Economic report on Thailand

 I I No. E-89A RESTRICTED 66997 This report is restricted to use within the Bank INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT ECONOMIC REPORT ON THAILAND May Z6, 1950 . Economic Department Prepared by: A. Basch  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT FROM: The Secretary July 12, 1950 Attached for the infoITJation of the Executive Directors are reports on Thailand as follows: A. Ecor.Lot1ic Report on Thailand B. Technical Report on the Royal State Railways Rehabilitation and Itlprovement Project in Thailand C. Technical Report on the Chao Phya Irrigation, Drainage and Connulucations Project in Thailand D. Technical Report on the Development of the Port of Bangkok in Thailand E. Technical Report on the Chainat Hydro-Electric Project in Thailand Distribution Executive Directors and Alternates President Vice President Department Heads Sec: 4-241  Table of Contents P~!i! ~To. General Statistics SUMMARY A}\1]) CO\IrOLUSI O'~S • i-v I. INTRODUCTIOl'i • • 1-4 II. RICE MO~TO?OLY. 4-6 III. nTTEBNAL FHlA1TOE. • • 7-19 Budget • . • 7 Government Debt . • • • • 11 Money Supply and Prices • • • 14 Credit Institutions a'1d Oap1 tal Market • 16 IV. EXT~~AL POSITION • ·· 20-30 Foreign Trade. • 20 1948-1949 Balance of Payments. ·· • 22 1950 Trade and Balance of Payments . 2~· Thailand's Lon~er-run Trade Prospects . 25 ]Lxchange and Import Control l"" • • ·· • 26 Foreign Investment • • • • • 29 V. PROBLEr·1S OF REHABILITATION ANn DEVELOP~1Ef.to.TT • • 30-34 Requirements 30 Problems of Internal Financing • • • • 31 Problems of External Financing • • 32 APPENDIX 1 - Measures Counteracting the Infla,tionary Effects of Borr0\1ing from the Bank of Thailand APPEIDIX II - Holders of Outstanding Government Loans (Novem'ber 1949) AP?E1IiDIX II I - Statement of the Bank of Thailand. APPENDIX IV - Current Balance of Payments Transactions of Thai1and- 1946-1948  200,COo S(~. ::51es ... Urit Par:i O:'f:tciEl Baht 1~l.5 - - US :'\ .:> 1 (g:"; por li·'~lt) ("A" Eaht 21.6 ·us ') 1 (f I,.,,~ .~.oy, per lJr"J1t,) Jrcn.-Fcb. 1950 II " Trade Stat:i.ctics - 1 040 -:; /' (o",·:-,·i·',o.+<:> •.>.., .. Vv A· .. j~xports Inportis Balance Reccip·ts, OUrrent Accoud 2/8.9 Pa;yr:1C:1 ts, Curren t :'l.ccount l~cla~·ce, OUrrent Account l'U ~) c 'o+ r l~'--:} ... v (1' n '" ""';11';0"'''' .:! .. .,L • ...,L.. ... 1~ 0'(\ .L 1....... '14v) v'C,.}.l 19/. .9 (provisiOl~a1) RavOrlllC 1SC5.2 Deticit 122.5 Ileverll'!.c lSI/).) ExronHture (of' ,,'Licl~ en.pit.al ex- perdi tt.1re 521.7) Deficit 521.7 General Statistics (cont.) Public Debt (December 1949 in millions) Baht 1,162.0 Total Government Bonded Debt Baht 319.8 ~otal Government Internal Debt Baht 1,040.0 External Debt, Sterling ;t, 1.56 External Deryt, U.S. Dollars $ 5.87 Pen1ing War D~~age Claims Against the Government (face value) ( ;l; u.84 (U.S.$ 1.46 1vTonetarv Reserves Held by :Banl >:: of J:hailar:.d (I n the I s sue as i"el1 as in the Banldng Department) End of 1949 A~ril 27, 1950 (in millions) Gol$. u.s. $118.19 118.19 U.s. Dollars $ 16.42 18.27 Sterling Free 21.04 Frozen ;t, 13.30 11.95 Indian Rupees Rs. 12.71 10.00 Total in ba.."'t 2,71).65 2.886.71 Barter .Account 1'ITi th Bank of Japan (in millions) Baht 40.41 125.60 Notes in Circulation (in baht millions) 2,554 .2 2,736.9 . Sight Deposits of Commercial Banks Decemaer 1949 (in baht millions) 755.9 Cost of Li v1n12: Index (:Ba..TlP,kok). l~ovember 1949 ( 1938-39 :: 100) 1187 Wholesale Pri cs Indt?x I :Iovember 1949 ( 1938-39 =100) 1503  SffiftM!RY AlJD C~NCLUSIONS 1. The relatively si:'1:!.Jle economy of Thailand "laS not greatly CIt s- rupted by \,Tar. The agricultural production, in which over 80;1 of the worki:!:g population is engaged, has had a rapid post"rar recovery, and since 1947 a clear up"rard trend can be di scerned in the whole economy of Thailand. In 1949, the overall prod.uction as well as the real income per capita reached higher levels than pre':rar. :By that time rice e~':ports of 1.2 million tons were only 10% belair' the prel.rar average, accounting for more than 60% of total export!"; and l"J.bber exports ~'lere double those of pre 1,rar. Since the end of the \>Jar, the Government established a Rice Honopo1y which in the last two yee,rs has provided the Treasury \'ii th sub- st0,ntial revenue derived from the difference of prices paid to the rice mills and export priees converte<1. at the official exchange rate. Thailand now ranks first in rice exports, followeC\ by Bu.rma and the U. S. 2. The financial post tion of tl:e count.r;'T internally as '"rell as externally is favorable. After the b·u.dget defici ts durin~ the "'ar, a practically balanced budget ,'las reached in 19 48, and the year 194 9 ended probably with only a very small deficit. As before the war, the Govern- ment f:1et from its revenue not onl~r ordinary ex-.fJenC'.i ture but also a sub- stantial capital expenditure. The overall 1950 bud~et est~.rnate shm"s a de::icit of baht 521 million (about 21% of total e::-::penditure), ,.rhich is equal to the proposed capital expenditures. Hm,rever, the 6Ji:perience of 1949 may '.rell be repeated. The deficH wi 11 probably be smaller t!lan forecast because revem16S \·,ill be higher than estimated arld because 801:18 of the projects will not be carried out. The Gover~rn8nt plans a lone- term loan of baht 200 million, probably too high a tar~et, and hopes to meet part of its expendi tures involvin~ foreign e::chan~e through a foreien loan.  3. The aggregate government debt is ralati vely small; it 1rlas baht 1,162 million at the end of 1949, of ,'Thieh about 10% represented external obligations. The total deM s:ervice amountea to only 3% of total government expenditure in 1949, compared to over 5% in 1938-39. Thailand's foreign debt record has been very good. Until the country's entry in the second \'l'orlO. \var in January 1942, po default in forei,p:n debt is recorded. In 1947 the service in foreign debt 1!ras re'SUmed \dth full settlement of all arrears. At present, Thailand's foreign debt consists only of t 1.5 million bonds helo by the public and a surplus propert:, credit of $5.7 million. 4. During the war, circulation of notes--the most relevant item in money sup:ply-eXl)anded about nine times, mainly as a result of advances to the Japanese Govern.ment. No serious attempt 1.-laS made to reduce the inflat~d money volume until 1948. During the last two years, the profits derived by the :Bank of Thailand from selling at the free (premium) rate pounds and Indian rupees purchased from the Rice Monopoly at the official rate have been put aside--in fact sterili:z:ed--in a special "Sta':)ilization Account". HOlAlever I the s'J.bstantial contraction of the note circu.lation which could have resulted from this operation ,vas more than offset by the expansion resulting from the increase of gold and foreie;n exchan~e holdings of the Bank of Thailand. Wholesale prices and cost of living have -Deen recently fairly well stabili ze;;l at a level substantially belm'! their postwar peak reached in 1947. 5. Since 194 7 Thailand f s external trade has "been steadily j.ncreasing and is again reaching its traditional export surplus position. In 1948-49 imports vIere equivalent to about ti'lO thirds of exports. Since there are  - Hi - no exchang-e restrictions and only very limited import controls, intro- duced in 1949, it can be assumed that Thailand's import demand is fully satisfied. The current account surplus in the balance of payments is estimated (probably too hip-'h) at $92.7 million j.n 1948 ana CJrobably too lov-') at $41.9 million in 1949. A current account surplns i s GXDecte~. also in 1950, both \I/"i th the hard currency as i'Tell as the soft currEmc;:' area. The goHt and dollar reserves of the Bank of Thailand increaser. fro:;'] $9G million at the end of 1946 to $135 million by the e::d of 1949-01' by $45 million; and the free sterling ho:.dings, frl")JTl t2.9 million to ;);,14.6 million-- or by tn.? million. Thailand is the only country in Asia '1"11 th a free exchange market. It has a lim:' ted system 0f multiple exchan;o.-e rates ",hieb. acts as an export tax on rice, tin, ac""1.d r1.1.ober and as an import subsidy for I)etroleum products ane. governJ:1ent pnrchases abroad. 6. In part, because of its cautious financial policy, Thaihnld has been. slo1>! in repairi ng ,·lar daz:nages, and 1i ttle progress has been made in carryi ng out the Government 18 develol)ment plans. The G-overnmen tis, therefore, still confronted with the task of rehabili tating the raihtays a!ld hi Gh'flays , of repairiru;: irriga.ti'm, and of 1ievelopillf-' the port of Bangkok. In addition, more basic pro-'?rarns for developing the country's mac'1ifold resources will have to be carried out if the population, increas- ing at the rate of 2% yearl:.v, is to be assured of an improve,-=! standard of living_ 7. As SUlni::lg, however, that Thailand contil"..;les to balance jts ord:1.nary budget a...'1d barring the posd "':liE ty of internal borro'.