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THAiLAND AND THE WORLD BANK

PARTNERS IN PROGRESS

THE WoRLD BANKWashington, D.C.

The views and interpretations in this booklet are not necessarily those of theExecutive Directors of the World Bank or the countries they represent. Themap on the frontispiece was prepared exclusively for the convenience ofreaders of this booklet; the denominations used and the boundaries showndo not imply, on the part of the World Bank and its affiliates, any judgmenton the legal status of any territory or any endorsement or acceptance of suchboundaries.

Thailand and the World Bank was written by the staffof the Asia Regional Office of the World Bank.

Photographic credits

Cover: Dacho BuranabunpotPages 2-3: Dacho BuranabunpotPage 5: John CleavePage 7: Dacho BuranabunpotPage 16: Dacho BuranabunpotPage 17: World Bank Photo LibraryPage 23: Dacho BuranabunpotPage 26: Electricity Generating Authority of Thailand (EGAT)

Page 29: Dacho BuranabunpotPage 32: Dacho Buranabunpot

Cover photographs

Drying fish: Large-scale processing techniques are being applied to thistraditional activity.Business and industry in Thailand are making increased use of advancedtechnology.

Cover desig: George Parakamannil

Map: Cartography Unit, World Bank

CONTENTS

Introduction 1

The World Bank and Thailand 4

The Economy 6

Setbacks and Adjustment 6Recent Developments 9

Industry and Finance 10

Public Enterprises 10Banking and Finance 11The World Bank's Role 12

Agriculture 14

Land Use and Principal Products 14Environmental Concems 15The World Bank's Role 15

Urban Development 19

Water Supply and Sanitation 19Housing 20The World Bank's Role 21

Transport 22

Urban Congestion 22The World Bank's Role 23

iii

Energy 25

Thailand's Energy Resources 25The World Bank's Role 26

Education 28

Priorities for Education 28The World Bank's Role 30

Women in Thailand 31

The World Bank's Role 33

Conclusion 35

it

INTRODUCTION

Thailand is a nation poised on the brink of economic success. Overthe past three decades the economy has grown steadily-at 7 percenta year, on average. Since 1987 growth has skyrocketed, with grossdomestic product (GDP) expanding at an average of 11.5 percent ayear, making Thailand the fastest-growing economy in the world.Furthermore, the structure of the economy has evolved from depen-dence on primary commodities to a diversified base resting on agri-culture, industry, and services. Progress in alleviating mass povertyhas accompanied this transition. These successes have led to thewidespread expectation that Thailand will soon join the ranks ofnewly industrialized countries.

The most striking feature of Thailand's recent growth has been theincrease in both agricultural and manufactured exports; between1987 and 1990 exports rose by 24 percent a year. Manufacturing is themore dynamic of the two export sectors, with earnings of about $23billion in 1990. The growth of the manufacturing sector has beenremarkable; in 1970 manufacturing accounted for only 6 percent ofgross national product (GNP), but by 1990 it contributed 26 percent ofGNP and had surpassed agriculture as the largest sector of the econ-omy.

Although traditional commodities are still an important part ofThailand's exports, the burgeoning industrial export sector promisesto be the driving force behind future economic growth. In 1989 exportearnings from textiles and integrated circuits alone almost equaledeamings from rice, tapioca, and rubber, Thailand's three main agri-cultural exports. Growth of the industrial sector has been largely

1

propelled by foreign investors who have recognized the advantagesof a work force that is growing in sophistication yet is low in laborcost. The output of the relatively young industrial sector, which isconcentrated principally in the Bangkok metropolitan region, in-cludes textiles, leather products, wood products, footwear, chemi-cals, electronics, electrical machinery, and jewelry.

Bangkok is a hub for conimerce in the rapidly growing Thai economy.

2

Yet the bustle of industry is far from ubiquitous. Amazing contrastscan be seen throughout Thailand, where much of the agriculturalsector remains traditional. The duality between the modem and thetraditional economies is independent of sector affiliation; moderniza-tion and industrialization are occurring in agriculture as well. Thesocioeconomic contrasts visible throughout Thailand are not staticbut are part of an evolution of Thai society that has been set in motionby the country's extraordinary economic growth.

3

THE WORLD BANK AND TIiAILAND

Thailand joined the World Bank on May 3, 1949, and its first Bankloan was approved in October 1950. The $25 million loan went forthe completion of three projects: rebuilding the state railway lines,improving the port of Bangkok, and developing the irrigation capa-bilities of the Chao Phraya River. The loan opened the door to furtherlending. By June 30, 1991, Thailand had received 101 World Bankloans and credits totaling $4,373.7 million. Of this, only $125.1 millionwas in the form of credits from the International Development Asso-ciation (IDA), the Bank affiliate that lends on concessional terms toonly the poorest countries. Thailand has not received an IDA creditsince 1979. As of March 31, 1991, Thailand had repaid more than 40percent of the total amount it had borrowed from the Bank.

For more than forty years the World Bank has been assistingThailand in its development efforts, with emphasis on helping toformulate appropriate economic policies and investment programs.The main objective has been to support the government's develop-ment efforts, notably with a view to ensuring sustainable long-termeconomic growth, alleviating regional and income inequalities, andbuilding the institutional capabilities needed to plan and manage thegrowth process. Thailand's decision in 1958 to reduce the amount ofstate intervention in the economy was made on the basis of recom-mendations that emerged from a year-long joint study by the Thaigovernment and the World Bank. The state's role shifted from es-pousing economic nationalism and supporting public corporations toproviding essential infrastructure and investment incentives for the

4

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Cargo carriers in the port of Bangkok. Infrastructural imnprovements sup-ported by the World Bank aid many kinds of commerce and industry.

private sector. Many observers see this decision as a turning point inThailand's economic development.

