Estudios Económicos
Thailand

Thailand

Population 69.1 million
GDP 6,591 US$
A4
Country risk assessment
A3
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Synthesis

major macro economic indicators

  2016 2017 2018  2019 (f)
GDP growth (%)* 3.4 4.0 4.1 3.3
Inflation (yearly average, %) 0.2 0.7 1.1 0.9
Budget balance (% GDP) -2.2 -3.5 -2.5 -2.5
Current account balance (% GDP) 10.5 9.7 6.4 6.0
Public debt (% GDP) 41.8 41.9 42.0 41.0

(f): Forecast.

STRENGTHS

  • Regional hub; proximity to dynamic Asian markets
  • Strong external accounts and high foreign exchange reserves
  • Rich resource endowment in agriculture (40% of global natural rubber production, fisheries, rice and sugar cane)
  • Diversified exports: tourism, automotive components, agri-food products

WEAKNESSES

  • Inadequate infrastructure levels
  • Ageing population and shortage of skilled labour
  • Lack of productivity increases risk of middle-income trap
  • Political uncertainty fuelling tensions between rural and urban areas
  • High corruption perception and large informal economy
  • High household debt levels

RISK ASSESSMENT

Growth slows, but remains strong on public spending

GDP growth slowed to 2.8% in the first quarter of 2019, on the back of external headwinds and slower domestic consumption. Household consumption (50% of GDP) will remain subdued due to lower consumer confidence, high household debt levels (above 75% of GDP) and sluggish real wage growth. These factors will not be offset by low interest rates and low inflation. The increase of the VAT rate from 7% to 10% was delayed to September 2019, but will likely be deferred further. Private investment, both foreign and domestic, will continue to be dampened by weaker investor sentiment amid uncertainty from rising global protectionist risks. Public investments are therefore stepping in, supported by the National Strategic Plan (NSP) 2017-2036, which aims to enhance competitiveness through the development of rail, road, airport, and electricity infrastructure. The government also aims to increase Thailand’s growth potential by accelerating the transition towards a service economy (currently 55% of GDP), starting with upgrades to infrastructure and the electronics industry. The service sector is set to continue performing well, notably thanks to tourism-linked demand. Tourism will contribute largely to growth, even though it has experienced some headwinds in recent times, led by a decline in Chinese tourists (one third of total) following a fatal boat accident in 2018. Ongoing pressures surrounding the US-China trade war are impacting Thailand via trade channels. Net exports are expected to contribute positively to growth, but only because imports have contracted at a faster pace than exports, dragging on growth. Exports of goods and services account for approximately 70% of GDP in 2019. Weaker Chinese demand and supply chain disruptions will affect some sectors of Thailand’s economy more than others, led by automotive (biggest sector in terms of exports of goods) and electronics.

 

Weak domestic consumption has led to downside pressures on prices. Relatively low interest rates have not led to a significant uptick in inflation, which remains below the central bank’s inflation target (1-4%). Despite weak inflation, it is expected that the central bank will leave rates unchanged at 1.75%, following a 25 basis point hike in December 2018. This means that the onus of stimulus will fall on the fiscal side, as buffers remain ample.

 

Resilient financial situation

Thailand is far from reaching the constitutional deficit limits of 60% of GDP for public debt and of 3% of GDP for the budget deficit. Public debt remains contained: although around 20% of it is externally held, it is almost entirely denominated in Thai baht and with medium- to long-term maturity. Public expenditure will continue to focus on addressing social challenges – including poverty, child-care assistance, and pension reform –, possibly at the expense of other needed reforms and productive investments. Most of the planned infrastructure investments, such as the Eastern Economic Corridor or linkage of the Andaman Sea to central Thailand, will be carried out via state-owned enterprises. Including these investments in the budget balance would bring the deficit to -2.5% in 2019.

 

Thailand has a strong external position and buffers. Foreign reserves represent over nine months of imports, which should help to shield the Thai baht in case of depreciatory pressures. The trade balance will deteriorate, as the US-China trade war has dampened demand from China, one of Thailand’s largest export markets. Nevertheless, weak domestic demand means that the trade balance will likely remain in surplus, on lower imports. At the same time, the current account will remain in large surplus thanks to tourism-related inflows, enabling Thailand to invest abroad.

 

Elections maintained the military’s hold of power as expected

Following the nineteenth coup d'état in 2014, the military junta took hold of power. After postponing them six times, the junta held parliamentary elections in February 2019. General Prayuth Chan-o-cha, the Commander-in-Chief of the army  who governed via the junta, remained Prime Minister. A new Constitution that institutionalised dominant military power and increased the power of the King gave little chance to opposition parties. Under the new electoral process, the Prime Minister is elected by Parliament, made of a joint sitting of the 500-seats in the lower house and 250-seats in Senate. As the junta appoints all members of the Senate, the party supporting the army only needed to secure one quarter of votes in order to remain in control in 2019 elections. Moreover, the junta retains the reins of policy making via the NSP, as all governments are constitutionally bound to carry out this development strategy until 2037. The Pheu Thai party, whose leaders are in exile, came in second place, reflecting that differences between “red shirts” (supporters of former Prime Minister Thaksin) and “yellow shirts”, (royalists) are still present. Thailand’s new government has stated interest in applying to become a member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

 

 

 

Last update : August 2019

Payment

Credit transfer is the main form of payment used by large companies in Thailand. The majority of credit transfers are made electronically and the popularity of this payment method is growing as clearing systems have become more developed.

