BANGKOK -- At a time when the currencies of emerging economies are being squeezed hard, the Thai economy, Southeast Asia's second largest, is showing encouraging resilience. But being able to absorb shocks is not the same as achieving the growth the government so desperately wants. The hurdles littering the path to expansion are numerous -- from an aging society to a lack of engineers -- making for a decidedly downbeat outlook.
The Fed effect
While the dollar's upswing in the wake of the U.S. presidential election has battered the currencies of such countries as Malaysia and Indonesia, the Thai baht has remained largely stable, helping the country avoid the massive hemorrhage of capital that some of its regional neighbors are grappling with.
The Thai stock market has also shown considerable resilience, rebounding from the plunge triggered by the death of former King Bhumibol.
These bright spots have a growing number of economists there reasserting their confidence in the economy.
On Dec. 14, shortly before the expected interest rate hike by the U.S. Federal Reserve, the English-language Bangkok Post reported that the Thai central bank chief was not especially concerned about the possible impact of a rate boost on the baht.
"The capital outflows will not be large because foreign holdings of Thai bonds is around 7-8% [of outstanding bonds ]," Bank of Thailand Gov. Veerathai Santiprabhob was quoted as saying in the report. "We're different from Malaysia and Indonesia, where foreign holdings of bonds stands at 34% and 30%, respectively. Both countries' capital outflows are more sensitive than Thailand's."
Veerathai also mentioned Thailand's sizable current-account surplus.
Not everyone was as sanguine as the banking chief; some were worried that the Fed's move might send the baht crashing. They no doubt were remembering the 1997 Asian financial crisis, which started in Thailand when a hefty flight of foreign funds caused the currency to collapse.
As such, most economists were predicating that monetary policy tightening by the Fed would trigger a new round of capital outflows from emerging countries, with some warning about a possible replay of 1997. The currencies of Mexico, Turkey and Malaysia have indeed plunged against the dollar, forcing those governments to take steps to keep assets from escaping to greener pastures.
The Thai central bank chief was taking pains to stress that the country's economy was on a more solid footing. Despite his reassurances, however, Thailand lost significant amounts of foreign funds in November and December.
After five straight months of net purchases through September, foreign investors sold 18 billion baht ($505 million) more in Thai stocks than they bought in October, when the king died. The following month, when Donald Trump won the U.S. presidential vote, their net sales swelled to 36.9 billion baht.
But as Veerathai predicted, the baht did not slide as much as the Malaysian ringgit or the Indonesian rupiah.
"Strong enough buffer"
Another positive is that Thailand has continued to run a monthly current-account surplus of around $3 billion. It appears as though the country will log a record current-account surplus of around $45 billion for all of 2016, in what would be the second straight record high. That figure is equivalent to more than 10% of Thailand's nominal gross domestic product.
The central banker said the Thai economy has changed since 1997, when the country was beset by chronic current-account deficits. "Even if there are some capital outflows, we have a strong enough buffer, which reduces the volatility of capital mobility and the baht," Veerathai said.
In December, foreign investors began to return to the Thai stock market, with their net purchases totaling a modest 452 million baht.
Thailand's current-account structure has improved dramatically in the past two decades thanks to the development of the domestic automotive and electronics industries. The remarkable growth of the country's auto industry was mainly driven by a big push among Japanese manufacturers to expand operations there.
Among the Southeast Asian countries slammed by the Asian financial crisis, Thailand has the most sound economy, said Teppei Ino, an analyst at the Singapore branch of Bank of Tokyo-Mitsubishi UFJ.
But that does not mean Thailand is in the clear. Its growth has been decelerating amid fiercer competition from lower-cost emerging nations, putting it at risk of falling into the "middle-income trap," in which an emerging economy begins slowing before it can reach the developed stage.
Thailand's GDP is estimated to have grown at a modest rate of around 3.2% in 2016, which would translate to the slowest expansion among major Southeast Asian emerging nations for the fourth year in a row.
In trying to shore up the economy, the government has adopted the slogan "Thailand 4.0," a twist on "Industry 4.0," which refers to a confluence of industrial innovations driven by cutting-edge digital technology.
Thai Prime Minister Prayut Chan-ocha has been stressing the importance of technological innovation for the country's economic future, and the government has taken policy measures to promote corporate research and development and automation powered by digital technologies and systems like the internet of things.
The government has also adopted the ambitious goal of becoming a developed nation by 2036 by more than doubling per capita gross national income to $13,000. It aims to achieve that by upgrading existing industries and inviting new investment by foreign high-tech companies.
Attaining that goal, which will be included in the new 20-year growth strategy to be mapped out as early as 2017, would require logging average annual growth of about 5%. To help get there, the government aims to take advantage of the planned Eastern Economic Corridor, a new industrial hub to be developed east of Bangkok.
Race against the clock
These growth plans come with a sense of urgency. With the population starting to age, the pressure to climb the technological ladder before it is too late is increasing.
Thailand's working population, which covers people ages 15-65, peaked in 2016 and will start shrinking in 2017, according to an estimate by the United Nations. The overall population will also begin to contract in 2024. The economic implications of the demographic arithmetic are alarming, putting strong pressure on the country to make its industries more sophisticated and efficient.
But despite all the government's catchy slogans and ambitious goals, many economists remain bearish about the country's economic prospects.
The biggest problem, they say, is a shortage of engineers and technologists to help revamp the country's industrial structure. Students in Thailand greatly lag their counterparts in Singapore, and even Vietnam, in academic performance.
Somchai Jitsuchon, research director for inclusive development at the Thailand Development Research Institute, recently told the Bangkok Post that Thailand is not well-equipped to pursue a vision of a high-tech future like Thailand 4.0. "We need to rethink whether Thailand 4.0 is a model that matches what we have now," he was quoted as saying.
2017 is likely to prove a major turning point for Thailand, not least of all because a general election to return the country to civilian rule after three-and-a-half years under a military junta may happen late this year.
The military government will have to tackle a raft of tough economic policy challenges, most notably how to boost consumer spending, if it wants to hand its civilian successor an economy with a brighter future.