Analysis of Sequencing of Financial Liberalisation in Thailand
In order for financial liberalisation to lead to financial and economic growth and to increase the presence of financial agents in the economy it is important that the state adopt a certain set of policy reforms so as to strengthen the domestic economy. Liberalising the domestic financial sector and easing cross border flows of capital can be beneficial if the reform process is sequenced in the right order. The following chapter traces out the reforms process as adopted by Thailand in its liberalisation process.
The traditional view on sequencing of financial liberalisation states that a certain order of financial libealisation should be implemented to ensure benefits are derived from free flow of capital while at the same time avoid ing economic disruption (McKinnon 1982; Williamson and Mahar 1998). While, some economists believe that the sequence of financial liberalisa- tion can be varied from one country to another, depending on the nature and conditions of each economy, a significant number of economists now accept that the sequence of financial liberalisation is reduction of deficits, trade and domestic financial reform, foreign exchange rate reform, with capital account reform left to last (Villanueva and Mirakhor 1990b;Hallwood and MacDonald 2000).2 Having explored financial liberalisation frameworks in the previous chapter, we now analyse the sequence of financial liberalisation that Thailand pursued, by assessing the sequence that it undertook against the order described in the literature, which was reviewed earlier in Chap. 2. Thus, the chapter is organised as follows. Section 4.2 focuses on Thailand’s foreign trade pattern reforms and their consequences for the economy. Section 4.3 discusses the reduction of deficits and maintain of foreign reserves. Section 4.4 studies foreign exchange and capital control reforms undertaken in three main episodes between 1989 and 1994. Section 4.5 analyses the domestic financial reforms that involved the establishment and operations of two new financial institutions, the Bangkok International Banking Facilities (BIBF) and Export-Import Bank (EXIM). Section 4.6 provides a summary of the chapter.
KeywordsForeign Exchange Commercial Bank Current Account Deficit Capital Control Current Account Balance
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