Cheques are still a popular form of cashless payment in terms of value. They are used by companies and consumers to make a wide range of payments. Post-dated cheques are a common mean of short-term credit.

Nevertheless, cash remains the dominant payment method in Thailand.

Debt collection

Amicable phase

According to the 2015 debt collection Act BE 2558 (AD 2015), the debtor is an individual person or personal guarantor. The Act was created to regulate collection activities carried out by creditors, or by collection agencies in cases of consumer debt. Commercial debt collection houses are also expected to follow the practices set out within the Act. For example, during the amicable phase, creditors can only communicate with the debtor or other persons as authorised by debtor. Creditors or collection agencies are also limited to identifying themselves with the details of debt to the debtor.

 

Legal proceedings

Thailand’s Judicial Court System comprises three levels:

  • the Supreme Court: this is the highest court authority in the country. All of its decisions are final and must be executed. It hears appeals and contests against decisions made by the Courts of Appeal, Regional Courts of Appeals and Courts of First Instance;
  • Courts of Appeal: these are divided into Courts of Appeal and Regional Courts of Appeal. Both handle appeals against the decisions or orders made by the lower courts;
  • Courts of First Instance: these lower courts comprise the courts in Bangkok, courts in provinces, specialised courts and juvenile and family courts.

A preliminary stage of legal action can be conducted if there is failure to reach an amicable settlement with the debtor. This phase includes communications, negotiations, meetings with debtors, letters of demand and notifying the police in cases where there is a criminal penalty.

 

Ordinary proceedings

If the debtor fails to comply with demand notices, the creditor can file a claim with the Court, depending on the value of the debt:

  • if the debt does not exceed THB 300,000 (Thai baht), the complaint must be lodged at the District or Provincial Court;
  • if the debt exceeds THB 300,000, the complaint must be filed at the Civil or Provincial Court.

Court policy is to screen unnecessary cases from court trial. Most Civil Courts have mediation centres for parties to negotiate and compromise on an arrangement. Once a case has been decided amicably, a compromise agreement is prepared and the court passes judgment in accordance. Each of the parties is responsible for documenting evidence and the burden of proof associated with their case. A judgement is made once the court has considered and weighed the evidence presented by both parties.

The time frame for proceedings with the Court of First Instance can take between one to three years.

Enforcement of a Legal Decision

If the debtor fails to comply with a domestic judgment, the creditor is entitled to apply for the execution of the judgment before the court. This can involve the issuance of an execution decree, delivery of an execution decree to the debtor, issuance of a writ of execution and the seizure and sale of property belonging to the debtor.

Thailand has no reciprocal recognition and enforcement agreements with other countries. Enforcing foreign judgments requires new legal proceedings, where the evidence will be considered and legal defence made available to both parties.

One exception is that Thailand is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1985). International arbitration awards by member countries of the Convention can be enforced if they are already final.

Insolvency Proceedings

Thailand has legislation on bankruptcy and reorganisation proceedings (Bankruptcy Act BE 2483).

 

Reorganisation Proceedings
Limited Companies, Public Limited Companies and Financial Institutions (Large Enterprises)

A petition can be filed against an insolvent corporate debtor who owes one or more creditors a known sum of THB 10 million (USD 333,000) or more. Once the court has accepted the petition for further proceedings, it appoints a planner to prepare and submit a reorganisation plan to the official receiver within three months. The court may extend this period up to a maximum of two times, for one month from the publication date of the court order appointing the planner. Secured and unsecured creditors must then apply for payment of debts within one month from the date of publication of the order for appointment of the planner. Once the official receiver is in possession of the reorganisation plan, he will convene a meeting with the creditors to consider the proposal. If it is accepted, the court needs to approve it and confirm the appointment of the plan’s administrator. The latter is then responsible for the debtor company’s reorganisation, as set out within the plan.

 

SMEs registered with the Office of SME Promotions or other government agencies for conducting business

Petition can be filed against:

  • insolvent individuals who owe one or more creditors a known sum of THB 1 million or more;
  • insolvent limited partnerships, registered partnerships, non-registered partnerships, groups of persons or other juristic entities who owe one or more creditors a known sum of THB 3 million or more;
  • insolvent private limited companies owing one or more creditors a known sum of between THB 3 million and 10 million.

In cases such as these, the petitioner should file a petition, along with a proposed plan of not more than three years in length in execution.

 

Bankruptcy proceedings

A creditor can file a bankruptcy petition against a debtor if the latter is insolvent and owes one or more creditors a definitive sum of over THB 1 million (if the debtor is an individual), or owes more than THB 2 million (if the debtor is a legal entity).

Once a petition for bankruptcy has been filed, the proceedings normally include hearing the witnesses, temporary receivership of the debtor’s property, the appointment of an official receiver, filing of claims for debt payments by creditors within two months from the publication date of the permanent receivership order, a bankruptcy order against the debtor (if no agreement can be reached with the creditors, issuance of a permanent receivership order, seizure of property, sale of property by public auction and pro rata distribution of the sale proceeds to creditors.

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