Written Modestly by John Irvin                           No. 15                                                  June 1, 1998

The Thai Economy

        Welcome back to my series of newsletters about Thailand. It’s been more than a year since I started writing these letters, and since then the economy has changed a great deal. I’ll try to explain how this has affected me and the people around me.

        I came here in March of 1996. For a year, the economy was stable, prices didn’t change, and the general state of wealth, or poorness, didn’t change much. Then, the economy went into a real downslide starting around last July. It has affected people’s lives everywhere. Prices have risen, white collar people have lost their jobs, and poorer Thais have had to struggle even harder to make ends meet. Within the foreign community, people are losing confidence. Their jobs are less secure, and their earnings are worth only about half of what they were before. There is a lot of talk about quitting and leaving Thailand.

        What caused the downturn? There are underlying causes, but the real downslide started in July of last year when the Thai government floated the baht. This is a little complicated to explain, but the result is easy to see. Before that date, the rate of exchange was always 25 baht to one U.S. dollar, or 4 cents per baht. The Thai government guaranteed it. It was kind of convenient: year after year, a tourist or a businessperson could come to Thailand and know that one baht would equal four cents, ten baht, forty cents; one hundred baht, four dollars; one thousand baht, forty dollars. A beer or a taxi ride or a hotel rate could always be pegged to its dollar equivalent, and these prices remained fairly stable. It made things kind of easy once you learned the value of things.

        But when the baht was set free in the marketplace, the value immediately began to decline. It went up to 30 to the dollar, then 40, and by January (6 months after the float) it was almost at 60. This caused an increase in the prices of imports, and fuel, which eventually affected prices of domestic goods as well.

        Since then, the baht seems to have recovered a little bit at around 40 or so, but the damage has already been done. Most people predict that the Thai economy will take a while longer to get back on track. Many Thais have lost money in stocks, and there has been a lot of downward pressure on the real estate market as overextended investors grope desperately for some collateral to protect their money. Wealthy and neuvo-riche Thais are being forced to dump their Mercedes Benzes and other lifestyle accessories in order to meet the payments on more important items.

        One group of people that has been hit hard has been the managers and highly paid corporate workers. A lot of these people had gotten used to a comfortable lifestyle over the past few years, and now they may be cut from their jobs because their companies need to save money. These people may have to take a step down or two in the social order. I know at least one executive who has lost his job.

        Poorer Thais have never had it easy, so for them now everything is just a little more difficult than before. They have to buy food and basic necessities, and most of these haven’t increased too much in price. But these people don’t have a big margin for increases, so even a small rise in price is hard on them. And in Thailand, the percentage of people living in rural areas or doing unskilled jobs is much higher than in the United States, a great number of people are going to be in this category.

        Another group of people, which I am very familiar with, are the students. Many of them would like to further their studies overseas, the U.S., England, and so on. But with the fall of the baht, the savings of their families has effectively been cut in half. This is really devastating for them. Many Thai students (and teachers, who want to go to graduate school) have told me that they wanted to study abroad but now they can't go because it has suddenly become too expensive. So they will have to stay in Thailand, and try to find a graduate school or a job here.

        Prices have gone up, slowly, for many things over the last year. Fuel has gone up from about 9 baht to 13 baht per liter (about $1.20 per gallon). It used to cost me about 20 baht to fill my motorbike, now it costs 35 baht. Imports, such as computers, cars, and imported food, have all gone up, but they haven’t necessarily gone up in the exact ratio that the baht has fallen. That tells me that somewhere along the line, in Thailand, somebody is absorbing some of the loss. It may be the retailers, or it may be suppliers, but I figure they know that if they raised their prices too much, people simply wouldn’t be able to buy, and they wouldn’t sell anything.

        Other items, particularly those made in Thailand, have not really increased very much. I can still get a bowl of noodles or fried rice for about 20 baht, the same price it was last year. Rents have generally not gone up, nor have services like haircutting, tailoring or laundry. I guess they know that if they raised their prices people wouldn’t be able to afford it.

        Foreigners here are facing a tough choice. Either they must stay in Thailand and suffer a loss in earnings, or they must leave. Many of these people have families and other ties to Thailand, and they don’t want to leave. If they are planning to spend a long time in Thailand, then probably the best thing is to wait out the storm. But for those who are thinking of living elsewhere someday, where having real savings matters, then it seems like now is the time to leave.

        This situation has had a curious effect on the job market for foreign English teachers. There are a few less positions than before, but so many people are quitting and leaving the country that there are lots of job openings for those who want to stay. The pay is about the same as it was before, but remember that it’s worth less when you take it out of the country.

        As for the long term future of the country, I can only say that it’s probably going to be a long slow road back to recovery. Thailand experienced a boom, a period of rapid growth and expansion, during the 1980s and 1990s, but not everyone shared in this prosperity. A lot of people were still on the bottom, scraping to get by. A lot of money was misused, invested poorly or pocketed by corrupt politicians and businesspeople. Until the society can be constructed in such a way that everyone shares in the economy, corruption is minimized, and wastefulness is curbed, the country won’t have a truly healthy economy.
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Next Issue: A closer look at the Thai approach to business and service.

© Copyright 1998, John Irvin

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