The Bank's project lending has helped Thailand finance the expan-sion of agriculture through such activities as developing irrigationfacilities, improving land tenure, strengthening extension, research,and credit, and establishfing smallholder r-ubber plantations. Bankassistance has also included projects designed to support industrialinvestment. The development of hfighway systems, inland waterways,ports, and other infrastructure has contributed to the efficient market-ing and reliable distribution of both agricultural products and manu-factured goods. In addition, loans for transport, education, andenergy have supported major investments and policy developmentin these key sectors.

5

THE ECONOMY

Following the 1958 turnaround in economic policy, the NationalEconomic and Social Development Board (NESDB) was established in1959 to guide the process of growth. Since 1961 growth and develop-ment have been regulated by five-year national economic plans. TheFirst and Second Plans (1961-71) stressed rapid economic growth;the targets for GDP growth were 7.2 percent a year under the First Planand 8.5 percent a year under the Second Plan. Growth was to beachieved by expanding agriculture and pursuing a policy of importsubstitution industrialization. Governmental efforts focused on pro-viding economic infrastructure, ensuring adequate incentives to theprivate sector, maintaining an economy open to trade, and expandingthe land area under cultivation. As a result, the economy grew rapidlyduring the 1960s and 1970s.

Setbacks and Adjustment

In the mid-1970s, however, external and internal conditions led to ashift in emphasis under the Third Plan. At the same time that growthwas slowing because of the oil crisis and the ensuing macroeconomicinstability, the structure and objectives of national affairs were beingreshaped as well. The awakening and unrest of civil society in theearly 1970s alerted the government to socioeconomic conditions thatneeded redress. Since then, the government has emphasized a bal-ance between the goals of socioeconomic development and eco-nomic growth.

6

Contrasts in Bangkok: noontime traffic and the floating market. Thai econ-omy and society blend the traditional and the modem.

On a macroeconomic level, the conditions of the miid-1970sbrought about a change in the government's monetary and fiscalpolicies. A more relaxed monetary policy and increasing recourse toforeign commercial loans were accompanied by expansionary fiscalpolicies. Meanwhile, the decline in world inflation in 1976 encour-aged domestic consumption. In the late 1970s world prices for tradi-tional Thai exports fell, eliminating Thailand's foreign exchangecushion. The second oil price shock in 1979-82 thus had a profound

7

effect on a more vulnerable economy. The oil import bill rose dramat-ically, as did the current account deficit.

In response, the administration embarked in 1980 on a series ofadjustments to reestablish macroeconomic stability. Governmentspending was cut, stronger tax collection measures were imple-mented, and the baht was devalued twice. External borrowing wasreduced, and domestic oil prices were progressively increased toreflect world prices. The remnants of the import substitution industri-alization strategy were abandoned in favor of an export-orientedstrategy for promoting growth. The government's decision to grantthe private sector a freer hand in investments led to an expansion ofthe industrial base that was further magnified by the stimulus offoreign investment.

These policy adjustments were supported by two World Bankstructural adjustment loans, approved in 1982 and 1983, which pro-vided a total of $325.5 million to support the balance of payments.The loans assisted a structural adjustment program that was broad inscope.

* In fiscal affairs, the program sought to raise government revenues andreduce the deficits of public enterprises.

* In agriculture the plan called for a shift in emphasis from extensive tointensive development. It gave prime attention to improving incen-tives for producers and increasing farmers' security of tenure.

* In industry measures were proposed to improve the efficiency of theindustrial structure and to shift the emphasis from import substitutionto export promotion.

* In energy the plan sought to reduce imports by reducing the growth indemand for energy.

* The plan supported a wide-ranging program of institutionaldevelopmentto strengthen the key tools of central economic management.

These measures, implemented over a period of about four years,helped establish the base for Thailand's economic recovery and forits rapid growth in recent years.

At the end of 1986 the economy began to rally, partly because of amore favorable external environment and partly as a result of thestructural adjustment program. The period of adjustment, however,had taken a toll on the country. The decrease in public expenditureshampered progress toward the goverrnment's income distributiongoals, and the failure to construct infrastructure at that time has led topresent-day bottlenecks to growth. Nevertheless, the economic ad-

8

justments helped to rectify macroeconomic imbalances and thus laidthe foundation for sustained and healthy future development.

Recent Developments

Since 1987 the Thai economy has enjoyed the strongest boom in itshistory. Between 1987 and 1990 the economy grew at an average rateof more than 10 percent a year. This growth occurred against abackdrop of an accelerating transition from an economy based onagriculture to one based on industry, as reflected in the disparity in1990 growth rates for the two sectors; manufacturing grew at 14percent, whereas agriculture contracted by about 2.5 percent. Thus,it is industry, particularly the export sector, that has been the primaryengine of the country's recent extraordinary growth.

Growth of manufactured exports surged to 53 percent in 1987 butfell slightly, to 41 percent, in 1988. In 1989 the growth rate was a moremodest but still impressive 31 percent. This dramatic expansion ofexports, in part the result of foreign investment, created the impetusfor a further influx of investment. Private investment rose 26 percentin 1987, 34.1 percent in 1988, and about 20 percent in 1989. Amongthe factors contributing to business confidence in the economy havebeen political continuity, the availability of a low-cost labor force, acompetitive exchange rate policy, and government commitment to apolicy of free enterprise. Although the brief upsurge in the price ofoil and the decine in expatriate remittances to Thailand as a conse-quence of the Persian Gulf crisis may have a slight negative effect ongrowth in the short term, both the Thai business community and thegovernment are optimistic about the outlook for future growth. Thereis a general sense that an environment suitable for export-led indus-trial growth has been established.

