thailand 10 years after the crisis: beyond finance, the exhaustion of a low-productivity growth...
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Thailand 10 years after the crisis: Beyond finance, the exhaustion of a
low-productivity growth regime?
Bruno Jetin, Research Institute for Development (IRD, France) and Center
for Education and Labour Studies (CELS, Chiang Mai University, Thailand).
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Since the crisis, ASEAN countries have entered a period of slow growth.
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INVESTMENT HAS NOT RECOVERED
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A GROWTH PULLED BY EXPORTS
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Thailand is no exception
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Even if private investment in equipment has slowly improved.
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Has Thailand entered a new period of slow-growth?
Source: R. P. Mallikamas, D. Rodpengsangkaha, Y. Thaicharoen (2003, p 3).
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Analysing structural change
• Finance is powerful. But finance does not create value. The financial sphere is more autonomous, but not independant from the productive sphere.
• Understanding structural change in the productive sphere and in society is necessary to better understand the power of finance.
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Employment: Agriculture is no more dominant.
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Formal and informal labour income are on a par.
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The labour income share is decreasing in favour of the capital income share
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The rate of accumulation of capital was decreasing since 1990 and profit started to decrease in 1996.
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Capital productivity was decreasing since 1989 and fell in 1995-1996.
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Unit labour cost is rising
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And competitiveness is eroding
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Conclusion regarding the production sphere
• The slow productivity-growth regime is not sustainable.
• Wage repression is not enough to restore competitiveness.
• Thailand must go beyond the assembly stage but how without industrial policy and protectionism?
• Incentive is not enough: Automobile versus electronics.
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The surplus in manufactured products: Structural?
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The financial sphere: back to 1997?
• Finance makes thing worse. Capital inflows and the present speculation on the baht is aggravating the decline in competitiveness due to rising unit labour cost.
• There are several common points between the present situation and the 1996-97 crisis.
• But there are also important differences.
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Mobility of capital is higher than ever
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And so is financial volatility
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Capital inflows are clearly speculative.
• At the Bangkok stock exchange (SET), foreign capital invest in banks, energy and real estate.
• They don’t invest a lot in manufacturing and agriculture.
• There is still room for the buble. Price-to-earning of 11-12 times in the SET is still cheap compared with the 15 times valuation in Singapore market and higher valuation in Indonesia.
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But there are also differences
• Former « crisis countries » have current account surpluses, not deficit. Forecast for 2007 are 11% in Malaysia, (9% in China), between 1 and 2% for Thailand, Indonesia and Korea (IMF, ADB).
• Central banks are not commited to defend a fixed peg.
• There is no downward pressure on forex but upward pressure.
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Asian governments have not drawned the good lessons
• Based on the fact that Asian savings were far more higher than capital outflows in 1997, they have decided to promote « Asian bond markets ». (see ABMF1 and ABMF2 managed by the ADB and BIS).
• The (good) idea is that Asian savings should stay in Asia as a shield against massive financial outflows.
• It is inspired by the European experience of regional integration.
• The project is flawed by the fact that there is no serious institutional and monetary integration.
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A project bound to fail
• No serious project of creating an « East-Asian monetary Unit » like the ECU before the euro, no serious project of creating an « East-Asian monetary system ».
• European experience shows that Financial integration without monetary integration is bound to fail.
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Conclusion
• Instead of a regional financial integration there will be a direct integration in global markets which are far more efficient and competitive.
• As a consequence, Asian countries will be even more exposed to the whim of financial markets.
• The project in fact is to operate a shift from a bank-based system to a market based system in Asia that better suit global finance.
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My proposal.
• Collective and coordinated capital controls at the regional level to support an « Asian monetary System ».
• This « Asian monetary system » would manage the float of an « Asian Currency Unit » (ACU). Band of fluctuations protected by Currency transaction tax and other capital controls.
• Governments could raise bonds denominated in « ACU » to finance long-term investment in infrastructure.