Thailand : an assessment of alternative foreign borrowing strategies
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Kharas, Homi | Hisanobu Shishido
This paper assesses alternative foreign borrowing strategies for Thailand using a medium-term dynamic optimization model. The model has five sectors: rubber, other agriculture, manufacturing, services, and construction. This model is first applied to an analysis of the historical strategy taken by Thailand between 1975 and 1981. It is then solved for 1985-1992 to generate a future foreign borrowing strategy. The result shows that although Thailand may have overborrowed in the late 1970s, it can utilize moderate foreign borrowing beneficially, given its potential for strong economic performance in the next decade. This is, however, conditional on export performance as good as in the past, on raising domestic savings and on altering the structure of domestic output towards tradeable goods. An analysis of the alternative suggests that robust foreign borrowing strategies should be based on an understanding of the structure of the economy, its flexibility in adjusting to shocks, on expectations of future events, and on lenders' behavior. The endogenous and simultaneous nature of the interactions of key macrovariables cannot be overemphasized. Thus, the borrowing strategy must be made consistent with fiscal, monetary and commercial policies.
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