Ironically, Thailand's growth in the 1990s will be tested by its ownsuccess. Rapid modernization has severely strained the infrastructureand resources of the country. Bottlenecks in water supply, transport,and power supply must be overcome, and people need educationand training that will prepare them for new jobs and opportunities.Furthermore, rapid modernization has given rise to serious environ-mental problems that cannot be ignored.

9

INDUSTRY AND FINANCE

Most of Thailand's manufacturing companies are small and medium-size enterprises with fewer than 200 employees and less than 10million baht (about $400,000) in invested capital. These firms producealmost half of the country's industrial output and employ about 60percent of all workers in manufacturing. The government estimatedin 1989 that of Thailand's 162,395 businesses, 76 percent had fewerthan ten employees and 95 percent had fewer than fifty. Companieswith more than 200 employees and more than 10 million baht ininvested capital account for less than 2 percent of all manufacturingenterprises but generate half of total output and employ 40 percentof all workers in manufacturing.

The surge in exports and foreign investment since 1986 has spurredthe growth and expansion of a large number of companies. Somefirms have shifted from light manufacturing to industries, such aselectronics and automobile assembly, that use more advanced tech-nology. Policies to promote investment in the economy are offeredby the Board of Investment, which was created in 1958 in responseto policy recommendations by the World Bank.

Public Enterprises

State-owned enterprises in public utilities, transport, communica-tions, finance, and petroleum are important segments of the econ-omy. Government investment in these enterprises accounts for about

10

15 percent of total investment in the economy and is responsible fortwo-thirds of public extemal debt. A program to reform state enter-prises and privatize some of them was launched in 1984, but laborunions in public enterprises strongly opposed privatization. Conse-quently, progress in this area has sometimes been slower than ex-pected.

Banking and Finance

The financial system in Thailand is highly segmented. There are toomany classes of institutions, each govemed by separate sets of regu-lations and requirements that specifically limit the scope of theiractivities. Commercial banks are the most important of the institu-tions; they provide the widest range of services and operate through-out the country. Finance and security companies, formed bycommercial banks in 1965 as an extension of their banking business,constitute the next largest group. In addition, there are a number ofspecialized development institutions with specific mandates, includ-ing the Bank for Agriculture and Agricultural Cooperatives and theIndustrial Finance Corporation of Thailand (IFcT). Both have receivedloans from the World Bank in the past. The IFcT is the only institutionthat offers sizable term financing to small and medium-size industriesfor specific projects.

The financial system went through a period of turmoil in the earlyto mid-1980s as global recession, weak management, and inappro-priate lendingpractices subjected the sectorto stress. The governmentwas forced to intervene. The Bank of Thailand was strengthened byeliminating the loopholes through which financial institutions es-caped regulation. In addition, the law goveming the stock exchangewas revised in 1984 to clarify policies and resolve conflicts concerningthe issuance of debentures and shares.

The government believes that a more efficient and competitivefinancial system will contribute to higher domestic savings and thusto increased investment. Accordingly, much of the current financialreform involves relaxing the restrictions on the development of finan-cial institutions, switching from directed lending schemes to a moremarket-based system, eliminating some export-financing subsidies,and easing entry and exit restrictions. The capital market is also being

11

The IFC and Thailand

The Intemational Finance Corporation (IFC), the World Bank affiliatethat promotes private sector growth through investment in developingcountries, has contributed significantly to the development ofThailand's industry and capital markets. As of December 1990 the iFchad approved thirty-nine loans, equity investments, and underwrit-ings, with an aggregate total commitment of $843 million, includingunderwriting of country equity funds and mobilization of $496 millionin funds from other sources.

The iFc's activities in Thailand parallel the evolution over the pastdecade of the country's industrial and fmancial sectors into one of theregion's economic success stories. During the past few years thedevelopment of offshore natural gas resources has spurred the Thaieconomy, and the IFc's advice and assistance contributed to the estab-lishment of Thailand's first petrochemical complex, which was com-pleted in 1990. To support industrialization, the iFc has also made majorinvestments in the production of chemicals, paper, and picture tubesfor television sets. In addition to supporting capital-intensive projects,the IFc has focused on assisting smaller, second-tier companies to gainaccess to technology and equity capital. For example, the IFc hasestablished equity lines with two leading local commercial banks forinvestment in small and medium-size enterprises.

In the capital market sector the iFc helped to promote three of thesuccessful country equity funds that introduced Thailand to foreignportfolio investors and has provided policy advice to the Board ofInvestment and other government agencies. Prospects for increasedIFC involvement in Thailand have been improved by the rapid expan-sion of the private sector.

developed to allow firms greater access to credit as they develop andimprove their products. In addition, in early 1991 the central bankannounced the easing of foreign exchange controls, effective April 1.

The World Bank's Role

The World Bank has supported the industry and finance sectorsthrough a combination of lending and policy advice. Two percent ofBank loans have gone directly to industry, and 8 percent have been

12

structural adjustment loans. A $150 million structural adjustment loanwas extended in 1982 and one for $175.5 miilion in 1983. Directsupport of the industrial sector began in 1964 with a loan to the IFCT.

There have been four IFCT loans in all, the latest, for $30 million, in1981. In May 1990 a study of Thailand's financial system undertakenby the World Bank in cooperation with the government and the Bankof Thailand recommended a variety of actions to promote the reformof the financial system. In February 1991 the Bank approved a $32million loan for a project that will improve central government taxadministration by providing computer support for tax processing andanalysis.

