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The international dimension of the changing urban system

Obviously there are many internationally related factors that can be used to explain the above economic growth and transformations and the resulting changes in the urban system. Only three issues will be discussed, namely, the effects of foreign trade, foreign investments, and tourism.

Foreign trade

It can be argued that the three most important factors explaining the rapid growth of the Thai economy in the last half of the 1980s were exports, foreign direct investment, and tourism. For exports, the increase in the volume and value of Thailand's exports in the last half of the 1980s was quite extraordinary. As can be seen from table 9.5, the pace of the increase quickened in 1986 when the value of exports for that year increased 20.7 per cent. In 1987 and 1988, the rates of increase of exports were even higher at 28.5 and 34.6 per cent, respectively. In 1989, the rate of export increase had slowed to 27.9 per cent, and was even lower at 14.2 per cent in 1990, but the enormous increase in 1987 and 1988 had created a very large export base on which a further increase of the same magnitude would be quite difficult. However, an export increase of over 10 per cent a year is not insignificant.

Table 9.5 Thailand's exports by sector, 1983-1990

Source: Bank of Thailand, Monthly Bulletin, various issues.

The change in the composition of Thai exports is also interesting. Thailand has been known as a major world food and agricultural products exporter, but recently it has become a noticeable exporter of manufactured products as well. From table 9.5 it can be seen that the share of agricultural exports in 1983 and 1984 was still higher than the share of manufacturing exports, but starting from 1985 the share of manufacturing exports began to overtake that of agricultural exports. This trend continued unabated, reaching a peak in 1990 when the share of manufacturing exports in total export value was 74.7 per cent, whereas the share of agricultural exports was only 17.0 per cent. Indeed, the export turning-point in 1985 further qualifies Thailand as an upcoming NIC. Today, Thailand's major export items consist of textile products, integrated circuits, jewellery products, processed food products (especially canned tuna and pineapple), and traditional agricultural export items such as rice, sugar, rubber, maize, and tapioca products.

The outstanding performance of Thai exports prompted a few serious studies on the likely causes of the upsurge in Thai exports. An important study by Atchana and Teerana (1989) has shown that, relying upon constant market share analysis, neither the so-called market distribution effect, which measures Thailand's ability to shift exports from one destination to another, nor the so-called commodity composition effect, which measures the ability of the Thai economy to switch from producing exports with low demand growth to those with high demand growth, explained very much of the growth in Thailand's exports. According to this model, much of the success of Thailand's exports was due to the so-called competitive effect, which was indeed the residual term in the explanatory equation and was supposed to explain the net gain in export market shares due to both price and non-price competitive factors. In some categories of exports, such as machinery and miscellaneous manufactured exports, the competitive effect explained up to 70 per cent of their growth.

Although it is true that private exporters, large and small, have made effective use of the opening-up of foreign markets, the government has done its part in helping the private sector. Export promotion has been a state policy since the early 1970s, and many institutional changes have been made to accommodate this policy; for instance, increased incentives geared towards exports, simplified export procedures, quicker tax refunds and rebates to exporters, the setting up of the high-powered Export Development Committee, the establishment of the Department of Export Promotion in the Ministry of Commerce by streamlining and upgrading the Department of International Trade, the arrangement of frequent trade fairs and trade exhibitions.

In addition, reference should also be made to changes in the exchange rate. Owing to a high degree of pegging of the baht to the US dollar prior to 1984, the Thai baht had become overvalued when the US dollar was artificially kept high. The pressure on Thailand's dollar reserves, and the urgent need to readjust the exchange rate between the Thai baht and other major currencies to make it more realistic and to help stimulate exports and slow down imports, forced the Thai government to devalue the baht by about 14.7 per cent in November 1984. This devaluation was a major readjustment measure that helped generate more export demand for Thai goods and services. A further depreciation of the US dollar after the Plaza Accord in 1985 helped the Thai baht even further because the Thai baht was still very much tied to the US dollar. In a way, the recent success in Thai exports must be attributable at least in part to the 1984 devaluation.

Foreign direct investment

Foreign direct investment (FDI) in Thailand has been growing steadily since industrialization began in the early 1960s. During the 1970s, the amount of FDI averaged about 1,800-1,900 million baht annually. In the early 1980s, however, the amount of FDI increased sharply. From table 9.6 it may be seen that, in 1985, for example, the total net FDI from all countries stood at 4,442 million baht. This increased to 6,908 and 9,044 million baht, respectively, in 1986 and 1987, a doubling of net FDI in just two years. In 1988, the increase in net FDI in Thailand was even more spectacular, reaching 27,964 million baht or more than 209 per cent of the amount recorded in 1987. In 1989, net FDI was 45,698 million, and the latest figure shows net FDI of more than 62,516 million baht in 1990. In short, net foreign direct investment flowing into the country increased almost 12 times between 1985 and 1990, a record that could hardly be matched by any developing countries. Undoubtedly, these net FDIs helped stimulate the economy, enabling it to achieve an average growth rate of more than 10 per cent annually between 1987 and 1990.

Table 9.6 Net flows of foreign investment in Thailand by source country, 1981-1990 (million baht)

Source: Bank of Thailand.

Most of this new foreign direct investment came from Japan, the United States, Taiwan, Hong Kong, and Singapore. The influx of funds from Japan was extraordinarily high from 1988 onward, mainly as a result of various contributing factors such as the yen appreciation, the increasing interest of small and medium-scale firms in Japan in investing outside Japan, the relative political and social stability of Thailand, and so on. The records show that Thailand ranked second in the world behind the United States in the number of new investment cases from Japan between January 1988 and July 1989. As for such NIC countries as Taiwan and Singapore, their currency appreciation also contributed to their relocation of their factories in other low-cost and stable countries.

