Impact of the 1997 crisis

Until the financial and economic crisis hit the country in July 1997, Thailand posted an impressive record of sustained economic growth for more than two decades. Sustained growth hitting an average of 8 percent annually in the early ‘90s was principally responsible for the substantial reduction in poverty incidence from 32.6 percent in 1988 to 11.4 percent in 1996. The phenomenon of sustained growth whose benefits trickled down to the poor somehow masked the disparities that still underlie Thai society. While the rich and the poor both gained form economic growth, the former gained more, thereby worsening income inequalities. In the same vein, people living in Bangkok and other urban centres gained more than those in rural areas.

The economic and social crisis and its adverse human impact particularly on the vulnerable groups led to the realisation that those groups had been ignored for too long and that they need to be empowered to enable them to participate more actively as agents and beneficiaries of growth and development. Most vulnerable are those who live in remote rural communities that cannot benefit from the trickle-down effect of economic growth. The crisis also pushed policy makers to recognise the growing inequality in Thai society, as well as the need to restructure the financial system and the public sector to make it more robust, flexible and transparent.   

There was also recognition that in order to prevent further economic crises the government and the nation needed to adopt a longer term and more holistic vision of development. The new vision recognises that human development, good governance, environment and well-managed economic policy are all mutually inclusive and need to be addressed jointly in order to ensure long-term sustainable growth.


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After the crisis

Economic recovery after the crisis was initially impressive. After the economy contracted by more than 10% in 1998, real GDP grew by 4.2% in 1999 [1]. In 2000, however, the recovery began to show signs of faltering. It was expected that the economy would grow by around 5% in 2000, but actual growth was only 4.4% [2].  Moreover, the prospects for 2001 are, if anything, somewhat weaker. Public debt is still at a high level of 55% of GDP, which also worries analysts.

Overall, however, there has been a gradual improvement in the health of the economy in recent years, driven by strong exports and an accommodating fiscal policy. Tourism also continues to be an important element in promoting economic recovery, accounting for 5% of GDP in 2000 [3]. With approximately 9.5 million arrivals the number of visitors to Thailand during 2000 increased by 10.7% compared to the previous year, ranking the country 4th among the top destinations in Asia.[4]

However, it is feared that these positive factors have sheltered companies and banks that needed restructuring. Many of these companies were unable to start repaying interest on their debts when the two-year grace period on interest payments finished at the end of 2000. In the first nine months of that year more than 2,500 business entities closed down either permanently or temporarily [5]. This reflects the validity of concerns over the slow pace of financial and corporate restructuring.

Furthermore, whilst exports and private consumption growth are slowly pulling the country out of the recession, the agricultural sector continues to be in the doldrums, despite extensive government assistance.

Poverty and inequality continue to be a characteristic of Thai society. While the impressive growth rates of the early 1990s tended to reduce or transcend concerns about inequality, the crisis of 1997 underlined deep, regional, social and urban/rural divides. Although the incidence of poverty declined steadily in the two decades up to 1997, since the crisis there has been a reversal of this trend. The latest figures show that 15.9% of the population are living below the poverty line with the national average for 1999 being 886 Baht per person per month.[6]

All these economic factors underline the fact that it is vital for Thailand to adopt a long-term and sustainable solution to promote genuine economic recovery.


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Thailand’s response

The Thai Government introduced a strong set of policies to addresses the problems discussed above.  A “New Economic Package to Strengthen the Economic and Social Foundation for Long-term Sustainable Growth” was approved by the cabinet in October 2000 [7].

These measures include:  

  • Deferment of the pending increase in contribution rates to the social security fund.
  • Assistance to Farmers;
    • Additional 2,000 million Baht for the Fund for Farmers assistance.
    • Additional funds for the Bank of Agriculture and Agricultural Co-operatives
  • Additional 3,000 million Baht to the poverty alleviation project to be allocated to an additional 10,000 villages.
  • Tariffs to be reduced on products that are imported for use in export manufacturing.  Total number of reductions is 73 items with an estimated revenue loss of 2,000 million Baht.
  • Mutual Retirement Fund to encourage individuals to commit to long term savings to help promote long term investments. 
  • Lending and guarantee programme for Small and Medium Enterprises (SMEs).
  • Extension of scope of the SME Financial Advisory Centres (SFAC).

It also remains true that reform of the education system remains a key challenge for Thailand, if it is to respond to the competitive challenge of globalisation. This is widely acknowledged and the subject of the Education Reform Commission, which continues its work to implement the provisions called for under the 1999 National Education Act. 


[1] World Bank Economic Monitor for Thailand, December 2000.

[2] Economist Intelligence Unit Country Report for Thailand, 2000.

[3] Bank of Thailand, Press Release of Economic and Monetary Conditions January 2001,

[4] World Tourism Organisation News Bulletin, Madrid, January 2001.

[5] Ministry of Finance E-Thailand Monthly Economic Review December 2000:

[6] Socio-Economic survey, NSO (calculated by Development Evaluation Division of NESDB), 1999.

[7]Ministry of Finance press release No 98/2000, 31st October 2000;


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