13

AGRICULTURE

Since agriculture's share of GDP is relatively small and has beendeclining, its contribution to the economy is often overlooked. Yethistorically the strength of the Thai economy has been in its agricul-tural resource base. Agricultural exports eamed sufficient revenue tomaintain a fixed exchange rate from 1954 to 1981. This performancewas particularly strong in light of the explicit primary export taxesthen in place, which penalized producer incentives and incomes.Although the growth of agriculture gradually slowed as new arableland became scarce, agriculture is still an important sector of theeconomy. In 1990 it accounted for 15 percent of GDP and nearly 19percent of exports. The agricultural sector also remains the mostimportant source of employment, providing livelihood to about two-thirds of the population.

Land Use and Principal Products

Until the 1980s Thailand's land base supported an expanding ruralpopulation without a significant decrease in the average size ofholdings. Currently, however, farm sizes are declining as surplus landis becoming scarcer. A cause for concem is that the expansion of croparea often comes at the expense of forestland.

Roughly half of all cultivated land in Thailand is used to producerice. Thailand's other principal crops include rubber, maize, cassava,sugar, and pineapples. All of these are important export goods.

14

Improved policy measures-elimination of the rice export tax,reduction of the rubber cess (an export tax), liberalization of maizeexports, and active encouragement of joint government-private sec-tor initiatives-and investments in modernization have stimulated thedevelopment of a significant nontraditional agroindustrial exportsector, particularly since 1985. Poultry farming, fruit and vegetablecanning, and marine fisheries are examples of agroindustries thathave become large-scale commercial successes as a direct result of animproved policy framework and investment climate.

Environmental Concerns

Thailand will face major challenges in the agricultural sector over thenext decade. The scarcity of arable land has led to acceleratingdeforestation and severe soil erosion, threatening the preservation ofthe country's rich biodiversity. Currently, more than one-quarter ofThailand's land is affected by severe or very severe erosion. As landbecomes increasingly scarce, pressures on the remaining forests andon some critical watersheds will almost certainly increase. Thesetrends, if unchecked, would pose a serious risk for the sustainabilityof the country's agricultural performance.

A second challenge for the agricultural sector stems from theincreasing shortage of water. Competition for water by household,industrial, and agricultural users has necessitated the rationing ofdry-season water supplies for the Chao Phraya system, which servesthe "rice bowl" of Thailand, and for several large cities, includingmetropolitan Bangkok. There is a critical need for improved basinplanning and watershed management and for selective investmentsto expand and regulate dry-season water resources in an environmen-tally sound manner.

The World Bank's Role

Loans for specific agricultural and rural development projects accountfor 24 percent of the World Bank's total lending to Thailand. Theobjectives of past projects have included developing irrigation infra-structure, providing essential services to areas in poverty, improving

15

About two-thirds of Thailand's people make their living fromagriculture. World Bank loans have provided farmers with credits to buysupplies and equipment.

land tenure, planting rubber trees, and strengthening extension,research, and credit. Policy reforms in the areas of institutional coor-dination, poverty alleviation, land registration, and export taxationhave been implemented with support from the Bank's country andeconomic sector work, structural adjustment loans, and project loans.

In 1983 the Bank loaned $70 miillion to Thailand's Bank for Agri-culture and Agricultural Cooperatives to provide farmers with creditfor expanding and developing agricultural production and purchas-ing modem farmn equipment. In 1984 a loan of $35 m-illion supporteda cadastral survey and a land registration program that led to theextension of land titles to many farmers. A loan approved in Septem-ber 1990 financed the second phase of this land-titling program.Extending land titles to farmers gives them security of tenure-acritical precondition for the land improvements that are necessary ifagricultural production is to be intensified. Having title to land also

16

allows farmers to apply for agricultural loans from the governmentand from commercial banks.

In 1986 a third loan for the Rubber Replanting Program focused oninstitutional development and cost efficiency in improving the in-comes of rubber smallholders. In 1987 the Bank began overseeing,on behalf of the International Fund forAgricultural Development, theimplementation of a People's Irrigation Project to intensify agricul-tural production in the Northern Region. A Bank project scheduledfor completion in 1992 is supporting national agricultural researchefforts. Other Bank loans have accelerated rural electrification, builtadditional rural roads, and improved living conditions in rural house-holds.

In addition to its lending, the Bank has contributed to the dialogueon agricultural issues through various studies and reports. In 1987 theBank completed a review of agroindustrial development in Thailandand made recommendations for further diversification in agriculture.

An agricultural extension worker gives advice to a farmer as part of aWorld Bank project. Motorcycles provided by the project enable extensionworkers to reach farns in outlying areas.

17

In 1989-90 another study reviewed proposals for the "Greening ofthe Northeast" program and suggested a framework for future devel-opment of that region. To better understand recent developments andsupport the govemment's growth and diversification efforts, the Bankin 1990 undertook a review of the rural financial sector as part of alarger financial sector review. Finally, the Bank is administering astudy, initiated inmid-1990 under a grantfromJapan, thatwill analyzeproblems and issues related to incursions into conservation forests(national parks and wildlife sanctuaries) and vulnerable watersheds.The study will propose practical measures for providing more effec-tive protection and conserving biological diversity.

The importance of agriculture to Thailand's economy and thepotential for intensive farming and crop diversification argue forcontinued Bank assistance to the sector. The Bank will continue itssupport for land titling, for the development of public lands suitablefor sustainable agriculture, and for agricultural research. It will assistThailand's efforts to strengthen the management of land and waterresources, protect and manage its biological diversity and its remain-ing forests, and thus ensure sustainability and competitiveness inagriculture. At the same time, the Bank will focus on diversifying farmfamilies' sources of income. These efforts are interrelated, taking intoaccount the overlapping environmental, income, and policy implica-tions of land, water, and forest development.