·ring for ',rhich ~)ros­ pects are dim at present, the aDnor'Jal income fro'":! the Rice Mono:;wly should be broadly sufficient for capital investmer.t :;:)U.rposes. During the next four years, this income Mi~ht provide sufficient funds to finance the remaining rehabilitation expenditure and even some development pro,jects. Capital expenditures are expected to decline after this period. Since savin~s deposits may be presumed to sho'~! a steadily risim,' tendenc;'J, the financing of development projects sho1,1.ld become easier as time ?,oes on. 8. Under these ci rcumstances. the desire to borrO\·T abroaO. a l)art of the foreign exchange reouirements of its investment uro,,,,ram in spite of monetary reserves ",11.ich now provide ample cover for the currency in Circulation (74% at the end of Auril 1950, calculated at the official rate) has the following justification. The Government is determined to maintain the reserves at a high level in vie", of both the unsettled overall situa- tion in the area and the importance of the free exchan~e market. In addition, if the sterilization policy is abandonned in part at 1eo>st in favor of development, some pressure on the reserves May appear, and in any case they are not likely to increase much further. 9. Thailand should be in a position to provide from its c17rrent foreign exchange earnings a substantial amount to service an actrl: tional debt. The posi tion in sterling is especiall;, strong, and Thailand should be able to service addi tional sterlin~ obligations "1811 in e' cess of any no'" cont emplat ed. Even in dollars, Thai land's bB,lance of payment 8 :;;ros- peets are promising. Thail~~d's competitive position in rubber a~d tin is ~ood, and ex-ports of these hro commodities to the IT. S. may be expected to continue. In addition, Thailand has been ex~;anc1ing exports of v~,rious small items to the U. S. \<1hich totalled S11 millior.. in lqL~9. Althourh the total valUe of Thai exports to the dollar area "rill l:lrobg,bly not be maintained at the 1948 and 1949 level, a moderate export surplus 1.1ith the  - v~, dollar area mi~ht be expected because imports too are expected to decrease substantially bel 0'" 1949. As Japan and European countries become able to supply the pret'Tar exports to Thailand, normal dollar import requirements should decline and consist mainly of capital and durable consumer goods.  I. Jl1'l'RODUCTION 1. Tho Kingdom of ThCliland "lmest at the souther:.stern tip of tho Asiatic rJJ~nd. Tho country i::: enclosod on its i.fO stGrn, northorn, [md oc.storn borders by Burma and Indo-Chino.; it opons in -tho south onto tho Gulf of Th:;.iland 'Hi til a long narrow arm extending southward alo;"jC tho Gulf to join With lvialayt:.. Tho population, e;:.;titlatod at 17.6 is composed lare:ely of tho Thais who surposodly migrated at 01:0 time from the southwest~rn Chinese province of Yunnar', loss that' 150 miles frem Thailand's ncrthorn bordGr. The princi mi nori ty group is tho Chinese, ostimatGc1 at about 3 n;illion persons. Politic[,lly, Tnallo.:1d is a consti tlltional monarchy. FrioI' to tho recent achiovomonts of indo·- pondoncG by India, Pe.kistan, Coylor., Bul'ITl!l, Indonosic., and the Phi:ippino:'l, Thailr:md had long held ::l. unique posi tioD in Southeo.st Asia 0.8 only poli ticnlly soveroign no.tion a ro:~ion othGI'1diso undGr ·~lestorn C:::lol1ic.l rulo. 2. Thel economy of Thailand is rola.tively simple. Agriculturo OCCUpi3S over gO% of tho working population and -- togothGr v1:L th 0. fovl 8~{trl:'.ctiv8 industries such as tin mining, lumbering, ana. fisb:'Lng forrns tho ess~ntial foul1do.tion the economic structure. Oth3r economic act:l..·- vity in Thailand is confinod largoly' to handicrafts, to tho procoss:Lng of <:.~nd forestry products (rico mills, sugar Hills, and s::u to t'. fGw light TIlD.:nufrlcturi 8.nd serv:Lco industries p to r.:. T;1O<10rn como:J.t ir:dustry, to trade, [~nd to the sions. st of Thailar:d I s cultivatod area is dovcte:d rice; [~nd becauso d' ..nbly r08.soTl favorable ej":viroTJmGnt and 0. low population donsi t;/1( rice prodl1,ction not 17 Tha:tlc.nd s estirrw.tod l 'popU"la·ti·o·~ 'dersi"ty ir~ 1948 \{o..; 88 por[lo:r:s por square milo as compared With 189 per squure mile in Viet ND.ill, in :l'-1o.1aya, 171 in tho Philippinos, 256 in China proper, 272 in India, o.nd 528 in Japo.n. provides for domestic needs but 0..180 furY'ishos half or 1'10rO of Thailand t s rt oc.rnings. t,s one cf the few rico surplus aroat) in {losia, Thailand occupies a strategic posi tieD among the economics in Southeast Asiet. The country!s other major (~xport items a.re rubb3r, tin, and toak. 3. The financial history of Thailand has boon not~worthy for cautious and conservative fiscal and mOI~otary policies. The country has a.voided largo foreign indobtedness; private foreiGn invo nt is also relatively small. Until Horld lhr , full and uni ntcrruptod service \-las maintained on such extornal obligntions e.s wore incurred. Prior to 19/..2 tho currency system was based upon a 100% gold and sterlinG reserve requiror'10nt~ and the budget was corlsistcntly balm'cec1 u:L1til the period immediately precoding tho wc.r. Indood, during mO:.:3t of tho s, budgetc.ry surpluses wore accumulatGc1 even t!lcugh sUDstcmtinl cr~pi tal expondi turos woro boing financed fro1:1 cnrrollt revo:rJJ.lOS. The deficits that wore incurred in tho years just prior to the war, partly as 0. rosult of increased military c.nd police 8JCPordituro .. were still loss than tho loyel of capital outlays included in tho budget. 4. Bofore tho war, Tho.ilancl' s consistent oxpert surplus was mora than sufficiont to covor tho dofici t on current invi account. Boco.use of solf-sufficiency in foodstuffs and tho sir"'plo consumption hab:i.ts the population, the country! s 8ssol1tial impcrt reqnirer.1ents wero limited. Inports avoragod only Cl.bout 74% of eXlJorts L-, the int~;J:- war p~riod (1921-1940). Tho largost irrvisible pn;YL,;nts Here prebe.bly 11 ~-=~--7--~~~--~------~~--~~~~--~~~~----': --------~-- The standard monetary unit is t~le baht which boforo thE) WLU' ,Tas c1ofinod in torms of sterling at an ox:chango ro.te of arproxin:ate1y 11 baht per ~ 1. Du.ring tho postwc.r pOried, tho official recto vIas L,D bc.ht per ~ 1 and 10 baht per IT .S. until Soptembor 19L}9 when it '.fClS changed to 35 baht por I, 1 and 12.5 oc..ht pOI' U.8. ~i:. 8ubstc.ntia} tr0.nsnctions 0.1'0 carried, howevor, o.t a free; 1:ic.r}ret rata Itlhich WD.S around b":;.ht 23.50 pOI' U. 8. ~~1 and baht 57.50 per ~ 1 in Fobruar-J 1950. (8()0 pago 28)  - 3 - remittances by the Chinese ~·!ho domina-c Thailand· s internal trade, rice milling, a..."ld fishing, and '.'Tho also have interests in a a'" mills and tin and rubber production. There are no official balance of Dayments data for the :c)revTar period, 1mt est~~mates by the LS8f.:Ue of l'Tations for 1927 and 1937 show surpluses on current aCCO'_1Ut of baht 40 million to ba=:t cO million (around u.s. $10 million). 5. During the l'lar, Thailand vlaS aligned \",1 th Japan as early as 19':",0, f(Jllotving the fall of France. I t attacked Indo-China 1,ri th Ja~)anese encourageJ:1ent and acq-nired terri t orie6 in Cam1:lod:ia. I!l. January 1942, Thailand "became a.."l open ally (Jf Japan and declared 1var on the 1.: .Y.. and the U.S. althou~h the U.S. never recognized Thailand1s belligerent status. Suo::,eauently, the country! s econor,1Y became geared to the service of Japanese ,'iar interests: Thailand lvas used as a base of operati0ns for the conquest of Burma and fell increasingl~! under Japanese influence. 6. The structure of Thailand I s econom~r re:mainert eSf.enti~lly unchA-n!?,ed during the \,ro.r. ivtuch da-nage "Tae caused, hm-!ever, to raihray brid.gas, locomotives, rolling stod:, and to tin-mining equipment; furthermnre, timbering operations (teak) \vere "badly disorganized. The a"..,.riculturl'1,l economy vms not s'..lbstantially affectec_ by the "rar (although the irri2'(i,tion system '"as not maintained properly); consequently, it has h!:\d a rapid D08t,·'ar recovery. 7. Since 1947 a clear l1p"rnrd trend can be di scernecl in the '_-lhnle economy of Thailand, and in 1949 the overall production, as ,-reI' as real incone }Jer capita, reached higher levels than pre1·!8,r. Only tin and tea}: production are still belovr pre11J8.r figures, "7hi1e the :9rodnctior" and ex- port of various other hard \10008, yane: in particular, h!l,'re surpassed the prmmr le'\'31. The quic)c POBtW[:r recove:ry was grentl:r fc.cili t2tec1 t~y mcunti 3xports \·,hich rGL~.chod 1,216,000 .tQ the nrowar of 1.4 tons. is rrC\l tbo of ricu i1': SoutLoD.st l~sin before tbe '"Tar i tc, dce oxports 'v10ro 108::. than of Burmese e:q)orts. 1. A.n ol)tstanding foa.turo of tr;o posti-l~U' orgo.nizf'.ticn of 13 h2.8 h)en tLo cro[,t::i.cn of Co GcvGrnll(mt rioo the s~11x~ti tl.'J.tion clOGG controls by the Govornm()nt over int,-'r~' :L rlsulc.to i rice from tho :i.. i luluG clCO s::u;:o to provido wi t1; a return r:t to its Ilie3 Office J tho Eini Cct'I:lOrCG for p~tddy millod de() at levels of [.ind buyn intorl1:.:~1 82.lo 11 for Gxport. Ex;x;rt r:ieo in JoceJ. currency C'.!xl is tl..on to tLe ~,.G(lnts cf tb."J -------.