MACROECONOMIC ENVIRONMENT

Macroeconomic Environment



Report 1: Significance of the Household Sector's Accumulation of Assets and Liabilities on Spending by the Sector

Executive Summary (200 words)

Wealth Accumulation plays a key role in planning for retirement, determining consumer saving and spending, and providing bequests to descendants, and influencing national capital formation and economic growth in Thailand. Not surprisingly, throughout the 1960-89 period, nominal balance sheet measures tended to reflect general patterns of inflation in Thailand. The inflation rate based on the implicit price deflator for personal consumption expenditures - averaged 2.7 percent during 1960-70, 7.3 percent during 1970-80, and 4.6 percent during 1980-89; over the entire 1960-89 period, the inflation rate was 4.8 percent. The nominal growth rates in assets, liabilities, and net worth also were lowest during the 1960-70 subperiod and highest during the 1970-80 subperiod. During the most recent subperiod, growth rates of assets and liabilities - like the inflation rate - were similar to the entire 1960-89 period average in Thailand. Thailand's performance in managing its money and banking affairs through successful development and diversification of its household sector was impressive in the 1960s and 1970s. However, economic imbalances in the early 1980s and the rising tendency of governmental intervention put the household sector under stress, thus reducing its efficiency in resource mobilization and allocation. Capital gains arise from changes in prices of existing financial and tangible assets from one year to another. Net acquisitions reflect new purchases net of sales and depreciation.

Introduction

The role of homeownership in the growth of balance sheet aggregates is highlighted in the owner-occupied real estate, home mortgage, and home equity categories. The value of owner-occupied real estate increased more rapidly than other asset categories from 1960 to 1989. (Kelly, 2005) Growth was particularly rapid in the 1970-80 subperiod, when the rate of increase was more than double the rates of the other two asset categories. During the same period, home equity also increased at a much more rapid rate than the increase in net worth from other sources. In short, home equity increased at a more rapid rate than both the inflation rate and net worth arising from a collection of assets and liabilities excluding those directly connected with homeownership.

The consumption and the financial system (DG)

Monetary policy was traditionally passive. Control over the rate of credit extension was the primary means for supporting growth, maintaining price stability, and monitoring the balance of payments. Interest rates were allowed to adjust to the rate of credit expansion and were very much affected by international rates as a result of the Thai open economy. Low returns tended to discourage private savings and encourage high demand for consumer goods. (Wilcox, 2007)

Thailand had many types of financial institutions, subject to different laws and regulated by different agencies. Most of them were privately owned, but some were state owned. The primary state-owned facility was the Bank of Thailand, which had responsibility and authority for monetary control in its role as the central bank. It served as the fiscal agent and the financier of ...