Path to economic progress: A tale of two nations
Published : 17 APR 2020 at 04:00
Newspaper Section: News
Writer: Peerasit Kamnuansilpa and Le Anh Khan Minh
https://www.bangkokpost.com/opinion/opinion/1901645/path-to-economic-progress-a-tale-of-two-nations
The present pandemic, which has generated concerns over Asean countries' economic sustainability and global food supplies, reminds us that Thailand and Vietnam are primarily agrarian societies, competing with each other as major rice-exporting countries. In the 1960s, both were classified as economically less developed countries before moving a notch higher to ""developing countries"". Presently, both countries are ranked as middle-income, although Thailand is slightly ahead since its advancement to the category's upper tier in 2011, while Vietnam has remained in the lower tier since 2013. It is expected that Thailand will not be able to progress much over the next 20 years, while Vietnam could achieve high-income status by 2045. Still, this relative decline is not inevitable.
Although Thailand performs better than Vietnam on several development indicators and has higher GDP and per capita income, it now faces a slower growth rate. From the 1960s to the 1990s, Thailand's economy grew at an average annual rate of 7.5%. Throughout the 2008–2018 period, Thailand's GDP growth rate fluctuated heavily, plunging to -0.7% in 2009. From 2016 to 2018, its GDP grew at an average of 4%. In comparison, the economy of Vietnam is more stable, with economic growth ranging from 5.2% in 2012 to 7.1% in 2018. It has sustained a high growth rate of 7% and has been recognised as one of the great economic success stories of the 21st century.
The GDP growth rate of Vietnam in 2018 was 1.7 times higher than Thailand's, with stronger and steadier economic growth. The real interest rate in Vietnam is also higher, which can translate into greater investment and business. Other indicators such as foreign direct investment, export of goods and services and consumption expenditure show Thailand is surpassed by Vietnam.
Analysing the 2016 high-technology exports sees Vietnam with a total of $55.2 billion, while Thailand's is only $8.8 billion -- a fact that goes against Thailand's self-positioning as a knowledge-intensive production economy. These figures reflect that, after decades of running behind, Vietnam's economy has the ability to compete with and surpass that of Thailand.
One reason why the economy of Thailand has been unstable is that it has been subject to the uncertainty of world political affairs. During the Cold War, Thailand was viewed as a pawn in the Domino Theory. Consequently, in the 1960s, Thailand enjoyed economic development assistance from western industrial countries, predominantly the US, but also Australia, New Zealand and the United Kingdom.
The country thus relied on the export privileges and preferences given by these countries to expand its economy. As a form of subsidy, this has stunted Thai industry, in general, making it unfit to compete in the world market.
In comparison, Vietnam has gradually transcended the effects of the war with the US and its allies. In 1976, Vietnam was unified as the Socialist Republic of Vietnam, although it did not enjoy stability for at least another decade. Free market policy was not encouraged and its economy did not approach normality until the early 1980s, when the country began to enjoy high revenues from oil exports. This is in stark contrast to Thailand, which began oil exploration as early as 1962, when it awarded Chevron, a US oil company, a concession that entitled it to the rights for oil and gas exploration in the Gulf of Thailand. Thailand has never enjoyed the same benefits from its oil as Vietnam, which developed its own oil industry through PetroVietnam.
One explanation is that Thailand's leaders have never genuinely viewed natural resources exploration and extraction as a strategy for self-directed national development. They opted instead for the practice of exercising power through granting concessions, which naturally was accompanied by personal benefits for bureaucrats. The result was that Thailand's citizens and industries suffered from energy sold at imported prices. This has inflated production costs and made Thai products less competitive in the world market.
The economies of the two countries can also be viewed through their international relations. Through Vietnam's efforts in building cordial diplomatic relations with foreign countries, plus cheaper labour costs, foreign direct capital poured into Vietnam. Trade and diplomatic relations between Vietnam and the US resumed in the 1990s and crystalised in May of 2016, when President Barack Obama paid a state visit before attending Apec Vietnam 2017 in Danang.
In addition, Vietnam's geopolitical primacy over Thailand was notable when President Donald Trump chose Hanoi as a venue for the second North Korea-United States Summit in February 2019. It is also interesting to note that while Thailand has moved increasingly into China's orbit, Vietnam has moved more into that of the US.
Time will tell if either country will benefit from the trade war between China and the US, particularly post-pandemic. Vietnam appears to be more successful than Thailand in containing the pandemic's spread. Consequently, the damage in terms of GDP will be larger in Thailand than in Vietnam. In theory, this pandemic may create potential advantages, which Vietnam has already been capitalising on.
It has exported a large quantity of protective equipment to the US. This is an indication that industries in Vietnam are now more flexible and adaptable to the demands of world markets than Thailand. The prosperous vision of stable and sustained economic growth which has been touted by Thailand's military-led government now appears a distant dream.
Unless Thailand improves dramatically in both political stability and international relations, Vietnam is almost certain to recover from the pandemic faster and so escape the middle-income trap before Thailand.
To ensure economic competitiveness, Thailand must transform its current political machine into a truly functional democracy, with the law applied equally to all citizens. Most foreign investors have little confidence in a government that comes to power through illegitimate means.
Moreover, confidence does not only derive from a government's legitimacy but through astute, mutually beneficial diplomatic relationships, as seen in Vietnam's formerly adversarial relationship with the US transforming into a friendly trading partnership.
If the pandemic causes Thailand to turns inwards, it will lose sight of global development opportunities.
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