--------.-.~ Priv2.to may [~lso buy soll rice fer lccc~1 CO'~.sUClpt:1.cn i2:' DaYlf;kok alla. Dhonbur:i., b'J.t prchibi t.:cl fro;;, J*r~ excoss O~le ['lottie to::. Tho i :1torD£l..!. di of x·icc is s:.':bsidizod by' t110 U'bOtlt b(~;1t 5  2. Rice export prices have been kept relatively stc.ble since JJ.:nuary 191$ when, by o.greement with the Alliod Govorrr!Uonts, the:! wure placed on a pc.rity \-Ji th oxport pricos in Burrna. Ji Tho Govorrunort hr.s mc.int[d.ned intornal buying pricos '11011 b;:,lm'l tho baht oqnivo.1ont of tho rolativoly high export prices. Tho difference betwoon the o:>"'Port price calculo.tod at tbe official rate of exchange and the intern(Ll buy- ing prico, less export dutics and purcho.so taxos, accrues 0.8 0, profit to the Ri.co Monopcly, the greater part of which then turned ovor to tho Treasury. 0::pC~Ct (11xtiGS D.r~d purcbas i) tn:i::us DInOl.ll1tod to b::ht 51 baht 72 minion in 1949. 4. Tho foreigD cxchc.ngo procoods of ricc to tho Bunk of Thtd1cwd o.t the off:Lcial rD.te. in 1948 o.nd 1949 were as follows: (in mLLJ.ions) RuTiCOS Swiss Frc.pes ~--., ....- 19413 ;b 15.0 Rs. 81.3 S.L 0.79 1949 l. 34.3 Rs. S.F. 1.00 5. Fc.rt tho off:leiaJ. rate for Govornnont imports, oil imports; c!'.d otl"or purpose;:3 -l'r-:U-~7--t7-;;-;-::~-t'-;::'1'';'~:-;;-;-d~t'- -t'-h" - :-I-:-~-';--;:";- 1,-- - -:--t d L nuLT.' ..... rr, .. ~J ~L1.,;::;llt;.:l..""" ..... ,,) c.., ... e wl.l.r, * - : 'v:;qJorv " ' - - -;:--.:,::;_ ..__. _ - ; ; - L t)..:-}u 'u";" [JJ.lCO 01 ,1\.; rico wcs su b,i i)ct to o.Cl'O;;1mO nts 1n th the AI] iod G()VOrlT1C i.l.t~l. At fir:3t it W2.S hold w811 belcn.; world pdcGS in to oxtract ~:'. sort of "ropo.rations It frcc l1 Tbuilcmd for tho bcnofi t c,£' tJ::o Alliod Govorn- monts. It romainod boleH that of Burmese rice untiJ 19$, 1'0 in smuggling 0:1 a lc~rGo serlio, ospoc:Lally in 1947. for \-lhieh tho purch::tse 01 exchan[;<3 at officin.l ratos is nuthor:Lzed. 1'11-3 remaindor (excopt fer dcl1o.rs n::ld Si<Tiss francs \Ihieh have aoon acldecl '1:J0 tho monotc.ry rosorvos) is soId to commorcial banks at a prico slicrrtl;;r "bolow tho froo mi..'.rkot prcmimu rate. Tte rosu:' tine; profits to tho BJ.l".k of Thailc,nd are sot asido in o. ItStabil:i.zation ttcccur:t!l, tho purposo of which has beoTl t() curb tho volume of eurroncy in eircuJ.c.ticn (seo page 16). 6. Export pric()s of rico havo boon fixed in toms of sterling and rGmninc~cl 1Jnchc.nged Wll011 tbe bCtht was upprGcic.ted 1.11 torrns of stQrlinE~ and dopreciatod in terms of dollnrs in Soptonber 19N). The result h.:~s "'., n u. ;DuU. ,.. 1.,)' tt:.'J,i0 1 + c! roeue . "l.on . th0 un::. ~n . t VU.lUC ~ 0 f' + , ' ..... ... 0\:;:1 a:q)orts, oxprossod in baht'J as weD. us e. substantia] dolle,r price of riee 0x:r::orts. Sinco tho internal buyi!"g cf rico o.lso rOl1}ained ")..1!lcI1G.r~.::od, tbis h:1S 'fY1.CLl:clt ['. reducticn il1 tho 11ico Lonq;oly frOE) about batt .4£)0 per ton prier to dGvnluution to ab01lt buht 200 per tor· D.t presont. {\.;3 0. r,)slJlt~ it is Gstirnntc;d that Gov0rnr:.ont rocoipts 'dill docline; in 1950 e.s compared \-li th 1949, in spi to of the oxp3ctod l01~ i:ncroo.SG irl rico exports. 7. A farther tondoncy tOi-Tnrd doclining world ric8 DricGs j,s probc.bly to 1;c O}:.'.:x)ctod. It is J , h01:1ovor, tr-;c.t some ::.:.nd export pricos, croati a spoci::.:.1 scu reo of 1.11C (lr:JO to t1.,.o Gc'vorr.a;J(mt, cnn bo mc.inti..~in8d for tho noxt fovr 01' fiv~ years. Tho subst.·~ntic.l in- croo.se in rice, prcduction in The nco 1947, ,lho:1 tho pros3nt intor- fnrrncr~) aro sCltisfactcry und provide [,11 ineont:i:vo for O'ltPUt.  7 _ 1. Jl11dg,o.,t Since tho ond of tho vlQr, the Gcvornmcnt of Thc,ilG.nd has mado sorious attempts to r80:u.cc tho budf,otCcr;:r deficit \'lhich rec.chod be.ht 10/:.• 5 mHlion in 194/.... fIighor custGms and oxcise k.xos I.fOro introduced h;. J.9/:.6. In 19/i .7 the personal income tax and corporo.tion tl?,): W(;ro i nc:ce~'.sod, lr.}t thoir yield h~~s boon low, mairCLy because of [Ul inefncie~lt:. of collection. As a result cf the vo.ricus fi mon::,'Uros, trllt ospGcinlly boct-mso Govornnont rovonuo has shown o.n upilG.rd trend. Posti..J"ur risco-I dovolopmont ___ }.9!x9 ....1950 1l1lS1£9~ k~ ,llitdgot Hovunuo 509 628 685 993 1,666 1,658 1,598 1,905 1,949 Exponc:i turos 1,163 715 1,26/t 1,034 1,848 1,662 ~29 309 2,027 2,/~71 D.. Ord~ n.::.ry 507 384 559 450 678 652 752 6/~5 916 ) SC;O 517 9(;7 r,;/.);. 1,0;23 S'71 1,C:32 ) 330) 113 67 2. 165 5-,...i ')") !~O 521 Deficit -654 -<37 -579 -./.;.1 -·J.82 - I:. -711 -521 fer civ-il SOrv~~ilts C~11C: tho o.l,~)<. ~d ar:d :':,g to tho 1I0rd::L~;,':r'ylt C!".tof;cry.  - 8 - In thG Eocn' years, 191..6-49, the; totaJ dofici twas b3.ht 254 million, wbicb, is sllbstant1.o.11:y belc\-/ the Gov'3rrment t s j~riVostr:ont nditure the SOJ:'10 p,;riod arnounting to baht 600 mi1.1:i.on. Except in l(~L$, tho rCr1.'OrJl10S wore hi~)ler than the btIdget ostimntos, and <J XlJ8 ndi -cu ro s remained bo10w the Gstj.mates throuchout tho who1o porion. Tho provis:i.onnl statoment for 1949 indicc..tes o. dof:l.ci t of baht J.22.5 rdllioll, but it beon officially sto.tod t,hct tho trne budget doficit in 19L~.9 'I.J'3.8 prol'o.b1y only about baht 50 mi11::Lcn. Excluding tho ! o::;p<.1T di ture cf b",ht 133.8 ;nillion called "Appropriation for StabiHz2.tio:r." 1 \{hich \.[a8 usod to rudeom a spocio.l issue of tronSllry tonds hold by tLe Bn:'lk fJi' Tha:iJ.and, tho 191..9 budget would ond "r.Uh c. surplus. soen from tho tablo ab")vG 1 tho 1950 budget ShCMS 0. doficit of Lt. e:q:olKlituro. lGsti.mntod revo TItlO S nro c n1y hj ghor thaD 1:10.in rGVOffilO ItOl'lS ::1.1'(: import rico (225f.), and oxport c:utio fJ 0:;" rCYf'.ltjos cn ti rl.J.bbor, and tefil-: (185'~). Diroct t,::,X(lS l'C3prosont only totnl rove~~'uo. turos, dof0m~G cut.:..ay;-o WClro about 1950. Tho dOI~OnGO i tom, hOi-JOvol', dces not includo tJ-:;J cost.-of-livinD a110wmccs fer tho arrrlGd foreoo tcgothor -wt th itmn tho budC:.ot. JJ ~'-.-~-'- ..,.,-- - .-...------.--- , -'-'-"-'-'--- 1t 'I'!;u "cost··of··living d.10\.Jo.nces" roquired Cll"'. Ol:~tlay of bnht 550 million in 19/-;8 hevo b(:0D ro.~_s,;d to lx:.ht 755 million in tho 1950 hl).dgot. This ad,justI:1unt \-Trw long oY()rdu.o rtnd; spi t~) of it, tLG stclo.rios gov0rnmont ~l in l'()o.l terms, ospocially in brctckets, nro still :mbstantinlly bolow pl'euQr.  - 9 - Capita] oxpeDditures for deve10pment purposes accountod for end of tho budgets of 1947 and 191$ and \-lore incroclsed to 3.bout 1/r15% i~ tho 1949 budgot, a.nd to for 1950. The Govor:rlTlont h0..8 boon ro-, luctad to cc.rry out larso-·sca1e devolopmod beco..use of apFrohorwioE r8coptivo D3.rkot for l'}g-tOrm. governmont loans. The investment oxp.)T'.d~L turo for 1950 is budgotQd at baht 521.7 mil- lion, "lhich comp::tros vIi th actuc.l oxpondi turo lx'.ht !..lO million in 19LI.9. Capi to.l investment propor in 1950 accounts for baht 433.6 mil1ion, tho ma.jar i toms buine G:1."I)Q tur'.::;:; en railways, higlrvl8.Ys, and Tho r'3T!~d:ning baht million r3prosonts mc.i ntono..nco , ropairs, rem materials, CLnd worl{:i.pg capitol. ThG GevGrr[nCH~t nc~::;xpl3.in()d in dote.il hew intends to CC70r tho c1of:Lci t. Pr':Jbc.bly tl,o o:;::norienco of 1949 will be repoa.tGd. Tho dofici t 11i11 bo Sl;,;:\~~18r thD.n for,)c::'.st bec3.us~) inco)'Ylo wiD bo highor thnn Gsti1:latod and bocausu sene of the projects includJd in tho budsot \Till iJO carried cut. Tho Govor:rrrr;ent plrms CL long·~terr:: loc.n of bo.ht 200 mIllion, of Vlhich tho S~wings is oxpocted to prcvtdo bc..ht 5~ .• 4. miJ.- lion from c3.sh cn hand nt tho ond of 1949 and baht 85 million frolT, now 11 dopesits in 1950. Subscriptions from the CCiEIJT:orcial bapjes aN ucsumod to yield baht J2.5 millior,3.nd tilo remaining bD.ht to come from i:18U1'l:.nC0 cornpcnios, CODIT,orciCL1 fiTI!13, (;,nd othors. It is !7:Clst p1'cbo.blo tl::J.t tho Gc:vorrncnt's oxpoctaticn is tee o~::ti.mif3tjc c.nd that porhc.ps cruy hCL1f of tho oxpected c.mourt vr.Ul b;J subsc1'iboc3. The Govorm,Jnt hopos lil00t part its exp:::nditur,;i:; involvinc foroign oxchanu-, thrcng}; 0. foreie;n laCon. morc funds c.1'o neodad to noat c~tpi tal II It is plannod to opm 250 n8vI brc.nchGS "of tho Savings B::.nk wbich -;;~ oxpoct.ed to nttrc.ct substc.ntial sQvings now haa.rdcd. (soc pa.gc IB)  - 10 - oxpona:L turo, the Govermont ;.niGht nnke c.rro.ngoI:lGnts to US8 so:-".c:: of t:·,o prcfi ts accruing to the Centr:::.1 Ban: as "Stf,bi1izc.t)io!~ Account tt , (GOO po.gc 16). 