ONE PRODUCT (OTOP)
4.1 Problem Stream and the OTOP Policy
4.1.1 Event and Crises
The problem of economic security was the result of the capitalism system, which originated when Thailand entered the national development according to the liberalism economic development, as the Thai state during the cold war attempted to support the liberal countries under the leadership of the U.S.’s anti-communism campaign. This resulted in the Thai economic development direction according to the capitalism approach, under the discourse of development and modernization, through the development of basic facilities in responding to the industrial sector investment, with the agent who responded and publicize the ideal in Thailand as well as other third- world countries much in the same way which the elite served as the representative of the colonizer’s benefit. Thailand also became the place for the U.S. soldiers to relax.
The initiation of the first economic development plan during 1961-1966 happened under the guidance of the World Bank (Globalizer) and the Thai agent who used to be influenced by the neoclassicism economic concept. Such changes led Thailand to depend on the wisdom of American specialists and the World Bank officers, which result in the economic development in the liberalism direction. This manifested in the development of basic facilities in response to the investment in the industrial sector and elimination of various obstacles towards the foreign investment as well as lowering the regulation related to manufacturing, goods transportation, and finance as much as possible.
After the end of the cold war, the trend of global Neoliberalism which the U.S.
attempted to create the opportunity within the IMF and World Bank’s ruling of policy by advocating for the liberalization, de-regulation, and privatization also included the strong campaign from the United States, who threathened against the countries who opposed to the liberalization (Benlo, 1998, p. 81). During the 1980s, the real sector gradually started to influence the Thai economic, which the agricultural sector used to be the most important part. After the Plaza Accord agreement in 1985, the foreign direct investment (FDI) within the real sector had led the Thai GDP to grow swiftly. It could be said that the 1980s was the time when the real sector gradually gained the importance for Thai economy, especially the textile industry (Kasian Tejapira, 2006, pp. 10-12).
During the year 1968 to 1986, the Thai economy reached its golden period, when the Thai GNP was higher than all countries with low-to-medium income, with
the average GNP at 6.7% per year while other countries’ average GNP was only 2.4%
per year. Thailand became one of the fastest growing economy in the world (Warr, 2009, p. 151), with the GDP during 1957-1997 was average 7.6% per year (United Nations Development Programme, 2007). This was the result of the physical investment, including the machineries and industrial factories which were the major factor of supporting the economic growth (Warr, 2009, p. 151).
The financial sector in Thailand also gradually adjusted itself to the Neoliberalism policy, by taking the loan from the World Bank and IMF while accepting the condition that there must be the reengineering to support the financial liberalization during the middle of 1970s. Then Thailand gradually relaxed its financial regulation to respond to the Japanese investment under the Plaza Accord agreement. And during the early 1990s, Thailand accepted 8 commitment with IMF, resulted in the Thai Baht status as the currency which can be exchanged with freedom. This reflected that Thailand’s approach has always been responded to the financial Neoliberalism policy until the financial liberalization, which started with the permission to found the International Banking Facilities (IBF) in 1993. As the IBF was founded in Bangkok, it was also named Bangkok International Banking Facilities (BIBF). Later in 1994, the provincial branch was also permitted to operate under the name Provincial International Banking Facilities (PIBF) Bank of Thailand, 1998, p. 42).
The IBF refers to the international financial business which the state permit both the local and international commercial banks to operate as the source of capital as well as facilitate and reduce the cost of Thai business which requires the international loan.
The founding of IBF originated from the vision of the Bank of Thailand which aim for Thailand to be the financial center in this region, as well as the financial research center, and eventually develop into one-stop financial center. The IBF services include many service such as money deposit or international loan in foreign currency, local loan in foreign currency or in Thai currency, money exchange for non-baht currency, loan guarantee in foreign currency with person of foreign residency, financial transactions related to international trade, locating foreign loan or becoming the loan manager, financial and economy information service, investment project analysis or operation, business takeover or merger consultant, financial consultant, endorsing debtor with
foreign currency, and loan guarantee or endorsement of debt securities related to exporting in foreign currency, etc. (Bank of Thailand, 1998, p. 42).
