 20 years (but still the highest of any country of the Association of Southeast Asian Nations). However, the recession began to reverse during the first six months of 1986. If world economic conditions continue favorable to Thailand, a gradual reacceleration of GDP growth to 4.5 percent in 1986 and 5 percent in 1987 is possible. Domestic demand, especially private fixed investment, fell 10 percent in 1985, but is expected to rise by 5 percent in 1986 and 8 percent in 1987.

Several external and internal factors have combined in recent months to set the Thai economy on the way to recovery. The fall of the U.S. dollar against the yen, deutschmark, and pound sterling continues. The baht strengthened against the dollar, which helped as Thailand’s foreign debt is largely in dollars. Thai government fiscal measures stimulated the economy. The Thai government cut personal and corporate income taxes effective Feb. 1, 1986. It also lowered the price of gasoline and diesel fuel, cut electricity rates, and set up an Investment Development Fund from sales of certain equity holdings in state enterprises. This fund will be used for joint ventures with the private sector in some major industrial projects. These extraordinary pump-priming measures have put more cash into the hands of consumers and businesses.

Thailand’s export performance has exceeded expectations. In the first six months of 1986, exports ran some 15.4 percent ahead of the same period in 1985. They will finish the year at least 10 percent higher than in 1985. The rise in Thai manufactured goods exports clearly has offset weakening prices for exports of Thai agricultural commodities. The volume of commodity exports also rose, helping to offset weak prices.

Thai imports are expected to decline by as much as 5 percent in value in 1986, in large part due to the continuing fall in oil prices. The combination of the drop in import value and the rise in the dollar value of exports will reduce Thailand’s trade deficit from 41.6 billion baht (about $1.6 billion) in 1985 to perhaps only 20 million baht (about $780 million) in 1986.

Much depends on continuation of the significant external stimuli described above. Sharp turnarounds in any of them, or a drift into recessionary conditions by the industrialized countries, particularly in the United States, could retard or reverse progress.

The Thai government has actively embarked on an intensive campaign to attract foreign investment, particularly in agro-industries, aquaculture, manufacturing of light industrial goods and components, and processing of mineral resources, including oil and natural gas.

There are many state enterprises, but with few exceptions (notably tobacco, beer, and liquor) there is no bar to private business competition with these state enterprises. This situation exists, among others, in petroleum exploration, refining, and marketing; in the manufacture and sale of pharmaceutical products; in fisheries; and ceramics and glassmaking. Foreign competition is not, however, permitted in growing of crops, domestic aviation, and ownership of real estate.

With no political or cultural barriers to U.S. goods and a market showing a strong preference for high-quality imported consumer products and capital equipment, opportunities for sales of U.S. products should expand, now that American products are more competitive pricewise with European and Japanese exports.

With few exceptions (i.e., cigarettes and tinned bakery products), there are no import barriers for U.S. goods. However, duty levels are comparatively high–an average of 35 percent or more–because of the Thai government’s dependence on customs revenues for about a third of the country’s tax income. This dependency shows no sign of lessening, as Thailand still is a nation fundamentally made up of small farmers who account for about 90 percent of the nation’s 50 million population. Consequently, the tax base is comparatively shallow. Although corporate taxes compare favorably with those in the United States, personal income taxes are much higher.

The following equipment and machinery, classified by industry sectors, currently are considered to be the most salable in Thailand.

* Food processing and packaging equipment, including equipment for the following subsectors: fish and seafood, fats and oils, fruits and vegetables, beverages, dairy products, meat, baked goods, confectionary, grain milling, sugar milling, packaging, and quick-freezing.

* Computers and peripherals, especially Thai-language software.

* Medical equipment and supplies, particularly diagnostic equipment, electrocardiographs, operating room equipment, X-ray equipment, prosthetics, and dental and ophthalmic equipment.

* Defense and law enforcement equipment, including helicopter maintenance facilities, airport lighting, radar equipment, and ammunition loading and assembling plants.

* Pollution control equipment, such as electrostatic precipitators, demineralizing and ion exchange equipment, chlorinators, aerators, and centrifuges.

* Avionics and ground support equipment, such as flight navigation equipment, radar systems, aeronautical radio communication systems, and instrument landing systems.

* Telecommunications equipment, including data communication equipment, mobile cellular telephone equipment, satellite earth stations, telex machines, and radio and television broadcasting equipment.

* Engineering and contracting services.

* Oil and gas field equipment, especially rotary drilling bits, other drilling and boring machinery, trucks mounted with derrick assembly and drilling equipment, geophysical apparatus and parts, oil-well drill pipe and casing, and oil and gas field wire line or downhole equipment and parts.

U.S. firms new to the Thai market should appoint qualified agents/distributors in Thailand to handle their products. For this purpose the Agent-Distributor Service (ADS) of the U.S. Department of Commerce is recommended. The staff of US&FCS Bangkok is available to assist American businesspeople not only in contacting sales representatives, but also in making direct contacts with Thai companies.

COPYRIGHT 1986 U.S. Government Printing Office

COPYRIGHT 2004 Gale Group

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