18

URBAN DEVELOPMENT

In 1989 urban dwellers accounted for 22 percent of the Thai popula-tion. The urban population grew at 4.7 percent a year between 1980and 1989-more than double the estimated growth rate of the totalpopulation. Rural-urban migration is the predominant factor in thisgrowth, and it is expected to rise as agricultural land becomes increas-ingly scarce and opportunities in industrial areas grow. The city ofBangkok has been hardest hit by the resulting problems, but rapidgrowth in secondary cities is quickly outdistancing their availableinfrastructure as well.

Water Supply and Sanitation

Beginning in the 1970s the government gave high priority to improv-ing water supplies, with particular attention to the needs of urbanareas. By the early 1980s the Metropolitan Waterworks Authority(MWA) had completed a $220 million expansion project that increasedproduction by 65 percent. Another investment of $360 mnillion wasmade between 1980 and 1984 to expand system capacity by anadditional 400,000 cubic meters a day. Whereas only 20 percent ofthe population had access to a safe water supply in the 1970s, by themid-1980s two-thirds of all municipalities and towns had access to apiped water supply system. Data from the Ministry of Interior indicatethat safe drinking water now reaches 56 percent of the country's urbanpopulation and 66 percent of the rural population. The governmenthas established a nationwide target of 70 percent for 1992.

19

An even more serious problem in this sector is poor drainage andperiodic flooding. Bangkok is only 1 meter above sea level and islocated on the Chao Phraya delta, which experiences high waterduring the rainy season. Geography and the city's inadequate drain-age facilities thus combine to create significant flooding. The rapidgrowth of the city has led to uncontrolled development of flood-prone areas and to the indiscriminate filling of klongs (drainagecanals). The problem is exacerbated by ground subsidence-up to10 centimeters a year in some areas-caused by excessive abstractionof groundwater. (Close to one-third of the population and mostindustrial plants obtainwaterfrom theirownwells.) The combinationof seasonal flooding, inadequate drainage, and lack of central sewer-age facilities has made water pollution a health hazard.

Housing

Excellent economic growth combined with relatively unregulatedconstruction and financial sectors in Thailand have elicited strongprivate investment in the housing industry over the past decade. Thesteady expansion of financial intermediaries such as the GovernmentHousing Bank has helped mobilize substantial mortgage funding,which-together with modest international investment, largelythrough joint ventures-has further stimulated the local real estatemarket. The resulting competition has driven up prices of land andconstruction materials at an unprecedented pace over the past threeyears.

These changes have made the task of serving Thailand's lowestincome groups increasingly difficult. In the mid-1980s the govem-ment estimated that about 20 percent of Bangkok's population and acomparable or larger proportion of the residents of the principalregional cities were living in slum areas. This figure has not changedsignificantly. Rapid escalation in the price of land, especially inBangkok, has placed ownership beyond the reach of most slumfamilies and has made landowners reluctant to sell at any price. This,in tum, has hampered land acquisition by public authorities and thusslowed the pace of low-income housing development. In response,experimental schemes in land swaps, joint ventures, and land read-justment are being explored by the National Housing Authority in an

20

attempt to find ways to help those families most in need of closeproximity to employment opportunities.

The World Bank's Role

The Bank has been active in improving the water supply for lower-income families in Bangkok and other cities, and such support isexpected to continue. Lending for the sector began in 1973 with theapproval of a $55 million loan to the MWA for a project that succeededin improving water supplies in the Bangkok region. In 1980 the Bankapproved a loan for a provincial water supply project to developpotable water systems in more than 120 towns throughout Thailand.In April 1985 a regional cities development project, funded by a loanof $27.5 million, was approved. One component of this project is theimprovement of drainage and sanitation facilities in the cities ofNakhon Ratchasima, Khon Kaen, Chiang Mai, and Songkhla. Theproject is expected to relieve severe seasonal and flash flooding inresidential and commercial areas of these cities. Wastewater sewersand treatment facilities, combined with secondary drainage improve-ments, have already substantially reduced water pollution. The Bankis also looking into providing assistance for flood protection anddrainage schemes in Bangkok.

In housing, the Bank has supported Thailand's low-income na-tional housing program for more than fifteen years through threeprojects with the National Housing Authority. Earlier policies involv-ing a larger subsidy element have gradually given way over thisperiod to an increasing degree of financial self-sufficiency in newhousing construction, but about half of the upgrading costs are stillbome by the government. The increasingly competititve conditionsdescribed above, however, raise new challenges for housing policyand will require public sector agencies to work toward greater effi-ciency and to focus more sharply on serving those most in need.

21

TRANSPORT

Infrastructural bottlenecks in transport and communications-thelegacy of conservative investment in the past-are a major impedi-ment to future growth. To overcome these obstacles, significantmodernization will be required. The government recognizes that theinfrastructure is inadequate and is taking steps to rehabilitate transportand communication facilities. In 1990 several large transport projectswere approved, including two mass transit (rail) systems and severalnew urban toll expressways. All of these projects are privately funded,but public investment in transport and communications may alsohave to be increased to meet future requirements.

Urban Congestion

Although interurban transport in Thailand is generally well devel-oped, urban areas have been severely strained by the recent eco-nomic boom. The Bangkok metropolitan area has been particularlyaffected because 40 percent of manufacturing is located there. Eachyear 35,000 vehicles are added to the streets-a growth rate of 9percent-and there is little scope left for alleviating congestion byimproving traffic management. The situation is rapidly approachinggridlock.

Recently the government has been offering incentives-includingtax exemptions and reductions-to enterprises that will agree tomove from Bangkok to industrial estates such as the Eastern SeaboardIndustrial Estate and the Northern Region Industrial Estate near

22

Chiang Mai. The government hopes that by dispersing industrial sitesit can relieve pressure on transport and other infrastructure withinBangkok.

