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Crisis, adjustment, and reform in Thailand's industrial firms (English)

New data on Thailand's industrial firms shed light on the origins of the East Asian financial crisis and on the response of the manufacturing sector to the structural adjustment program supported by the international financial institutions. Before the crisis, Thai firms had declining profitability, but they nevertheless maintained high levels of investment, often in domestically oriented areas (notably the auto sector). Thai firms financed these investments with short-term borrowing from financial institutions, which in turn borrowed short term on foreign markets. That only 40 percent of firms provided audited financial statements to their banks meant that the financial sector had poor information for assessing the true riskiness of these investments. The financial structure was thus vulnerable even to small shocks. How well did the adjustment program deal with the crisis? Thai firms had difficulty increasing their exports quickly because of investment in the wrong sectors, a decline in regional demand, and bottlenecks that included red tape and poor customs administration. Because of the poor export response, the brunt of adjustment had to come through compression of demand and of imports. In retrospect, the macroeconomic program which assumed quick export recovery was too tight.

Details

  • Author

    Dollar,David R., Hallward-Driemeler, Mary

  • Document Date

    2000/02/01

  • Document Type

    Journal Article

  • Report Number

    76641

  • Volume No

    1

  • Total Volume(s)

    1

  • Country

    Thailand,

  • Region

    East Asia and Pacific,

  • Disclosure Date

    2013/04/15

  • Disclosure Status

    Disclosed

  • Doc Name

    Crisis, adjustment, and reform in Thailand's industrial firms

  • Keywords

    high rates of investment;international division of labor;Massachusetts Institute of Technology;lender of last resort;real exchange rate appreciation;fluctuation in interest rates;access to capital;foreign currency liability;access to finance;cost of capital;tradable goods industry;current account deficit;foreign currency debt;tradable goods sectors;structural adjustment program;international financial architecture;international financial institution;fall in demand;foreign direct investment;availability of finance;lack of credit;amount of investment;basket of currency;Exchange rate policies;exchange rate policy;labor market issue;food processing industry;reduction in employment;demand for collateral;development research group;long-term productivity growth;net foreign liabilities;sources of innovation;number of workers;concerns about corruption;exchange rate risk;cost of debt;private capital flow;gross domestic product;domestic interest rate;international capital market;availability of credit;real estate investment;production and export;machinery and equipment;measure of investment;exchange rate parity;nominal exchange rate;exchange rate regime;direct foreign investment;increases in output;competitiveness of firms;international financial flows;international investment community;capacity utilization;domestic demand;debt-equity ratio;Exchange Rates;short-term financing;red tape;customs administration;capital stock;short-term debt;credit crunch;Financial Sector;exporting firms;high debt;short-term borrowing;foreign liability;food product;financial crisis;greater access;garment industry;long-term investment;financial system;short-term finance;manufacturing sector;heavy reliance;export growth;financial information;firm survey;long-term finance;financial structure;relative price;regional demand;monetary policy;local market;real devaluation;international competitiveness;foreign company;domestic credit;financial statement;financial reform;financial characteristic;adjustment process;output data;short-term loan;exogenous shock;foreign demand;electronics industry;international market;export orientation;firm size;quantitative data;survey respondent;export status;regional crisis;ample evidence;corporate sector;budget surplus;audited account;Austerity policies;bureaucratic bottlenecks;sample selection;macroeconomic stance;monetary shock;long-term liabilities;international creditors;corporate governance;world economy;exogenous changes;long-term financing;Equity Finance;macroeconomic context;long-term debt;private banking;macroeconomic variable;accounting standards;human dimension;regional recession;firing workers;foreign lender;medium-size enterprise;work force;factory visit;Bank Credit;export industry;primary source;prudential regulation;foreign capital;nontariff barrier;transparency rule;substantial variation;incentive regime;viable business;electronic component;small loan;short-term credit;input cost;increasing exports;bankruptcy proceeding;working capital;qualitative information;foreign export;regulatory discretion;foreign partner;local exporters;library system;research assistance;real investment;unsecured loan;bank debt;food processor;policy regime;international investor;total employment;smaller number;resource problem;technology acquisition;adjustment package;auto industry;increase growth;foreign exchange;foreign investor;domestic economy;textile industry;currency effect;debt position;net profit;offshore borrowing;asset bubble;survey data;Capital Inflows;external shock;deutsche mark;domestic asset;investment cycle;financial service;aggregate data;domestic development;implicit guarantee;real appreciation;productive investment;domestic production;foreign borrowing;unhedged position;domestic price;investment relative;domestic sale;stock market;commodity price;Macroeconomic Management;economic mismanagement;thai baht;investor confidence;foreign market;reform measure;Fiscal policies;fiscal policy;high financing;potential borrower

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Citation

Dollar,David R. Hallward-Driemeler, Mary

Crisis, adjustment, and reform in Thailand's industrial firms (English). Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/178021468116342471/Crisis-adjustment-and-reform-in-Thailands-industrial-firms