While these FDIs were certainly responsible for the rapid economic growth of Thailand, they also contributed to the continuing concentration of urban growth in and around Bangkok. It can be seen from table 9.7, which shows the number and distribution of Board of Investment-approved domestic and foreign investment projects from 1979 to 1990, that a larger percentage of foreign investment projects (67.8 per cent) was located in Bangkok and the surrounding five provinces as compared with domestic investment projects (59.9 per cent).

Tourism

Rivalling the role of exports and FDIs as contributors to the economic growth of Thailand is tourism. In 1986, the revenue from tourism was about 37.3 billion baht and had been growing at a rate of about 15 per cent since the beginning of the decade. In 1987 the Thai government launched the "Visit Thailand Year" to commemorate the 60th birthday of the King. It was an overwhelming success because the number of visitors jumped from about 2.8 million in 1986 to about 3.5 million in 1987, resulting in an increase in revenue from tourism from 37,321 million baht to 50,024 million baht, an increase of about 34.0 per cent (see table 9.8). The year 1988 was even better. Although the rate of increase in tourists was lower (21.5 per cent in 1988 compared with 23.6 per cent in 1987), these new tourists stayed longer and spent more. Therefore, more than 4.2 million tourists spent an estimated 78,859 million baht in Thailand in 1988, an increase of 57.6 per cent over the level spent in 1987. The rate of growth of both the number of tourists and the revenue received declined in 1989 and 1990, but, in terms of the absolute amount of foreign exchange earnings from this trade-in-service category of exports, the importance of tourism in the economic growth of Thailand is already assured. In comparison with other export items in 1989, for example, revenue from international tourism of 96,386 million baht was much larger than the revenue from exports of textile products of 74,021 million baht or from rice exports of 45,462 million baht.

Table 9.7 Number of BOI-approved projects, 1979-1990

Source: Board of Investment.

International tourism has caused extensive changes on the urban scene. Many resort towns and tourist locations have been developed, many employees have been taken on, and associated service facilities have been set up, creating new or larger urban communities. But these tourism-related developments are often unplanned and uncontrolled, causing varying degrees of damage to the environment. The resort city of Pattaya is a good case in point. The city has expanded too much, too fast without adequate water and sewage treatment or building controls. The results are an acute water shortage, pollution of the sea and the beaches, unsightly growth of buildings and other constructions, and so on. A recent drop in the number of international and local tourists to Pattaya could be seen as a direct outcome of the negative image of that city, and should serve as a warning to any future development of a tourist-related resort city or location. Notwithstanding these negative effects of tourism, an appropriate policy is not to curb this valuable foreign exchange earner, but to attempt to manage tourism and the construction of associated amenities in such a way that earnings are maximized without undue damage to the environment.

There is another trade-in-service item that is quite the reverse of tourism but is similar in its foreign-exchange earning power. This is the export of Thai labour to work in the Middle East as well as in Asia. In terms of numbers, at the peak of this type of activity in 1988, it was estimated that there were more than 200,000 Thai workers in such countries as Saudi Arabia, Libya, Iraq, Singapore, and Brunei. These workers remitted more than 23,000 million baht of foreign exchange into the country during that peak year. This economic phenomenon also has a profound effect upon rural life in Thailand, particularly in the North-east where the largest number of workers was drawn from. First, going overseas to work means a withdrawal of some labour from local economic activities (mainly farming), affecting the productive structure of the rural economy. Secondly, the remittances from these workers certainly help stimulate the rural economy and probably contribute to the quickening of urbanization in the local area and elsewhere, especially when these workers return from overseas jobs with industrial or construction skills and do not want to continue farming.

Table 9.8 international tourist arrivals in Thailand, tourist nights, and income from tourism, 1977-1989

Source: Tourism Authority of Thailand.

As a result of the Gulf War, the number of Thai workers in the Middle East has reduced substantially. But other potential sources exist in Asia. For example, there is still a strong demand for Thai workers in Singapore and Brunei. The prospective market in Taiwan is opening up. Japan might accept more labour to work in its country in the future. And so on. So, despite the recent slowdown in this category of economic activity, the export of Thai workers is still important to the growth of the economy and has strong implications for the process of future urbanization.

In conclusion, it is useful to mention one development in Thai international finance regulations that is likely to have wide-ranging repercussions on the future economic development of Thailand in general and, perhaps, of Bangkok in particular. On 21 May 1990, Thailand announced its official acceptance of Article 8 of the IMF Articles of Agreement, which meant that from then on major controls on all current account transactions would be lifted. In other words, Thailand will no longer resort to controls on payments and transfers of foreign exchange in current account transactions and discriminatory currency practices. In addition, commercial banks are authorized to approve applications for foreign currency for all types of current account transactions on behalf of the Bank of Thailand. Moreover, on 1 April 1991, the second phase of relaxation of foreign exchange controls was put into effect. Now, capital brought into the country is no longer required to be registered with the Bank of Thailand, as was the case in the past. All persons with foreign exchange earnings can now open foreign currency deposit accounts at commercial banks in Thailand. Up to US$5 million per year may be freely remitted to invest directly abroad or to acquire technology overseas. There are few other details, but the main effects will all be to facilitate foreign exchange transactions, reduce transaction costs, and increase the efficiency of international business. Tourism will be further promoted and so will the use of Thai currency as a common medium of investment and trade in the subregion.

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