The World Bank's Role

The Bank has supported government initiatives in the transport sectorsince 1950 and has helped to develop railways, highways, and inlandwaterways. Over the past twenty-five years eleven Bank loans havebeen made to Thailand's highway department. The loans helpedfinance the construction or rehabilitation of about 5,900 kilometers ofroad and provided technical assistance for training the department'sstaff. Funds were also provided for road maintenance equipment,workshops, and a series of feasibility and engineering studies on how

World Bank loans have helped to expand and modernize the port ofBangkok.

23

to improve sector operations and on preparing road projects. In 1987and 1988 the Bank approved two highway project loans, of $50million and $87 million, respectively, to increase the capacity utiliza-tion of existing infrastructure and improve the efficiency of freightand passenger transport. A third loan of $50 million, approved inJune1990, is assisting continued efforts to upgrade and extend the highwaysystem. Components of the project include the preparation of actionplans to improve traffic safety and to control exhaust emissions thatcontribute to urban pollution.

Bank lending has also supported the development and expansionof the country's inland waterways and port facilities, including theport of Bangkok. In 1980 the Bank approved a $53 million loan toimprove the potential for low-cost transport on navigable waterwaysin the northern corridor between Bangkok and Uttaradit. Institutionaldevelopment of the Port Authority has also received Bank assistance.

In response to a request from the government, the Bank reviewedthe planning, investment, and implementation requirements of keyaspects of the Eastem Seaboard Development Program. The Bank iscurrently assisting with the preparation of a master plan for a similarregional development program for the Southem Seaboard.

24

ENERGY

Energy consumption in Thailand grew, on average, about 6.1 percenta year between 1980 and 1989. Most of this growth was initially metby energy imports; in 1979-80 dependence on imported oil forprimary commercial energy was more than 90 percent. After the oilprice shock, the government made great efforts to develop localenergy resources. As a result, the share of oil in commercial energyconsumption was reduced from 91 percent in 1977 to 64 percent in1989, and dependence on imported oil was brought down to 57percent. The government's energy strategy emphasizes rational de-velopment of domestic resources, energy conservation (to be encour-aged through efficient pricing and, more recently, direct conservationmeasures), and creation of a framework for private sector initiatives.

Thailand's Energy Resources

Indigenous energy resources consist of biomass, oil and natural gas,lignite, hydropower, and some geothermal fields. Of these, naturalgas and lignite hold the greatest promise for providing energy in theyears ahead. Already, potentials of 520 million barrels of crude oil andcondensate and 16 trillion cubic feet of gas (equivalent to 2.9 billionbarrels of oil) have been identified. Recoverable reserves are esti-mated at 4 billion to 5 billion barrels of oil equivalent. Lignite reservesin the Mae Moh basin in northern Thailand are estimated at 2.1 billiontons (3.7 billion barrels of oil equivalent); of this, about 1.3 billiontons are believed to be economically minable. Recently, reserves of

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A hydropower dam built with support from the World Bank.

more than 200 million tons were discovered at Saba Yoi in southernThailand. Between 1984 and 1990 lignite production increased from2.3 million tons to almost 7 million tons, a growth rate of 20 percent,and annual output is scheduled to expand to 15 million tons by 1995.There is thus substantial opportunity for further domestic energysubstitution.

The World Bank's Role

Energy is one of the most important sectors in Thailand's plans forfuture growth, and the Bank has made major contributions in thisarea. The largest share of Bank lending to Thailand (33 percent) hasbeen devoted to the energy sector.

Most loans for power have been made to the Electricity GeneratingAuthority of Thailand (EGAT), the main government body responsiblefor power generation and transmission. Generating facilities consistof conventional thermal plants, combined cycle plants, hydropower,and combustion turbines. Three Bank-financed projects for powergeneration have been completed: the Bang Pakong thermal powerand Khao Laem hydropower projects in 1985 and the Pattani hydro-power project in 1983. New projects were approved in 1988, 1989,

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and 1990 to assist EGAT's development program, which includesstrengthening its power generation and transmission facilities. An-other power sector project that will support major investments byEGAT in 1991-92 is under preparation.

The Bank has also supported exploration for lignite and natural gasreserves. A loan of $72 million in 1980 helped increase the productioncapacity of the Mae Moh mines, and a second loan, of $59 million in1984, boosted capacity to 5 million tons a year. Both loans includedcomponents for technical assistance that led to improved miningoperations. Lending for the natural gas subsector has helped increaseproduction to an average 550 million cubic feet a day, and this amountis expected to double in the next ten years. A gas separation plantcapable of producing 350 million cubic feet a day was built in 1982with the help of a $90 million Bank loan. The loan also enabled thePetroleum Authority of Thailand to construct additional marine ter-minals and storage facilities and provided staff training in the opera-tion and maintenance of the gas plant.

The energy sector's needs and investment programs are likely toremain relatively large in the near term, and the Bank's strategy is toassist the government in formulating sound investment decisions ina rapidly changing economic environment. Other objectives are tohelp improve coordination in the petroleum and power subsectorsand, by monitoring charges for power, to ensure that agencies arefinancially able to undertake future expansion and operate the newfacilities effectively. The Bank is also concerned about the environ-mental effects of large-scale power development based on lignitecombustion and about the ecological aspects of hydropower plants,and it expects to provide technical assistance to achieve environmen-tally sound and sustainable development. The Bank is assisting thegovernment and the powerutilityin exploringand identifying optionsfor private sector participation in power generation.