1'118 T;lOmOrc\r:dum of tho Hin:i.stor of FinrrncG on "}leo..surJs countor- ncting the inflrrtionary effocts of borrowing fren! thG Bc,nl~ of 'rh:::.i1:::,nd" (f.;CO lippondix I) stD.tcs that D, budg(}t st~rpJ:us c:m be expQctod for 1951 [',nel st'_bsequont yeO,.l's as D. r;Jsult of tbe following plc:.ns: (n) Rod;Jctlon ir: expor:diture. Severo.l foms of co.pi tal OXPOl1cU- tur3S, espocially p08tWo.r rchnbili t:::ticn, cG.n be tOlY1inntod wEI 08 kept down as as pos:Jib:"o (provided the intor- m.tior..al si tuntio'1 dous not forco tho GcvorDlHont tt) mako tho I:lomore:ndur.l: tlTho prC;3(mt sy~3ton is ~~clr::i tt8dly ir.officLn,t o.nd open to 0. cCr!sidcro.blo tnx GV:J.si.on 00.011 yonr. EV3:' w:.i.th- out ir:croD.si tho ro.to of tnxo.ticn, and (;Vo!: w:i.th c. rGCketHm in tho ro.tos, an imprcvmaent tr, the sf collection 1;lill undoubtc:d1y l::rirg in r. 8ubsto.ntir:J. incroc.st.; in public revcnue. II Boginning \.J:l U, 1951, tho GCYOrnrlC!'t pl.'ms to rC:F:illCo its ::;bort-turTIl (:~oot by rl!ckoming c~ portier: of tho trOo.8ury bills orlch yec.r through D.p-. proprio.ti.cns for monot£lry stabilization.  - 11 - 2. Gcverl1lnent Debt Tho aggrogate goverment debt as of the end of 1949 was baht 1,162 million, of \-111ic11 about 10% :represented extornal obligations. soan fro;, the table below, the total govorment debt has increased during the lo..st threo yeo..rs by only baht 23 million. The internal debt incr0C'.S8ct by baht 248 million, but arnortization on the external dobt amountod to baht 223 nillion d:uring the sane period. The total debt service in 19/",9 was only 3% of toto..l government expendi turo compared to evor 5% in 1938-39. Public Debt (baht million) D(~c ! 1946 12e o. 1948. Doc. 194~ Intorml (total) 792 907 1,040 }'unded Do bt 112 332 319 Treasury bills , I 380 420 613 Treo.sury bonds 1; 300 155 Rupeo Inscribod Stocks 108 Total-ffixternal Debt ZI Sterling 1, 4.9 b 1.9 l:. 1.5 Rupoe Rs. 50 • 45.7 C.S. Dollo.r $ 6.2 $ 5.7 Totc.l Extcrm:,~l Debt 347 276 122 Grand ,[(·tal of Debt ==: .. 1,139 1,183 -_. 1,.162 11 Tho treasury nds were a spocial non-interest bearing issuo, of which baht 300 million was sold to the Bank of Thailand in 1942-45 to meat budget doficits. They ,.;ero redeened dud the years 1947-49, and a bill has been subni tted to Par1iaraent to terminate tho powor of the Goyernmont to issuo further treasul'"'j bends. ZI Official exchange rates usod for conversion ide bahts aro as follows: December 1946 and Decer: ber 19L.f,: ;, 1 =Bt. 40; Rs. 1 =Bt.3; u.S. $ 1 =Bt. 9.925 December 1949: b 1_ st. 35; u.s. $ 1 ~ Bt. 12.50.  - 12- a. Internal PubUc Debt The total outstanding internal publie debt at the end of 1949 '!laS baht 1,040 million, nearl~r all of 'which had been incurred durin/! the '!Tar years and in the poshJar perj,od. 11 . The long-term fundad debt accounted for baht 319 million, of ,,,l1ieh ba...1-tt 219 million represents 108.."16. raised since t::e end of the 'mr. !n adeli tion, there is a govsrm::1ent bond i SEue (the so-called tlRupee 1'1scri bedl! stocks) "'Thien, amounting to baht 108 mil- lion, H0.S given to the Ba.nk of Thailand in January 1949 for the purchase of rupees to repay the outstanding balanCe of the 1946 Rs. 50 million loan fr0ID the Gover~~ent of India. All but baht 17 million of the baht 613 mil- lion treasury bill are in the vortfolio of tr,e BarJc of Thailand. Of the total internal debt of oaht 1,040 minion, onl::r baht 30] million is held outside the BanI;: of Thailand. (See Ap:i)endix II). 1:1. December 194 9 the Ba:nk of Thailano purchased. ba"t 145 million of treasury '0111s in order to meet cash requirer:lent s at the end of the year and ; •.t"[ _,J. ... anticipation of revenues '·,hiel; \.rere on tl~.eir WJ.y to Ban,:::kok from the provinces. Horemrer, the Treasury may have 086:'1 called upon to repay some of the deposits ':.Thich are y.,eld "!i th it by variou8 e;overn- mel"lt ~encies whose 0. S-,;O8i ts ,OJi th the TreasClry havG risen fr0'Cl baht 168.4 million in 1941 to 'baht 1,230 millioc~ at the end of 1948. V Treasur;)C uses part of the~e de~')osi ts to fin,'1ne'2 various government age'.1cies. ! f the l2':oVer!11nent ar.:e:'1.ci es l1T1 thdrnw tLeir (i,eposi t s, the ~reasury T1Lc::j~t hav,? to sell sllort-ter1;J. treasury bills to raise the necessD..r;:r cash. The opera.... tions in these accounts create a constant element of uncertaint~' 17: the Traa.st1.r~rf s cash position The internal debt amonnt,3d to only Bt. 26.2 million in Septar.Jber 1941. T!!6se data are only a:~)proXil'1ation~ suoject to 20-30~ changes. At prese::lt exaet data are availaole only until the end of 194L.  - 13 - b. ~oroign Debt The total e:;cternc1 debt is sr.lOll. Thr'.ilo.nd l s debt record h:1s beon vory good. Until tho ccuntry's entry in tho socond vlOr1d \-leT in 1942, no dGfcu1t on Thc.i1and' s foroien debt is rocorded. Its geod credit ra.ting is evidonced by th::: fact thc.t in 1936 it w[.\s cb1e to co:mrort :::>. 6y; storUng locn contracted in 1924 into 0. M{, loo.n. In 1942, payao;,:ts were susponded on tho outstanding sterling oblil$o.tions, but tho debt sorv'ico 1I1c.S resUDod j_n 1947 with full sott1oDont of ell c.rro~~rs. Tho sterling dobt has boon reducod from I:.4.9 million at tho end of Docem- her 1946 to only I:.1.5 million at tho end of 1949 (tho mnount due or; tho 1936 COl1Vorsicn loc.n). This debt is to bo repcdd by 1964. In 194£ Tl1ei1c.nd obto.iTl0C~ n U.S. Surplus Property croc1it in tho aI.10unt of ~;lO rCli1J.icn With int~rest et 2-3/8%. OXllY about:;&Jt ni1lion of tho credit vms used, tho D.;"1ount outst:'.l1ding nt the end of NovoT:ll:er c(3lng 1949 1 _' ("5 7 TIll '.t.. .ilon.11 '1-' As tho r-isu1t of ngrJJr::ents ronch,)d o.t the end of tho war, Th::.i1c.nd is ob1igod to ccmpensnte the U. K., Indin, A.ustro.1ic., end tho TJ. S. Gov- orrnonts nnd their ci tizons for lassos or dow:1.gos suffeNd in Thcd1cmd during tho wc.r. Tho f2Co vc.1uo of the Dri tish Co me mTOo.lth c1o.ins tot::-,lod 1.12.9 million o.t tho end of Docombor 1949, of i;lhich I:.1.1 million hed boen sott1ed by payment at c.bcut 43% of the fnco vf'.luo. fI.ccorc1ing to c~ rocont dispntch, tho ronnining c1nims nro to be sett10d by pnynont of ~5.25 mil- lion froD Thnilnnd ' s b1ockod sterling balances. ]j Tho Surplus Property crodi t mny be ropa.id locc..l curroncy of Thni1o.nd the U.S. Gcvor!1Dont elects to take payment in baht in ordor to oover U. S. oxpendi tures in T!·1c.i1nnd, including pc.ymont of tho cost of oducntionnl and cul turc..l prc·grc.ms.  - 14- Outstanding Alaerican claims anount to $1.46 million at their face value; in addition, thore arG sone Netherlands claims probably ar.-:.ounti:r.g to less than the [l.rr,erican claims. 3. Nancy Supply and Prices The Currer.cy Lml1 of 1928 placed the baht on a gold (sterling) exchange standard defining the baht as 0.66567 gr~,s of fino geld (or bo.ht 11 to I. 1). In Jc,nunry 1942 the gold vo.luo of the baht .,IE,S cut apprOXimately in half and it W::-ts further reduced in April 1942 in order to bring it tc parity iii th the Japcmcse yen. On Hay 1, 1%.6, the pc..ri ty of the baht Hes fixed at 0.09029 grams of fine gold ( =13.6% of prewar), or baht 9.925 to U.S. ::;1, or baht 1:.0 to I. 1. On Soptonbor 26 J 19/+9, tho pc.r of exchange was altered to baht 12.50 to U.S •.':;01, or baht 35 to I. 1. In 1942 the Bank of Thailand wns established and took over the functions of tho Govern.lent Issue Departnont. The reserve requiroments were revised and government securitios (non-interost bearing treasury bonds 'and treasury bills) '>.Jere added to the list of pormissj.blo note cover. 11 During the wnr, circulation of notes vms expanded nearly 9 ti~G;:l, o.s is seen from the tnble below. This Wc;s partly a result of vmrtimo budgotL,\ry defiCits, but mo.inly wns due to advances to tho Jo..par::esc GO\i'Grn- ment and the accumulation of clco..ring bal.ances in Jo..po..nGse yen. Total outlo.ys of the Bank of Tho..iland for those purposes rec"chod bnht 1,556 million by the end of the \var. In 1946 these c1o..ins 1Ile1'o written off. --------~--------------------------,----------~---.---------------~ 11 Before Janu[\ry 1942 the Curror.cy 1m·; did not penni t baht governmont loans or trensur~i bends to be held ns po.rt of the currency resor-ITGS. tl.t prescnt, s~curities mo.tFring more them ono yoar from tho do.to of purchase cnnnot excood 15% of tho totn1 v[\lue of notes in circulation.  - 15 - The currency reserve wns rGconsti tuted J:lninly by rGvnluing gold and foreign currency holdings which yielded a bookkeeping profit of baht 783.8 nillion, and by hnving the Goverrnent issue to the Batik non~intorcst bearing government securities in the amount of baht 597.9 million (also callod "Governnent Gunrnntoe It) • Notes in Circulation,. Prices and Cost ofLivin~ Notes in Wholesalo Circulntion Prices Cost of Living , . (million baht) (end of year) (;l.DTIual l~.vcrngo) (A.nnu::l Avoro.gc) 19)8/39 1I 177 100 100 1940 236 171 113 1941 297 225 131 1944 1,161 411 470 1945 1,839 2/ 902 1946 2,119 2/ 1,070 1947 2,107 1$700 1,250 1948 2,390 1,620 1,250 1949 2,590 1,540 1,200 11 Financial YOilr ending Harch 31. 