Economy of Thailand - Historical Background - Post-1945 - 1955-1985

1955-1985

However, in 1955, Thailand began to see a huge change in its economy. Domestic as well as international politics played a very important role in this. By 1955, the internal power struggle between the two (main) factions of the Phibul regime - led by Police General Phao Sriyanonda, on the one hand, and General (later, Field Marshal) Srisdi Dhanarajata, on the other - became fierce to the degree that Police General Phao Sriyanonda sought the U.S. support for a coup against the Phibul regime (but was rejected). As a result, Field Marshal Luang Phibulsongkram decided to play a democratic game by trying to democratize his own regime, part of which was to seek popular support by developing national economy. To achieve this, once again, he turned to the U.S. support, asking the U.S. to emphasize on economic rather than military aid. The U.S. responded by giving an unprecedented degree of economic aid to the Kingdom from 1955 to 1959. In addition to this, the Phibulsongkram Government also made some important changes in the country's fiscal and monetary policies. One of these was the cancelation of the multiple exchange rate system and the introduction of the fixed & unified exchange rate system, the system which had been used in the Kingdom until 1984. In the late Phibul period, however, the Phibulsongkram Government decided to neutralize trade and conducted secret diplomacy with the People's Republic of China - dissatisfying the United States.

Albeit his several attempts to preserve his power, Field Marshal Luang Phibulsongkram could not protect his prime ministership. On 16 September 1957, a coup group led by Field Marshal Srisdi Dhanarajata successfully organized a 2500 military coup ousting Field Marshal Luang Phibulsongkram, Field Marshal Phin Choonhavan and Police General Phao Sriyanonda (the Phibul-Phin-Phao clique) from power. In terms of economic development, the Srisdi regime did not only continue what the Phibul regime had done since 1955, but it also significantly intensified this development with full support from the U.S. due to the regime's decision to cut all ties with the People's Republic of China and its full support for the U.S. operation in Indochina. The Srisdi regime, in power from 1957 to 1973, had developed a great deal of the country's infrastructure and privatized state enterprises which were unrelated to the country's infrastructure. In this period, a number of key official economic institutions were established - such as the Bureau of Budget, the Office of the National Economic and Social Development Board (NESDB) and the Board of Investment of Thailand (BOI). The use of the National Economic and Social Development Plan was also initiated in 1961. Most important to the Thai economy in this period might be that the regime introduced the market-oriented Import-Substituting Industrialization (ISI) which led to steady and rapid economic expansion in the Kingdom in the 1960s. According to former President Richard M. Nixon's article, published in Foreign Affairs in 1967, Thailand had entered a period of rapid growth in 1958 with an averaged growth rate of 7 percent a year since then.

From the 1970s to 1984, however, Thailand had suffered from many economic problems - ranging from decreasing American investment, current account deficit, a sudden rise in oil price to inflation. Even worse, domestic politics was unstable. In addition to this, international politics rendered an unfriendly environment to the Kingdom. With the Vietnamese Occupation of Democratic Kampuchea (Cambodia) on 25 December 1978, Thailand at once became the "real" front line state in fighting against communism, as the Kingdom was surrounded by three unfriendly, communist Indochinese countries and a socialist Burma under General Ne Win. The succeeding Governments tried to solve the economic problems by implementing several measures, some of which (e.g. promoting export and tourism ) have become crucially important for the Thai economy until today.

One of the most significant (and the most remembered) measures to deal with the confronting economic problems at that time came under General Prem Tinsulanonda's Government(s) - in power from 1980 to 1988. Between 1981 and 1984, the Thai Governments decided to devalue the national currency, the Thai Baht (THB), three times. First, on 12 May 1981, the Government devalued the Baht by 1.07 percent, from THB20.775/USD to THB21/USD. Second, on 15 July 1981, it devalued the Baht again by 8.7 percent, from THB21/USD to THB23/USD. However, most significant is the third devaluation. On 2 November 1987, the Thai Government decided to devalue the Baht by 15 percent, from THB23/USD to THB27/USD. In addition to this, the Government decided to replace the country's fixed exchange rate (with the U.S. Dollar) system with the so-called "multiple currency basket peg system" (in which the U.S. Dollar shared 80 percent of the overall weight, anyway). Calculated from the IMF's World Economic Outlook Database, in the period of 1980-1984, the Thai economy had an averaged GDP growth rate of 5.4 percent.