Economic Background For Investment In Thailand Part 4

The Third Plan (1972-1976) : An Initiation of Social Development

In the last two years of the Second Plan. The demand for goods and services declined. This was primarily caused by the reduction of Thai exports of agricultural products and raw materials, and the US government’s cut in spending on military bases in Thailand. This eventually resulted in the first recession since the implementation of the First Economic Development Plan. After the Second Plan was evaluated, it was found that only a few people received benefit from the majority of its development projects, as distribution was unequal. There was considerable disparity in income distribution. Furthermore, social problems emerged as the population increased rapidly. The standard of living declined drastically. Public education and health were inadequate. There was also an unemployment problem due to the great increase in population.

In an effort to cope with these problems, the Third Plan emphasized economic growth and stability by restructuring social and economic development programs.

Economic growth was expected to be 7 percent per year, which was lower than during the Second Plan. Growth of all economic sectors, except for agricultural and banking, were expected to decline. The growth of the economy would come from promotion of exports, promotion of foreign investment in Thailand for large scale

Manufacturing and promotion of industries that were labor intensive and used raw materials from Thailand. And also the promotion from Thailand, and also the promotion of tourism. The exports were aimed to expand at a rate of 7 percent per year, Imports were expected to increase by 2.8 percent per year.

The Third Plan also emphasized maintaining monetary and financial stabilization.

The government expenditure was planned to increase by 7.5 percent year, The government expenditure was planned to increase by 7.5 percent year, in order to be consistent with the increase in GDP. For the monetary policy, the money supply was allowed to expand by 10 percent a year. The government budget for development was 100,275 million Bath.

The Third Plan focused more on social development than on economic development since public services were inadequate for people in urban and rural areas. The budget for education was set at 32.8 percent, transportation and communications at 19.2 percent and urban develop at 14.9 percent of the total development budget.

The development projects under this plan could not achieve their objectives because of political and economic fluctuations, both effecting development directly and indirectly. Domestically, there was political instability. Although the government had a large internal public administration, economic development work could not be carried out on a continual basis. Externally, the United States devalued the US dollar 7.89 percent and 10 percent in 1972 and 1973, respectively, Since Thailand usually set the exchange rate at 20.80 Baht per US dollar, the US devaluation caused the Baht exchange rate to appreciate. This resulted in Thailand exports shrinking and imports expanding. The Bath was devalued to reset the exchange rate back to the original rate.

Another unexpected situation affecting Thai economic development was the oil crisis from 1973 to 1974 and 1975 to 1976. These international crises adversely affected the stability of Thai economy. The increasing oil prices caused cost-push inflation: consequently, the rate of inflation was the highest it had ever been in Thai history. The consumer price index increased by less than 2-3 percent per year before the Third Plan, But rose to 10.8 percent during the Third Plan.