21 Publication of index of wholesale prices suspended. After the ond of the "rar, the note circulation continued to oxpo.nd but at n nuch slower rnto than during the Japanese occupl'.tion. The hcl(~ings of government securi tics by the Issue Dopnrtmont of the Bllr..k of Thailand have becm reduced fron baht 933.5 million nt the end of 1946 to beht 370.8 million at the end of 1949 or by bnht 562.7 nillion. HOi.!3Ver, dur1.ng the some period the holdings of govornncnt socuri ties in tho Banking Depnrtmont hnvo increasod by n like onount largely in the form of trensury bills. The Issue Dopnrtmont heldings of geld end foroign exchange havG boon increasing more rnpidly thnn tho holdings of govGrnaont  - 16 - s~curities hnvG boen doclining, thus nccounting for tho continuod oxpnnsion in tho noto circulntion. At the same time tho oxpansion hns boon partially chocked by tho Bank's p';'1actiso of sterilizing in its IIStabilizaticn Account" the profits which it mnkes from operc,ticns in sterling and rupoe exchr.ngo obtained from the Rice Honopoly on tho froe market. These profits reached baht 515.2 million by tho end of 1949. (Fer tho developr.1cnt of the position of tho BnrJ( of 'l'hailnnd since 191+6, soo tcble in A.ppendix III.) The sight deposits of the comnorcial banks are not un important medium of payments; thair totnl BlO'OUr:t is equivalent to or~y 35% of the notos in circulation (it wns 108s thnn 25% before tho wnr). The usc of sight deposits for po.ymonts is limited mostly to foreign trad.e and to rico mills in Bc.ngkok and tin and rubbor business in the Sot:.th. fiS the table above shows, thoro "Ins a gract riso of pricos during the war which continued in the postwnr years until 1947. Tho wholosn1o price indox (1938-39 =100) avoragod 411 in 1944. It roached its poak in august 1947 at 1,809, doclining to 1,616 in Dcconbor 1948 and to 1,490 in Docel'lber 1949. Tho ir,dox of tho cost of living in Bangl,::ok (19.38-.39 =100) avoragod 470 in 1944 and roachod its pock cf' 1,41.3 in Clopril 1947. It declined to 1,142 in August 1949, and stood o.t 1,190 in Povonbor 1949. In short, prices havo rocently boen fairly 101011 sk.bilizod nt a level substc.ntin11y beloH tho postwar pcc.k. 4. Crodit Institutions and Onpito.l j'lc.rkot No stock oxchc.ngo or cc;pi tnl nc.::,'kot oxi in Thnilo.nd. CGl!u,:orcic.l banks aro tho nest iraporto.nt crodi t institutions. Thoy now llunbor 23 (13 Thai and 10 foroign) corcrnrod to :11 in 1938. Total sibht doposits  - 17 - aT:lounted to baht 801 nillion in October 1949. The total cash roserve on that dato was baht 311 million, far in excess of legal roserve reQuirorrlonts.lI Tho table below shows <.m upward trond in cOl,'1tlorcial banks' credit operations over the past yoar, which reflects tho higher econonic activity and tho expanding foreien trade. oct. 1948 Oct. 1949 (million baht) Invostment Cash 365.1 310.8 Foreign exchange assets 157.3 262.2 Loans and advances 368.7 533.6 (of which unsecurod by collateral) (33~6) (48.7) Treasury Bills 30.0 14.0 Other Gov3rnment Socuri tiGS 104.7 99.3 The loans and advc.ncos are short term, mostly financing import and cAlJort trado. and the movement of rico from tho interior to Bangkok. The baDks do not ongo.ge in long-tom lending to agriculture or to industry~ C01:1- norcio.l banks pay 2% on time doposi ts and chargo from 5% to 87b on short- tern loans. Tho main institution for mobilization of savings is tho govcrrnont S[~vin[s Bo.rJk with 122 branchos and agencios throughout tho countr:r. Its doposi ts totalled baht 266 million o.t tho ond of 19/;.9 conparcd to baht 14.• 7 million as of Hareh 31,1938, representing a substnntial increase ovon in real terms. Tho Bank's investmont policy is contrcllod by tho ;~inistry of Fim.nco. As of Novomber 15 , 19L.9, baht 128.7 nillion \o1Q.S imr(Jstod in Y The required c3sh r0sorvo is 10% of total doposits. Ii. r'llmDtLD of 5% of demand doposi ts una 2% of tir.lo doposi ts must bo hold Hi th tho Bapk of Thailand.  - 18 - govcrThuont socurities, baht 53.75 million was loaned to tho Bank for Cooperative ~ffairs, baht 21.2 million to other government institutions and baht 3.55 million to private individuals. The Government plans to establish 250 new branches of tho Savin~s Bank in rural districts in 1950. Deposits in these branches arc expectod to increase rapidly in the first two to throe yoars as hoardod funds nro brought to the Bank. Thoso nOv1 doposi ts nro being relied upon by the Govornment to covor part of its contomplntod long-torrn borrowing this yoar. (soo pago 9) COL:,morcial banks also accopt time doposi ta. The table below shews tho annual net increaso in sc.vings and tiTtlO doposi ts in bal'Jdng insti tu- tions. Not Changes in Savinr's and Time; De;posi ts j.n Financial Institutions (bc.ht millions) - 1946 1947 ~ l2.42pj Cor:mercial Banks 122.2 110.7 131.3 1 2.0 Savi ngs Bank 617.9 - - 6.6 Lid. t:ll.& Total 140.1 ;.. 4.1 138.0 l33.8 2i Figuro rolatGS to 10 months' pori(;d, Jamwry-Octobor. Not premiums paid to insure,nce companios h2.V;J shO'ltm substantic~l increasos sinco the "Tar from baht 10 nillion in 1946 to nore tho.n baht .30 L;illion in 1949. Howovor, tho grand total of savings in financial insti tutions nr~ears vory small whon compnrGd t.o an Gstinuted nnticnal cash income of baht 6,000 !Jillion to baht 7,000 million. Probably not morc thnn 1% of the' n[;.tbnnl c:1sh ir:;.ccr;:o is invGstoc1 in monoy so.vinE;s in such institutions, nnd of this only nbout hnlf is nvnilab10 to finClnco goverJ."lDcnt invostment sinco insurnncG companies do not irtvGst in gov·::;rn·· r,1Cnt sccuri ties in significo.nt quanti tics.  - 19 - A Bank for Ooo~erative Affairs has been in existence since 1947; it Norks under close supervision of the Cooperative Department of the Ministry of Agriculture. As of December 31, 1948, its resources amounted to baht 65.3 million, of ,·rhieh baht 10 million represented capi tal; baht 22.1 million, the ~oroceeds of hro g'overl1!llent cooperative loans; and baht 29.5 million, loans from the SaNin~8 Bank. At the end of 19L!.S the total outstanding loans to cooperative societies amounted to baht 64.2 million. (They 1.'Jere around baht 99 million a.t tIce end of N'ovember 1949.) The cooperative movement in Thailand, a1 ttough older tha.T). in other countries in Asia, is still relatively sllall. The total r.1emoership of 140,000 is equal to ab"Out 5% of the esti"'1ated 2.9 million farm familiefl. At the end of 1949 there "rere 7,631 coo)er:J.tive societies, of ,,!hich -<1 7.300 a.re credit cooperatives. The;, le'ld tl) ':1e"'1bers at 10'10 for short- tar:") 8J.""'1d e% for lon~-term loans. and they borrm,r frOM the Bank for Cooperative Affairs. !Jeither the :galli: nor the cooperative societies accept deposits frOr:l the public.  - 20 - IV. EXTEmTAL POSITIOn 1. Foreign Trade Since 1946 Thailand!s external trade has been steadily increasing and is again reaching its traditional eA~ort position. The best estimates that can be made from the inadequate Thai data are as follm·Ts. (The data for 1947 and 1948 ,,'ere prepared by the I.M.F. and for 1949 by the I.E.R.D.) (in U.S.$ million) li!±Z 1948 l:Zl±2. Exports 85.4 217.9 247.4 Im]2orts 72.2 112.6 165.7 Balance 13.2 98.3 81.7 For 1948 and 1949 the fL:,;ures may be compared ,·rUh those reported in the trade statistics of Thailand1s major trading partners, plus kno"!ll rice exports not included in these statistj.c8. These are as follo",s~ (in U.S.$ million) 19 1 t9 (Jan-l:" o'V) Exports 227.5 241.1.7 Im]2orts 116.2 137.0 111.3 107.7  -21- It is clear from all available data that the recent trade posi- tion has been very favorable, due largely to rapidly increasing exports of rice and rubber. Rice exports rose from 392,000 tons in 1947 to 1,216,000 tons in 1949, by which time they had reached about 10% below prewar average. Rubber exports rose frcr~ 21,000 tons in 1947 to 95,000 tons in 1949, when they were doublo prewar. In 1949 these two comLodi- ties accounted for 77% of total exports. Tin ei~orts in 1949 were only about 60% of prcvrar and the same is true of tea.1{ ~xports; however, 3xpOrts of various miscellaneous i toms have beon steadily expandi ng. The camnodity structuro of Thailand's imports is not greatly changod from prowar. Tho most important i toms aro textiles, petroleum products, machinery and vehicles, foodstuffs, and beveragos. Inports of nachinory and automotive vehicles in 1949 were more than double prewar in real terms. The sterling area still is tho main trade partner of Thailand, but Thailand's direct trade with the U.S. has substantially increased as compared with provrar. Thus in 1949, 25% of total exports went to the U.S. and 14% of tot:).l imports CUI,,-e from the U.S. as compared to 0.1+% and 4.2% rospoctively in tho prowar period. This shift, at least on tho export side, is largely attributable to tho fnct thnt various Thai exports, particularly of rubber end tin, are now shipped direct to tho U.S. rather than to Singapore, Penang, and HongKong for reshipnont as was tho CODDon prewar practice. According to U.S. statistics, the U.S. imports froD Thailand in 1948 roachod ~52.2 willion and U.S. exports to Thailand, $16 • .3 million, giving Thaila.nd a trade balance of 1.);3'$.9 million.  - 22 - 111191..9 t},o fiC1J_NS \-lOro: U.S. i~Tcrts freD Thc,ilo.;:c.~ :,:;4[3.1 I'illion; '.:J1.6 be_lane c ',/16.5 I'illi c n. In ad(~i tien, tho U.S. Gcvorl1L1or.t purchc.scc1 Thc.i rico fer c1.istrH)uticn ix:. Chino., Kor];:" 8.vd othor gr00.8 i11 tho o.r:!Cunt of ~.33 r:illion in 1948 .::1.l1c1 ',/13 nillion 1949. After clloWi fer c1cllc.r oil :w.ports freu sources athol' tJmn tto U.S., tho paront dellar n in 19413 and ',:.26 Lillic~~ in 1940. L~ tho o:lrly rostw<.:;.r yael's, trc,(~e \d tL Jc:pc.n was subsk.ntic.lly belcw prow::,'.r. L~ 194$, ir:pcrts freT.l bogo..n to o}.To.nd iT: 1949 m1d is liko1y to roC\.ch 0. substantiall;y werth of oJqorts i1' that yoC'.r. 2. 19_48"49 B0.10.nco. of Pa~'l'l~i~ ,·1.·cccrr,_ 'l·'1 r 1 c,' tn v ~n "'" I l'~~1J' ".-'-. "'stJ'_.T 1"t' v ". 'V, - f'cc,u"'t cllI'r·.'n,·.t _ _i. o,u"~"'~"lS _ _ • _c l·',·.·. T~J;lJ·.·_·J·_:-.Y"_{~.r"l ,.. .-- ~ ~ bnlo.nco of po.:YTlonts fer 19413 . . laS oqniv0.1ont to .7 nillleD \,Ilth tho tr8(~;:; surplus of .3 nillicn. Fer 1949 0. hoJ.o.nco of rn;;rr1onts Gstino.to W;:18 l:'r01'o.roo. lassic:~ in COOIQroticn With t!-~o bel',l: of .9 nillie n C(Y{'lnrocJ. '1-11 th f. t1'~ cf .7 tl t -" 2 c, 7 ',/.). . - l' rn.L "\n lC D, m:(t . tl 11 t1,1G sC'ft eurronc? 0.r02. at .2 Tb.o 1.1<15c1' iY'visib1c; i t;J~'S 1']8ro k) cov-Jr:nr'lont :;Jxpopdlturv cf which (;.14.4 :1:i.1J.icn lac.ns; ;~ c1iroct invGstr;:.ont  - 23 - (c) remittances estimated at $5 million. It is very likely that the 1948 surplus is overstated due to the exclusion of net payments on direct investments and private remittances, whereas the 1949 surplus ma.,y possibly be understated due to overestimation of these items. (For details see table in Appendtx IV.) The movement of monetary reserves in 1948-49 is shmm in the table beloW. Official Reserves Gold Dollars Free St3rl'inf1' Frozen Sterlin~ (in U.S. $ million) (in ;r. mi 11i on) Enet 1947 $ 77.9 $10.8 ;r. 1.40 End 1949 118.1 16.4 14.52 1-$ 40.2 /-$ 5.6 -;r. 0.4 $4.5 .8 ''/'hi Ie the overall increase roughly corresponds to the estimated C11.rrO:::lt account surplus during the period. after a11o'IJring for some acc1JMnlation of foreign exchange by the cOrrJ'Tlercial banks. the increaso in Fi:old and dollar holdings is less than might have been eJ<:pect(3<',. and the increase in sterling holdings is great-3r. Part of this m:2W be attributed to arbi tr~..ge operations in the Ba!1F.--;kok markot by Thai exporters and others. the effect of which is to cause the Oentral Bank to gai~ sterlin~ at the eXgense of its dollar holdings.  -24- Tho fcllcHi table S 0. fo.irly conservntive 0 of fcroign trach:: i:~, 1950. 1950 Fcroir.m Trc.dJ ( l"1 .... , Tl v. 8 • " Lillicn) _ Ex':crts ....... Ir'-pcrts 80ft currJncy nrJo. 134.5 94.2 40.3 Hnr~ CUrrJDcy nren 52.6 36.8 15.8 Bo.rtor nron (Jnpc,~: io.nc1 G()IT1'2ny) ".;: ;. 0_ _ _ JL&.~_____._ ....4=7'-• Totnl 178.0 56.1 RiCJ oXfcrt is estinntod at 1,.325,000 tons, rubber nt 90,000 tens, til! nt 10,200 tons, nn(l. tonk nt 62,000 tells. The toto.l value of exports is estinntod to CLIClino SCI10i-Iho.t fron 1949, not se TJuch h:;co.uso of siu.d.fico.nt chnnges in oxport veluno but ro.ther 00Co.use cf sCPO prico declinos in tOX'I1S of dollars, nctc~bly it:. tbJ errs;) cf rico 2ncl tiil. Ti10 priC) of rubl::)()r Hns o.lsc co.lculnt8d nt ~-:. lovu2 8c!:1o\vhC'.t bolc\{ 19/+9 ,'J.lthcugn, o.ctuo.=_ly, it is no\v nearly 50% higher them tho 1949 prico c.V0ro.go. Inports nro estinated nt 76% of totnl oxperts, c. :;:-rcporticn which SO<::DS rons('no.blo in tho light of past eX})orionco (inc1oJd, in 1949 tho rc.tio \'/:::,8 nly 66%). This relo.tionship could, of co-urso, bo o.ff·JctGc: substo.nti- ally by c. Ctoli bordo govormont policy of purposos. Tho bo.lo..ncG of pny-:orts osti):'ntJ fer 1950, by thG I .B. R.D. Hissicn in CC('l;oro..tictl with the Bo.nIe of Thnilcnd, shnlS c. currant accourt surplus of ti;27. 9 n (surplus ivith tho hc~rd c1:~rrOr'.c:r  - 25 - c.rcC'. in . \(10.3 !iillion a Hi th tl~e soft curr3:'c;}T area ",17.7 nilJion). The pajor debit items arc: Govorrncrt oxpenditure abroad ,,,6.5 I'lil!ion, irco]'o on diroct irvcf:rtmcl't . a3.E5 nill:i.cn, und private romi ttClr.ces :,..10 r,il1io;r. These i tens may again be overst.ated, so that the current aCCQnr,t surplus nicht be creater thCll'l estir:ated. It uould appear, in any case, thut, Thai1ar..d S Llor.etary reser'l:3S, cspocially i::> storling, lIould ' i ncroaso further i r. 1950. 4. Th!:!ila;~dl s Lenf!(~r-run Trude FrosIicc~ On tho uhol.o, Thai1u3:d's tredo 1Jrospect.s a;_~pe[~r fc.vorable. Little dii'i'iculty s:lou:'d be eY;collr'tercd i <-, J::'I<~rl(eti!1C: r:.ll the rice av["i1a'o10 for loast until 1960. Tr,cil2.!Jd l1ill t~lso attcr,l]';t to roc::!!)turc :Jere of its preunI' doller n~ar::et,s for rico, espociull~j in Cuba. Uubber [l.nd tir '.):;:ports c.re in Leod cor::l_otitivo Fosi tier. aDd SJ'ould ShOH an u!'ll3..rd trend dud::g the ne~ct. fOil YO:lrs. The q~1o.1i t;t of ru;'bcr is still mostly crade 3, ::ut t1:o 'l'bl11 Go,rcrrmc:,t hus i l1troducod 0. systcr.1 of r:;radi and is sUrorvir,li T'f tho rubber shi}7i1ents t.c !1:akc sure they arc ef food qua] i ty. i~ck~i ticnal funds 0.1'0 ne3dcd for tl;e rubher cxperiEental statiol~ to i'roI 1ote r;;:sec.rch. In tha Cf~SO of tin, postunr t; .5. purch".scs 1)'1 Th~:tilo.nC: he.v!> bean y".[;'.du by ::n H..F .C. roY;resol".tc.tive in lkmglcok fer the Tc~cr:s S':':.elter. ~Jhilc tl:o a.li'.C. 2.uthorizlltion te Luy til': oX'pirns en JUJ'3 30, 1952, prcst:J"al;ly the T0xas Sr:::;ltJr \Jill co~·tinue in oporr..tion; tbc char'cos of T:"ailur.d l s contj.fiUi!1g to oc.r1' dollars fro1'l tds Gouroe \,reuld bo ii Iproved if tho 3r'cltor r-ain- tGi~o(~ diruct ropros:.mtatj on 11) ThaiJ"~l'1dt  -21:>- In tl::a ailS:l)"tce of larp,o tenk oXf0rts fron Burma, Thai toak facos G. good export narlcet, a\~d "oxports of other kindz of hc.:.rd Heod ,-li11 probabl:! incroase. Thailer.a is also o~'Pa:r.ding othor preunr exports and clovolopin[;' :r.eu olies including stic~(lnc, 110lfrcr'1, tlJ,tinony, :hides and skim:;, naval storos, cocoam.lt oil, tapioca, Be.:! t, ar'd serd-precious Gtones. On the import sido, it may (0 nssunod that 'rhuilur.d Hill further increase its purchases frox:-, tbe storlir\g area and fro)" Japan c..rd Gornal1"J i:lhile reducil./:~ imports Ere' tne U.S. of vtJ.rioull it.Jm3 suer: G.B dc-iry i,:.roducts, pc.rer, to;~tileG, phcl:'!'lE-ceutlcals, c.nd ciJel"licels. It r,lOY elso be o::;q:oct:.}d that TLdlo.rd uill be '.:lblo to obtuin 1)OrCl oil froP-' nor-dollar sourC2ts. The storlil'[;-dollar cross rat.e ef.:2.l,5 to,2.50 in Dnnr;kok creates a strO)~L il:centivo fer Tlmi i7:1~:ortor5 to rurehasa goods from tho st;)rling areti and from countries to uhich pny:::10i:.t can be nc.do tLrou:-;h tho !ttrai1sfora~")lo storli:r.c; accoul~tl! SyStO);1 of \Thich Tl!ailar:c1 is a ;;'OJ'l~Jer. T;lO cross rate is 2.180 o:-_ccurar:;ing oxports to the dol1t:1.r arec.. Further- more, the Gov3rrnent ...rill try to direct its rrocpr::r",:.ents ir!Cl'ons:i. ';gly tmrard tho storlir:g area sir'co a St,"bstantid Er!lOUl"it of sterlhlp: uill COY1thuo to bo 8.vGile:.ble to it, at the official ru:tc, fron ti13 :;;a)l~: c:r 'I'::dl~'~!Jd, '.1:1orcF~s the su:;ply of dcllars fron this source nay be c::;poct.oG to d8cli1:e (seo the i'ollotlir.c; sGction). 5. l!.:xchg.nt,;·c and Im:.ort Co;.-t,rol Foreien e:xchculC;O nay be frcel~{ pu.rchascd 1n tho IDo.rkct for cu:cr'G};t as 11011 2.8 capi tc..1 trar:Si'.ctions, vii th the e:~ccption deseri tk1r1 OOlovl, r:o exchanr;e cc·~trol 'J:;:ista i::'1 Thc.ilan~. at present.  - 27 ... of Hhich ure us folIous: rendered to tLc I3upJ( of T}1nilcma. at tho official rate; that,L, Dt. 12.50 =.,1.00, Lt. 35 = I. 1.V In additio11 , 40% of tho FroCe(.}Cl.f; frox;l tin cxr-orto r:md 20~~ of tho proc::nds froD rubber exports mst bo surrcr:dorcd to the Dan}:: at the offici".l ro.to. Hubber ern tin 0xport~rs arc free to sell the br:J.anco of their c7cchangc proceods in the froe me.rl~ot uhcrG a substv.:1tio.l p::oniv.;,l prcvdls. 71:0 effective rete for robb:)!' exports is 13t. 21.30 to Bt. 21.50 l)(;Jr ,.T.OC; for tin Dt. 19.10 to Bt,. J8.30 rer . >1.00. Dtlrinc~ 19L~9 tho 13c.nk of Thdlnr-d purche.sed froI'i those SOlJrccs /27.7 !!lillio,1 o.nd I. 35.75 million at the official rate. Tho Dark T'loJws dollc.rs m:d stcl'lLcg avcd.l::..b10 at tho o.!:'fioial rate for the follmTine oils; yublic health service reC]~drcr,cY1ts; and odD.co.tioral rS(:llirO;10j-,tS. IJ' 19L..9 the narl- sold c. total of 324.9 millim;. a~~d I. 5.4 I,lillion at tl-:c officiul r::.