Conclusions

The recovery from the 1997 crisis left Thailand more dependent than ever on exports as the main growth engine, with the ratio of exports to GDP increasing from a precrisis level of about 38% to about 65% recently. The lessons learned from the 1997 crisis led to a more risk-averse financial system, and this helped Thailand avoid the direct impacts of the subprime crisis. Being highly dependent on exports, however, Thailand, along with other export oriented East Asian economies, is now greatly affected by the indirect impact of the subprime crisis on exports. Both exports and GDP fell over the past two quarters.

The Thai government has been using fiscal stimulus and monetary easing measures to try to shore up the economy. These measures are mostly short-term in nature, and if the subprime crisis is protracted, then the sustainability of the fiscal stimulus will be called into question. In the medium- to long-term, Thailand needs to move to a more balanced growth path, one less dependent on exports (although exports will still be important) and more on other, domestic sources of growth. The paper suggests a number of key strategies that could help Thailand achieve a more balanced and sustainable growth path. The main strategies include 1) a focus on increasing total factor productivity, 2) further deepening the production structure of the economy, and 3) reducing dependence on imported energy. In addition, improving the country's highly skewed income distribution will also help to increase domestic consumption demand.

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