A chairman's view on the Thai economy

Olarn Chaipravat is a banker-economist, at one and the same time Chairman/Chief Executive Officer of the Siam Commercial Bank and an acute observer of the Thai economy in its global context.

As such, he places the record, double-digit growth rates of the four years 1987-1991 in the context of largely external factors. "Our country benefited from currency realignments, like the weakening of the dollar in relation to the yen, making our exports more competitive. In addition, Thailand, which imports 60% of its energy, gained by a fall in the price of oil, even with its rebound after 1986." "It is important," he notes, "that our savings on oil imports were such that the national energy bill dropped from twenty-one percent (21%) to eight percent (8%) of our total imports. In addition, we were able in that extraordinary period to benefit on the strictly financial front because, as a net capital importer, the drop in world interest rates rebounded to Thailand's capital accounts' gain."

Domestic consequences were several, both good and bad. "On the one hand, we have more middle-class people with increased purchasing power, a booming stock market and that, in turn, led to a booming property market. On the other hand, certain infrastructure bottlenecks in transport and communications need addressing." Chaipravat calls these "the problems of success." Here, he feels privatization is well at work in Thailand, and yet with perhaps ten years needed to address the needs backlogged.

In 1991, Thailand's growth rate dropped to 8% from 11%, something Chaipravat takes in stride. In fact, he says many local observers over-reacted to the slowdown, deeming it "traumatic". "Compared to the rest of the world, our current rate is heaven," he says, pointing to the flat - or even negative - rates in Western Europe and Japan. His estimate for 1992 for Thailand is 7%. "We ought to be happy with this as a sustainable, non-inflationary rate," he says. Furthermore, Thailand continues to be the most desirable locale for Japanese and Taiwanese off-shore manufacturing, ASEAN's site of choice.

So, he asks of his country's economy: "Where are we now?" He sees the end of three years of adjustment with the end of 1993, and a concerted effort by the Thai Government to address problems in manpower skills and education. He also thinks that Thai business community has come to realize that the U.S., Europe and Japan may not grow at more than "one, two or three percent" per year. With inflation limited in those countries, there has come a constraining of their at-home investment opportunities as well. "I see fund managers from New York and London, Zurich and Frankfurt everywhere in Bangkok now. They are shifting portions of their portfolios here." Of course, a self-corrrecting equilibrium has set in, with Thai interest rates falling as well, partly because of arbitrage effects. But, again, a silver lining: "Lower domestic interest rates will allow investors in the infrastructure to borrow funds more cheaply to finance development, and that will speed our industrial output." But just as money flows in, he notes it can flow out quickly as well. "We are prepared for a full player's role in the international financial marketplace", he asserts. "For example, the recently set up Bangkok International Banking Facility (BIBF) was in-stituted to encourage such flows through Thailand and into South China and Indonesia."

And what predictions, from a man who has proved prescient in the past? "Our basic trade and current account should turn from negative to positive in five to ten years, reaching that goal by the year 2000. Look at the shift from agriculture to the non-farm sector made up of manufacturing and services: the former has grown at 2% a year over the past decade, the latter by an astonishing 10%."

As a banker deeply involved in financing the structural changes at work in Thailand, Chaipravat is impressed at how major industrial groups have responded to the Government's drive for relocation of factories out of Bangkok and its adjoining provinces. As an adviser to the key Board of Investment, he approves of the incentive packages devised, and says the commercial sector is committed to joining in what he calls "a sensible policy" to implement ambitious plans. "We want to join the process of transformation from low-technology, labor-intensive industries to more capital-intensive industrialization. And in areas outside Bangkok."

Under his leadership, Siam Commercial Bank has made major steps to implement world-class technologies, decisions that have contributed to Bank's growth. "We were the first in Thailand to introuce ATMs, in 1983, after studying the experience elsewhere. At that time, they were seen as a toy, some sort of gimmick. But we only innovate when we are sure that the Bank -- the country's oldest is, in fact, doing something new that really serves the customers. "We will spend 500 million baht over the 1992-97 period in technology."

Under Dr. Chaipravat's leadership, Siam Commercial has effected a major internal re-structuring, organizing itself not by function but according to customer needs. "We now operate with a multinationals group, another for the middle market, a consumer banking unit and another for institutional clients," he explains. "This means that with our 306 domestic branches and 12,500 employees, we are that much more responsive to the marketplace. We open forty branches a year and have about a hundred licenses from the Government for further branch openings, in the pipeline."

And Siam Commercial is not just staying at home to play its part in leading the dynamic economy. It operates in New York, Chicago and Los Angeles, in London, Hong Kong and has even joined a joint venture with the Central Bank of Cambodia.

"You see," says the thirteen-year veteran of the Bank, "the Thai banking system has been growing at 22% a year for the past twenty years. And we, at this bank, are growing faster than that."

Next Chapter: The Cultural Treasures of a Kingdom