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EDUCATION

Thailand's economic progress over the past three decades has helpedcreate the resources needed to develop the education system and toextend access to education to all social groups. Thailand now has oneof the highest functional literacy rates in Asia. Enrollment rates in basiceducation are about 95 percent at the primary level and almost 30percent at the secondary level. About 19 percent of Thailand's gov-ernment budget goes for education, and its public spending oneducation amounts to 3.3 percent of GDP-a share comparable to thatin otherAsian countries such as the Republic of Korea, Indonesia, andthe Philippines. At the same time, rapid economic growth and thestructural shifts in Thailand's economy are placing new demands onthe education and training system, implying a need to explore newdirections for the sector.

These trends have contributed to the recent surge in demand forbetter-trained labor-as reflected, for example, in the rising numbersof job vacancies for skilled workers and in employers' reports ofincreasing difficulty in recruiting and keeping such workers. In thiscontext, education is clearly critical. Its capacity to respond to thegrowing demand for higher levels of skill in the work force will beessential to the continued modernization and development of theeconomy.

Priorities for Education

To reshape the education system so that it can provide a sound basefor Thailand's entry into the twenty-first century, three priorities stand

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out. The first priority, as industrialization progresses, is to achieve acloser match between the kind of education and training offered andthe needs of the economy. This is likely to involve changes in theorganization and financing of higher education, the expansion of thesecondary school system, promotion of science education at bothhigher and secondary levels, and much greater emphasis on technicaland vocational training.

The second priority is to improve the quality of basic education.The decision in 1990 to extend the period of compulsory educationfrom six to nine years reflects this goal. But curricula are still out-dated-especially in mathematics and the sciences-and there aremarked regional disparities in educational opportunities and inpeople's ability and willingness to take advantage of them. In thethree Northeast regions, for example, only 8 to 14 percent of thosewho enter grade 1 stay in school until grade 12, compared with 19percent for all of Thailand and 58 percent for Bangkok. Efforts couldbe made to reduce the dropout rate in primary school by, for example,providing scholarships to children from poor families so that they cango on to secondary school.

About 95 percent of Thailand's school-age children now attendprimary school.

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The third priority is to make better use of the resources currentlyavailable in the sector, through, for example, in-service teacher train-ing and redeployment of teachers. The savings obtainable fromgreater efficiency could be used to help finance expansion at thesecondary and tertiary levels and to improve primary education,particularly in the early grades.

The World Bank's Role

In the 1970s and early 1980s the Bank was an important source offinancing for the development of education in Thailand. Starting in1966 with a vocational education project, the Bank extended a seriesof loans totaling about $127 million for the government's educationaldevelopment programs. These programs were successful in improv-ing access to primary education, especially in the rural areas. Thegovernment has not borrowed from the Bank for education sincesigning a secondary education loan in July 1982. Dialogue with thegovernment ministries concerned has, however, continued and wasrecently strengthened through a roundtable discussion on Thailand'seducation and training needs in the 1990s.

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WOMEN IN THAILAND

The legal, economic, political, and social status of women in Thailandhas improved dramatically over the past generation. Women's devel-opment first became a national planning objective in Thailand at thetime of the Third National Economic and Social Development Plan(1972-76), which gave priority to the participation of women ineducation, employment, health, welfare, and family planning. Thatemphasis has continued and increased. Thailand's most recent devel-opment plan (1986-91) identified women as a special target groupand established goals in vocational training, education, and health.

This attention to women's development reflects the increasinglyimportant and expanding participation of women in the Thai econ-omy and society. In fact, the rate at which women in Thailand areentering the work force (3.8 percent a year) outdistances that of men(3.2 percent). A survey of the Thai labor force taken in 1989 foundthat at 45 percent, female participation in the work force was higherthan in any other country in Asia. The survey determined that nation-ally women account for 55 percent of the work force in commerce,43 percent in agriculture, 68 percent in services, and 51 percent inmanufacturing. In urban areas female participation in the labor forceis fully 50 percent, and this figure does not include the large numberof women active in small-scale enterprises and domestic services.

Thai women have been gaining increasing recognition on thepolitical front. For example, in 1982 women were given the legal rightto be village headperson. Since then, 266 women have been electedto that office. Although the number is small in relation to the nationaltotal of 60,000 village headpersons, it is a significant indicator of the

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expanding role of women in Thai society. This expansion into thepolitical arena has a parallel in the business world, where womenoccupy an increasing number of executive positions. Thai women arealso making important contributions in social welfare and environ-mental protection.

Social indicators for women in Thailand are generally good. Lifeexpectancy at birth for women was 68 years in 1989 (it was 64 years

Tapping a rubber tree. The World Bank's three loans for rubber replantinghave opened up employment opportunities for women.

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for men). This figure is three years higher than the average female lifeexpectancy for Asian countries in the same income group. Womenenjoy virtual equality of access to the educational system. Nationwideliteracy figures for 1985 reflect this equality. Female literacy, at 88percent is only slightly lower than the national average. In 1965 thefertility rate in Thailand was 6.3. Today women in Thailand bear anaverage 2.48 children, significantly lower than the 3.20 average forAsia as a whole.

The World Bank's Role

During the United Nations Decade for Women (1975-85) the WorldBank was among the many institutions that adopted policies toexpand the role of women in development. This initiative was fol-lowed in 1987 by a stronger and more focused effort to integrateattention to women-in-development into analytical work and lend-ing. Bank activities in education, health, and agricultural extensionand credit were modified to better meet women's needs.

Within the general context of Bank support for economic develop-ment in Thailand, employment opportunities for women have ex-panded dramatically. In the Northeast, for example, a profusion ofsmall industries, primarily managed by and employing women, hassprung up in the past five years to serve large-scale producers in urbanareas. These small enterprises undertake a variety of intermediatetasks, from gem polishing to the mass production of shirt cuffs, andgive poor rural women opportunities to earn extra income during thedry season.