~to. This dj'Ste el of :iultiplo rntc::; is in sffect ['.r~ eX}.::ort tC;.J: 0'1 thrc.J scloctod cO!'Todi ties o.~O a. subsic.;/ for oil iq)orts, govorn::-8:r.t rata in 191:8, .2.o.L" million CI.:.;;IO fro::·: rico o;:-J:orts for dcllnrD. Dcc:l1~.se dollcr rice c:::;::orts ip 1950 ',!ill be ::mbsto.r:tiic.ll~- ;.Jlo~: 19/:9, tLe tot:;;:l to. ,I::? million 1.Thioh 1;1il1 he S'l.'.';:Jstc,:.ti;::.ll;y less th.r: e;overr.n:;nt doUnr roc;::uiron:mts c·,·d pc.~'1i10J;t,f) for doll<::.r oil inport,s. 11 Since FobruD.r;r 1950, rico 0'~i)Ortars aro OXOfT,tGd fron tl:o ol)liC.·::t,ion of BQ1li'1[; :::t offici a1 rQt,:~n c.ny foreiGn o~·cb'.r'~·,) received i l':! e :=CGr;:=; of tho of:Lidc.l1y ost0.blinhad e;~port price for rice.  .. 2f~ .. (b) hll otl:0r trn:1sactioT'S ~rc cc.rried out, d the froe r:;:.r~wt rete exce:~t for truns.lctio~'s u~:der the bo.rt,)r agr0::lll1ert ui tIl Jupc,n (S8c) bolo'.!). The frcw ~2.rket rate for the dollar Has Bt. 21.96 L} July J9I..9 and around Bt. 23.70 in JanuGr:,' 1950, and '!·It. 23 • .)0 in li'ebrl1Q,rj 1950. The froe !~0U11d rate '.1;'s r:.rol'_l"c.. 59.50 i July lS/,9 a.,'r: declined to arotuld S8 and 57.50 ir. JanlJ.:',rr ['.;~d j!'cbruary J950. The dcl1;~,r- pound crose rE'.to ;11hj,ch HCS nrourd :,,,3.04 iT' Jamlary 1949:, dcclil:Od to (c) In .>rcter to l;rcvert croat fluctuations L tho fro;:; be,ht-sterlinG rete, the Dank of ThJ.iland has rado stcrli:r.g avc.ilc.blo to cOJ11X1ercio.l ir::~,orts sinco i;e.rch 191.:.8 at rato3 nbout ore poir't free mariwt rates .. V beht rate of !:t. 20 to .,;1.00. rato, the froG l'rrnrkot ret;, thG mt::; Ctt 'Hhich tho De.r:k of ThdJ.;,rc1 salls espoch:.l1y 0:: th;:: do11c,r-~torlL:C cronG r:,:t.:; i ,- Be' "'.r:kok. ulw,t, is c3.11:x1 1I111xur;y [..;oods" :18 Hall as itor:s stich as ":otorc;;Tclcs o.r:.d lJircloss sots. Irr:port cc~~trol io :J.d)d'iatcrcd ',Ii thout cliscril::d.:1Utio~: V It is cstimJtocl tb..:.:.t stcrU·,[. 311~-.li:.;d lw '(:'>3 l!l"!: of T~!dhrd !'i;)l.t 1'81)res,mt over 01'0 11.-::.1f of tI:c tot,:l otc:rlir.C trc.nsc.ctio:lI:; in '.i:'hdl~.t'd.  - 29 - !ll'lon[. foreiCll coun-[:,rio:::. TL~,tlilnnd' n cUsto': duties iL:.poscd for fiscL:l rurpoo;.;::; ere roderc.tc in 6pi tG of thair i:1crec..se since the ,cr:d of the 1:1r',r. t~ gruo.-c. mmtvr of c.rticles are ot.hjoct to e~q.:ort controls (po!'!"'i ts) , their "w.in obj.:ctivo being to li;",i t tho ro-ox:rort to soft curr:;nc~' C.:COc.s of Goods purchr.sod :LOl;' hard Cnrl"31:ciGs. 6. Fordr;r I)'1I13n.tnGI~ Tho tott:l.l 3!'.ount of ;;:'ordr:n invcotmcnt is estimc.ted b;'.l the Thai ;ar.d.stIJ' of Con~orce at abcut bc.ht 9 to 10 hi1lim:, of \Thich hnlf Npro- santt> foreign invcstnm".t of fin:s r(~c:istor;)d in T!'Ll.ilc.nd ar~d t~le othol' half, i1yer,tront by cO'.pc..~:ies not re('~uirer1 to be rori::;tcrcd i" Thni1ard bccr:usc they gro r-::cistorcd abroad. Of tbo:: foreiGll ireventJ.1ol":t by firr1s reGistered i1' Thr.'ilc.nd, tho Chi:les·:; invcntr.~'Jl't is nore than four fifths of tho toto.l. It is spread OV31' pro.cticu.1l:T the uhob eccf'onic c.ctivity of t}10 ccunt:rJ; it includes ric;,) c.""d S2.11 i.lills, tin Di~Gf~, ru 1 :;;:3r plar1tc.- tio!!s, production of' Hatches, VGf;otnblo oils, nugc.r, sc.lt, trc.nsy:ort;ltio:n insurJ.i1CG, bnr~:ing, noroy ch,:ncers, prirtirg, and trc.dil'G bc,ht 272 nillio;1 out of' totnl capitLl or l;cJrt 299 r'illic'~ of fOl":Jju~ fil",lS rcristuX':..:d C.U1"'inc; tHs period. The ChirU8J sh,lro is SL{lll in fcre:i.c'; i (',V3StL13l't b:, CO'1pc.:'ios rot r(.lG'ifltorcd ii~ Thnil:::'l:d. T~.'es8 cor:pr:.·ioG are rwJPly 'SritiBr,~ustr~lia!',  - 30 - thi::; cc.k.~;ery is p.~oh",:bl;y ruc>: too hiGh. Thin il'Vcc;tLoct is F~'.Lu.y i:n In prir..ci~:lo tl:c ThGi Govcrmoll.t is \-1011 dinposc;d to'.lerd l)rivatc for(;~iC:"l inve~ri:.:1or·t. HO\1cvor, a perr'i::' fro:--' tho ::inistry of Il':c!u:=:rc.rics is rcc.pirocl for any rOlf industric.l vc~t,uro, and s:)8ciI:'.1 restrictions ere placed upon foreiGn invoSt~:C:lt in nil')i~ and the c)Jq:>loi tntion of tinl;or, for ubich tho GcverE'lor.t C;ivoo special cortco::':siens cr le~\ses. Also, l)) rOCUl'~t years tho Govorn',crj;. hc..o issu,J( roeulntiol1s for various il1(IlJ.strico, rosorviJ1c SO)'O occu.r:ntiors oj't:i.roly for Thai !1C.tiCIy'..ls. T::or,o provisiol"s ere dircctod :.:nidy nr;r.inst the;; CleiLQS!). v. 1. Ho ('11 i 4 pt r:~; '~.J _S Thaile,}':!! has bUG'l SIOH i;: repdrir:c tho ll~:r dr.r,lr:.[;c Lflictcd en II~:';irold r3S0tlrCUs \-lil1 h£,\vQ 'Co be carriccl out if the por.t11:. .'.tiol'J" irl- of liviv.z.  - 31 - Development ''I'il1 undoubtedly continue to center upon agriculture. The completion of the Chao- Phya irrigation project is expecte0, to rasult in significant increase of rice production, without '''hich rice e:rports would decline because of the population increase. In order to diversify the countryls agriculture, plans have been laid for a substantial 5.ncrease of production and export of other crops, such as g:roundnuts, cocoanut oil, soya beans, sesame, tobacco. A five-year development program has been prepared aiming at forest improvement, conservation and better utlliza- tion of timbeY'. As a part of this pro€"ram, various industries are to be established such as a pl~lwood factory, a wood distillation and rennery plant, and a wood preservation plant. The n6velopment of Vari0'1.1S light industries is contem:9lated; for instance, a large modern sugar f'.:tctory, a large industrial alcohol plant, a modern textile factory, and a ~lnny bD.,:'; factory. 2. problems of Internal Financing So far as public expend.i turee are concerned. it has been the GO'Tl::rn- mantI s practise to finance substantial ca:pital investment from budGet revenue. Thus, the Government mi~<ht \.rell balance ordinary expenditure and revenue ancI reserve the abnormal incor.1e from the Ri 0(3 Mononel - v for , . capi tal investment puriJoses. Such an allocati.on should, be feasible t especially if the collecti on of taxes is irnproved and the present very low direct t~xation increased. During the coming four to five years, the income from the Hice Monopoly could provide sufficient ftL'1ds to finance the re'1laining rehabili tatif)n expenditure and e'l.ten SOMe development pro,jects.  - 32 .- After that period the capital expenditures are expectad to decline and, if in the meantime there is a vigorous educational pro~ram designed to stinulate savings by the people in the form of deposits with the Government Savings :Bank, this source of local currency financing \'!ould permit additional development Ilrojects to be underta.k:en \-ri thout fear of inflationary consequences. If the demand for urgent capital expenditure should be greater than the expected income from the Rice !'-1onopol:l and the inflm'i of saving deposi tSt it might be necessary to resort to some fina..'rJ.clng by the :Bank of Thailand. t "jhether through turning over to the Government some part of the exchang(~, p'l'nfi ts novi accruing to the :Bank of Thailand or through loans to the Goverrment. To the extent that such financin(! \"as enployed merely to acquj.re foreign exchange from the :Bank of Thailand to cover government purchases abroad; there "'ould be no internal nonetary effects. Even to the extent that it 1Ime eID}')loyed to cover local currency expenditures, the net effect ",ould not be infla-- tionary; the result 1ITOulCl. only be to diminish the deflationary effects resulting frt)r:1 the sterilizat:1on of funds in the IfStabiEzation Account", 3. Proble:::1s of ]1'Cternal Fina..'rJ.cinR The balance of payments for the last t\-TO years and the estimate for 1950 indicate a current account surplus "ri th the soft as ,-rell as hard currency area. :Becau.se of sharply redu.ced dollar rics '3Xportfl, the dollar surplus in 1950 "lill be substantia.lly lO~'Ter than :l.n 1948 or 1949. 11.S ::1entioned ,)reviously t Thailand I s monetary reserves have increased greatly over the last t,,,o years and a further increase, especially in the sterling holdings I may be eX.!?8ct ad.  - 33 - Although the monetary reserves now provide ample cover for the currency Circulation, the Government wouln be reluctant to see them callen. upon to any R'reat extent to cover the direct foreigon exchallP'e requirements of rehabilitation and development projects. The Government must expect that once the development prop-ram ~ets under 'fray, i t 1}!ill have substantial indirect effects in stimulatinf.'" ne'" (lemands for importeil eoods. This might reduce or even temyorarily eliminate the balance of payments surplus. In any case. the I!overnment i ~ inolinel1 tONard a defini tely c0nservati ve policy in handlinp- i ts e~"ternal reserves ana intends to meet a part of foreign exchanee expenditure involved in the rehabili tation and development prog-ram from forei~n borrm·!ill,!