The IBF received more tax privileges from the commercial banks, as they would pay less income tax, specific business tax, and the interest tax than the commercial bank and would be waive the revenue stamp. The Thai and Foreign commercial banks all registered for the permit to be the IBF, which total 47 banks received the permit. Among them included 15 Thai commercial banks, the branches of 12 foreign commercial banks in Thailand, and the 20 new foreign commercial banks (Sompop Manarungsan, 2003, pp. 133-134).
In other words, there was the push for the neoliberalism financial policy, which was supported by the globalizer such as wall street capital group, the international organization such as the World Bank and IMF, and the United States, resulted in Thailand’s confidence in the financial liberalization that it could lead Thailand to become the region’s financial center and the New Industrial Country (NICs). This corresponded to the strategy of the agent which formulate the national financial and economic policy, such as the Office of the National Economic and Social Development Council, and the Bank of Thailand, whose goal was the development of Thailand financial sector according to the Neoliberalism policy. Therefore, the state’s authority became lesser than the capital’s authority. The acceptance of IMF’s 8 conditions reflected the continuity of the implementation of Thailand’s Neoliberalism financial policy after the economic restructure and the alleviation of financial limitations after the transfer of Japanese fund since the Plaza Accord Agreement. Until finally, Thailand followed the trend of Neoliberalism that the government allowed the founding of IBF, which could be counted as the start of Thailand’s financial liberalization. Thailand became the first South East Asian nation with the financial liberalization.
The capital influx into Thailand after the financial liberalization included the actual investment and the pseudo-investment or portfolio investment, which the latter seek to generate short-term profit in Thailand’s stock market. The pseudo-investment highly affected Thailand’s economy, as the capital group could control the Thai Baht exchange rate and the transactions in the stock market within their hands. Through the transactions of globalized liberal financial policy, there was the opportunity to bring the foreign loan with lesser interest rate to provide short-term loan within the country.
Such liquidity led to the excess expenditure of the business sector, which the products and services were over the actual demand and resulted in the economic bubble. And due to the implementation of Neoliberalism financial policy which reduced the state’s control, the Hedge Fund from United States used its massive capital to disrupt the finance market and attacked Thailand’s financial system, resulted in the loss of over 30 billion dollars of reserved capital collected during the period of capitalism development by the national bank of the countries which followed the Neoliberalism policy. This led to the financial crisis in 1997 (Taweewat Puntarikwiwat, 2001, p. 17, as Sayumporn Limthai(personal communication, August 22, 2016) further added about the economic crisis at the time as following. “The affected problem stream was mainly related to the economic policy in 1997, as the problem was obvious. The economic crisis occurred all over the world, especially the developing countries were highly affected. The country in the similar group of Thailand could be compared, especially Korea, which the consequences were rather obvious that this problem occurred. Therefore, the economic crisis was apparent during the time when I was serving in the Ministry of Interior and the government at the time ordered the solution for each problem. The major problem was unemployment, as the people from other provinces who worked in Bangkok became the labor in various sectors were highly affected. There were over million of unemployed labor. Without the wages, they had to travel back home. In other words, there were 2 consequences from the economic crisis, those who migrated to work in Bangkok, and those of the financial institutions who helplessly failed”
It could be said that the problem stream which occurred with Thailand’s socio- economy during the late 1990s directly affected the financial sector. The overall society were also affected, such as the government sector, the private sector, the manufacturing sector, labor, and the general people, as the state spent all of its reserved capital to protect the Baht value that they lack any reserved capital to implement any project effectively to solve the economic problem as well as other social problems at the time.
And the other private sectors and a lot of manufacturers borrowed money from the financial institution who also borrowed from the foreigh loan with the exchange rate of 25 Baht per 1 USD. But after the floating exchange rate was implemented, the exchange rate increased to over 50 Baht per 1 USD, resulted in the business close down due to
the inability to cope with the collective debts. The lay-off led to the severe problem of unemployment which affected deeply to the grassroots level.