The Bank's support for Thailand's electrification has also had apositive effect on women by making power available for agriculturaland related activities, street and other public lighting, and radio andtelevision.

The rural electrification program in Thailand, however, has hadadditional significance for women. Rice is the staple food in Thailand,and when household electricity reached rural areas, one of the firstpurchases that women made with disposable income was an electricrice cooker. This device enabled women to spend less time cookingand collecting firewood. In addition to the environmental benefit ofusing less firewood, rice cookers have given women time for moreproductive activities.

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Other areas of World Bank lending in Thailand have had even moredirect benefits for women. The World Bank's three rubber replantingprojects have created substantial employment opportunities. Womenrepresent 50 percent of the population actively engaged in rubberreplanting. They assist in rubber tapping, latex collection, and main-tenance and weeding operations. Some women own and managetheir own rubber holdings. Women also represent most of the workforce in rubber factories.

The Bank has also helped to widen educational opportunities forwomen by supporting six education projects. For example, womenreceived nearly half of the long-term fellowships for graduate studyabroad made available under the Third Education Project.

Two Bank-assisted land-titling projects are also directly affectingwomen, who account for 12 percent of all rural landholders, byhelping them secure title to their land through the normal projectprocess. Since more than 20 percent of landholders in urban areas arefemale, the urban components being carried out in the BangkokMetropolitan Region are benefiting a large number of women.

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CONCLUSION

The Thai economy has demonstrated remarkable resilience andgrowth in the past. In order to tum its current economic boom intosuccessful industrial takeoff, however, Thailand still has to overcomemany challenges. It must improve its industrial infrastructure, upgradeits technological capability so that its labor market remains competi-tive, further diversify exports, increase industrial and manufacturingefficiency, and continue to strengthen the financial system. At thesame time, the emphasis on social development programs designedto create better opportunities for the poorer segments of the popula-tion needs to be maintained.

Recently, the govemment has given top priority to the improve-ment and modernization of infrastructure and the protection of theenvironment. A World Bank study on urban and regional transport,financed by the United Nations Development Programme (UNDP) andcompleted in early 1991, will help formulate national transport invest-ment programs, strategies, and priorities during the Seventh Planperiod (1992-97). The govenmment has also been studying the chang-ing pattems of urban and industrial development and will use thisinformation to review infrastructural investment programs for theSeventh Plan and to assess its policies and programs for controllingpollution of the environment. Steps are being taken to further liber-alize trade and financial markets and so strengthen the competitivebase for future growth. Rural development programs will also play animportant role in furthering the government's objectives for povertyalleviation and balanced regional development.

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The volume and range of Bank activities in Thailand are likely toremain fairly modest in the short to medium term. Thailand's conser-vative limits on public foreign borrowing, creditworthiness and readyaccess to foreign commercial and concessional sources of finance,adequate foreign investment, and current sound macroeconomicsituation all lead to the expectation that Bank lending to Thailand willnot increase significantly from the recent average of $100 million ayear. Future Bank efforts will focus on the infrastructure and energysectors, but analytical work and lending in agriculture, forestry, landtitling, and the social sectors will continue, in response to interestexpressed by the agencies concemed.

Thailand enjoys a diversified export and natural resource base andincreasing self-reliance in energy. It has a competitive labor market,and the government's commitment to free and fair economic compe-tition provides a healthy environment for industrial growth. Theprospects for the future are good.

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THAILAND: BASIC COUNTRY DATAUnless otherwise noted, data are for 1989.25.70 babt = 1 US$ (July 1, 1991)

Average, kaer-middle-income

Thailand countri

Area (sq. km) 513,000Agricultural land (percentage of land area) 40.5Forestland* (percentage of total area, 1980) 29Gross domestic product (GDP) (billions) $70GNP per capita $1,220

Average annual growth rate (percent) 4.2 2.0Agriculture as percentage of GDP 15 14Manufacturing as percentage of GDP 21 23Population (millions) 55.4Percentage of population in urban areas 22 53Population of capital city as percentage

of urban (1990) 57 31Population growth rate (percent, 1980-89) 1.9 2.3

Urban growth rate (percent, 1980-89) 4.7 3.5Age structure of population (percent)

0-14 years 33.6 37.915-64 years 62.2 57.5

Total fertility rateb 2.5 3.9Life expectancy at birth (years) 66 65Infant mortality (per thousand live births) 29 51Daily per capita supply of calories (1988) 2,287 2,738Medical care as percentage ofGDP* (1985) 3.5Population per physician (1984) 6,290 2,910Population per nursing person (1984) 710 1,020Educatlonal expenditure as percentage

of GDP' (1985) 3.3Primary school enrollment* (percentage

of school-age group, 1987) 95 103Secondary school enrollment (percentage

of school-age group, 1987) 28 54Adult literacy (percent) 91 74Commercial energy consumption per

capita (kg of oil equivalent) 330 888Labor force* (millions, 1985) 29Labor participation rate* (percentage of

labor force, 1985) 52.8

a. Weighted averages for all lower-middle-income countries, defined as countrieswith GNP per capita of more than $580 but less than $2,335 in 1989.

b. The average number of children that would be bom alive to a woman duringher lifetime if she were to bear children at each age in accordance with prevailingage-specific fertility rates.

Sources: All data are from World Bank, World Development Report 1991 (NewYork: Oxford University Press, 1991), except that data marked with an asterisk ( ) arefrom World Bank, Social Indicators of Development 1990 (Baltimore, Md.: JohnsHopkins University Press, 1991).

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