~. It has already been mentioned that Thailand1s trade prospects appear favorable (p.25). As Thailand's economic and social structure is changing slo'\rlly, i t is reasonable to expect that the old established structure in the country's foreip-n trade also \dll chanp-e only €!radual1y. An increase in imports may be expected to accompany a slo,",ly risinrr standard of 11 ving and economic development on a larger scale, but ve,riolls exports will also be expanded and industries introduced or enlar~ed to produce commodities hitherto imported. The :;:Jresent burden of servicine external debt and f orei€!n inve stl'1ent is very modere,te. Therefore, Thai land should be in a position to provide from its current foreirn exchan?e earnings a substantial amount for service on additional external debt. The position in sterling is especially stro!lP-, and Thailand should be able to service additional sterling- obligations t  Even in dollars. Thailand's balance of payments prospects are distinctly promisine. While the dollar earninrs in the recent past cannot be relied upon as a guide to the future because of the lar~e non-recurring earnings from rice };lUl"chases by the U. S, Government on behalf of China, Korea, and other areas, Thailand's competitive position in rubber and tin is ~ood, and it may be assumea that export~ of these two commodities to the U. S. will continue. In adnition, Thailand has been expanding exports of various small iter.'ls ,·,hich totalled $11 million On the import side, as Japan and the European crn2ntries become able to supply their pre\V"ar exports to Thailand on a competitive basis, dollar import requirements ';dll tend to decline. It may also be assumed that Thailand "rill be able to obtain more oil frOM non-dollar sources. In general, Thailand's imi)Orts frnm the UniteC!. States mip.ht "!ell decline beloIt' the 1949 level, consi stin~ mainly of capi tal and dnrable eonsumer goods. Therefore, a moderate trade surplus . .'Ii th the dollar area may be expected, l! 11 According to the U. S. stati stics. Thailand had an 9:::.port 8ur:)111s with the U. S. of $4.8 million in the first four months of 1950 (:i. t "rae $4,4 million in the same period of 1949). Thai exports declinen from $17.5 million to 813.5 million, and Thai imports decrea~ed from $13.1 million to $8.7 million. • Heasures Counteracttn>s the Inflationary Effects of Borrowi ng from the Ban1: of Thailan.,g (A.nswer to a question of the I.B.R.D. l'1ission authorized by the Thai MInister of Finance January 1950) 1. 1~'Uch of the monoy OOrr01l1od fran the Bank of Thailand and otl:er sources has beon spent on capital projects. The ir..flationary pressure is therefore expected to be partly counteracted in an auto~atic manner by incroased production. 2. There are, furthermore, two main anti-inflationary neasures which the Gevernnent is taldng and vJill take: (D.) Expansion and intensH'ication of tho Savings Car:1paign. (b) Achievement of budget surp1usas. 3. The present and future :rTograr.uilBs for Saving:} Canpr..dgn have been described in Hemorandum XII (S.l.). It rOL'ains to be added that the Government intends to abstain froE: dravling i'll.ndD frOl:l tho Savings Bank. 4. The Government is planning to achil1ve budget surpluseo from 1951 om-Tards. For the year 1949, the true budget deficit is not as big as the figures shown in the books of the Comptroller-General. According to the latter, the n.pproxinate actual revenue amounts to 1,907 IdJ.1ion baht; and the total expenditure L1 the bu.dgi3t (including ntary budGet) IJ..'J.ounts to 2,291 million baht. The actual figure of e::v.:pendi ture has not yet been ascertained; but it can be safely estimated that tho actual expGndi ture will fall short of the budgeted fizure by about 200 mil- lion baht. Furtherr10re, the expenditur~ figure includes an iteFl called 1I11onetary Stabilization FundI! of 13.3.8 million baht, '-'Thich was used to  - 2 - ~} redee:n the Treasury Bonds held by the Ba:r,k of Thailand. This brings dO"Tn the true btldget deficit in 1949 to about 50 million baht. 5. For 1950, tho budget bill has been passed by the Lower House of assembly and is being discussed by the Upper House. It ShO\olS a deficit of 521.6 million baht. It is expected that tbe true doficit will b8 smal18r than this figure, oocause in the Thai budgetary systern the actual revenue norr:mlly exceeds the budgeted revenue whilst the actual expenditure must not and cannot exceed the budget':Jd oxpendi ture (unless a supplcmentaI'lJ budget bill is passed by the Assombly). 6. In 195), the Governned proposes to convert D. portion of its short-tern dei)t into a lOl1g-term 10nn. Details have not yet been C011- sidered; but it is accopted in principle to exocute this cOllverDion in such a manner as to decrease the inflationary pressuro. 7. For 1951 [,nd subsoquunt years, the Governrnont plans to docreasG its short-term debts by rodo;;rning a portion of tho Treasury Bills oo.cL year. Tho technique of lI}1oneta1"'J Stabiliza.ticn FU1:d ll will be revivod for tbis purpose. 8. Bu.dgot surpluses for 1951 and subsequent yearG can be oxpoctod fro!"] the followi ng :- A. bill being rrosentod to Parlia'Uont to t0rr:1ieate th3 pOillor of the Government to issue furthor Treo.S1.1I'1J bonds. Treasury bondfl were first uS0d as Components of Currcmcy RoseI've in 1941 (soe Ninisterial R"i;tt- lations (No •.2) issued undor tl:e Currency Emergency Act B.E.2/~/f)' The whole of 210 million baht Treasury Bonds \-lOr() redeor1od in 191$ and 191,9. ~H~ This is a smaIl runount compared with the incroaso in TreaS1..1ry Bills duri tl:e y i3ar; but tho increase in Treasury Bills irms neco'si tatod by various reasons, o.g. payrrent of past cash cOlilmi tments, j.l1Creaso in the l're3.SU1"'J'S mods fer 1:tqutdity, etc. iHH~See Budget Bi1Js, whero the phr8.c~o IInot eXCGodingll is usod 0.11 (3 xpe ndi tur,) i toms.  - 3- far C_S (iossiblo (r;rovic\xl th3 iIiterntxcio;:al situt:.t:ton doon r'o-(. :Ccrcc (b)  .. APPENDIX II Holde~s: of Outstanding Government Loans (November 1949) (Minion of Baht) Private Bank of Savings Commercial Public In- Coopera.- Total Thaila.nd Bank Banks stHutions tives Individuals a) Investment Loans 69 .. 3 3.6 19.1 36.0 6.7 2.9 1.0 b) General Loans 250.:: 26.3 .2 69.0 8.7 4.ll 2.7 c) Treasur;l' Bills 468.3 451.3 17.0 d) Rupee Assets 108·5 108.5 Total 896 •.6 .7 158.3 122.0 1::.4 7.3 3.7  Iss~ D8part~o~t (in million baht) Notes in Circu1a- Other Se- Foreign :li.2.tL- curi til§. curities Exchange Q91.d 19J/::; Dec. 26 2,121.4 933.5 147.4 352.,4, 771.7 1947 Dec. 25 2,053.5 830.1 148.1 427.3 768.3 19$ Doc. 2,389.9 775.7 147.5 710.8 769.1 19!{-9 Dec. 2,554.Z 370.3 128.6 871. O. --1..,_~26,J. 2,097.8 ~ . 11 DepcsitG 1946 Doc. 26 513.4 :.6 211.3 0.3 1947 19/;.8 Dec. 25 Doc. 5f)7.8 13.'3/,..2 '.4 1r, .8 307.2 371.7 0.0 388.j 1949 Dcc. 1,:.:68.4 138.3 ? 0 .,/.u 640.0 106.3 11 Depcsits iLC1udo tho "Stnbil'.zation ACCOUlltll which amounte(!, tc tho follomng: A.t t:1e end of 1948 - Blllt 181.1 million A.t the end of 1949 - B~·lt 515.2 million  A.. Current Balance of Faymelli&..1..ransactio_ns of _T_h..§.iland J.946-191& (in millions of U.S. dollar. equivalents) 1946 1947 19:¥l Merchandise -11.6 /13.2 198.3 Non-monetat'"lJ gold - 0.3 -1/,..2 0.0 Foreign travel .;. 0.9 /1.8 1 2.7 Transportation - 0.8 2/ 2/ Insurance - 0.1 - 0.3 - 0.2 _ 11 InvestmoL:G lncome - L~.9 - 0.7 Government, n.i.o. l 5.1 4.5 4.7 Donations ---2'~ - 2.1. 7 Total -11.0 -12.2 /-92.r?i n.i.o. - not included elsewhere. Source: International I·Ionetar'"J FU.lld 11 No data are availabl<:'1 on private :investment income. For 19!,.7 and 19/$ the credits covor the earnings of foreign assets held by offic:ial in- stitutions and the debits represent interest payments on Government foreign debts. The 1947 figu.re includes am.ounts due in respect of earlier years. 2J Included under "r::Lerchandise. II ::/ The estimated lJet surplus on current account is subject to soma 1'0- duction due to the exclusion of payments on private direct irrr8st- ments and privata outward remittances.  - :2 - B. Balanco of Payments Estimate .for 194~ ---' on Currant account - (in millions of U.S. ~i, equivalonts) Hard Currency §.oft Gt.lrr.Q.~ A.r~ 11 ~ Iota~ Trado !-33.9 /-47.8 I" U..L.. 7 Insurance 0.0 .- 0.5 - 0.5 Direct Investmont - 2.1 -11.7 -13.7 Other Interest and DividondG /- 0.3 - 0.2 0.0 Foreign Travel 0.0 !- 2.5 1 2.5 Governmont Expondi ture - 6.4 -16.7 -23.1 Privata Remittances ----. - ....;;::....i... O -=-.i.Q Surplus on Current Aecount !-25.7 116.2 I<4J·.9 11 Including .Japan  - 3 - APPENDI.!. IV (Cm~T.) c. ,Balance of Paypents .E.s.t:\.,mj';to. fo~+330 on Current Account (in millions of U. s. :~; equivalents) J1.r!rd Q!.l t!9..D£,;Y .§.9.ft Currenc;y ~ ~ ~ Trade /15.8 /-40 • .3 156.1 InSUro.llCO 0.0 - O.l;. _. 0.4 Diroct Imrostmeut .. 2.:' -11.7 -13.8 Other IDtored c.nd Dividends f 0.3 - 0.1 / 0.3 Forei8;l1 Travel 0.0 I- 2.2 ,; "oJ ') ,.,.~. ') Governmont E::cpendi ture - 3.8 - 2.7 ~. 6.5 vnto Romitto.nccG -10.0 -10 •.Q Surp1us 0J} (}t1rront Account ';10.2 /17.6 /27.9 •