Financial Institutions in Thailand Ravi Amatayakul and Shrikrislma A. Pandit* rpHAILAND'S ECONOMY is predominantly agricultural. Rice JL is the leading food crop, and rubber is an important exchange earner among nonfood crops. Mineral production, which accounts for a small share of the national product, contributes sizable amounts to the country's exchange earnings, mainly through tin exports. The manufacturing sector—although still narrow—has been expanding in recent years. The authorities have actively encouraged this expansion through tax relief and other measures. Government investment has concentrated in the field of basic services. With a view to accelerating economic development, the Government launched a Six Year Develop- ment Plan on January 1, 1961 aimed at achieving an adequate rate of growth in the face of a rapidly rising population.1 By far the greater part of government budget revenues consists of indirect taxes, principally customs duties and taxes on rice exports. Budget expenditures have increased at a faster rate than revenue, and recourse—though on a limited scale—has had to be had to central bank credit to finance budget deficits. The Government has taken measures to expand revenue through tax revisions and improvement of tax collection methods. The money supply has been steadily expand- ing, but at an average rate apparently not much higher than the rate of growth of real output. Over the last two years, the cost of living index has been stable. International reserves have been satisfactory throughout the postwar period. No par value for the baht has been established, but the exchange rate on the free market has remained stable in recent years at about B 21 per U.S. dollar. *Mr. Amatayakul, economist in the Western Pacific Division, is a graduate of Far Eastern University, Manila, Philippines and George Washington University, Washington, B.C. He was formerly with the Audit Council under the Prime Minister's Office of the Government of Thailand. Mr. Pandit, economist in the South Asia Division, is a graduate of Bombay University. 1 Editorial Note. Discussions between member countries and the staff of the Fund take place against a background of detailed information about the mem- bers* economies compiled by the Fund staff. This information includes data on financial institutions which, it is believed, in some cases may be of general interest because not otherwise available, and may assist research workers in analyses. The present article is representative of this aspect of the work of the Fund's staff. Further articles of a similar nature may be published from time to time. 464 ©International Monetary Fund. Not for Redistribution FINANCIAL INSTITUTIONS IN THAILAND 465 The principal financial institutions of Thailand are (1) the Bank of Thailand (the central bank), (2) twenty-seven commercial banks of which eleven have their head offices abroad, (3) the Government Savings Bank, (4) the Industrial Finance Corporation, (5) the credit cooperatives, and (6) the insurance companies. In addition to these institutions, there are numerous small moneylenders, mainly in the rural areas. There are no stock exchanges. Bank of Thailand STRUCTURE The Bank of Thailand was established on December 10, 1942, under the Bank of Thailand Act of April 28 of the same year, as the central bank of the country. The Bank's paid-up capital of B 20 million was subscribed by the Government, and the Bank received also the net aissets of B 13.5 million of the Thai National Banking Bureau, which was set up in 1939 as a precursor to the establishment of a full- fledged central bank. Subject to general policy supervision and con- trol by the Minister of Finance, the Bank's management is entrusted to an eleven-member Court of Directors, including the Governor and the Deputy Governor of the Bank, serving as the ex officio Chairman and Vice Chairman of the Court, respectively. The Governor and the Deputy Governor are appointed by the King on the advice of the Cabinet, and the other Directors by the Cabinet on the advice of the Finance Minister. The right of note issue rests with the Issue Depart- ment of the Bank, and domestic and foreign banking operations are under the jurisdiction of the Departments of Domestic Banking and Foreign Banking, respectively. AS BANK OF ISSUE The Bank of Thailand took over the management of the note issue from the Currency Division of the Treasury Department on Decem- ber 11, 1942, and has since been issuing notes in the name of the Gov- ernment. On the same date, the country's currency reserves were transferred to the Bank's Issue Department. During the war and in the early postwar period, the currency reserves, required to be equal in amount to the whole currency out- standing, consisted mainly of gold, foreign exchange, and Thai Gov- ernment paper, denominated both in baht and foreign currencies (Table 1); the remainder was in the form of "government guarantees." ©International Monetary Fund. Not for Redistribution TABLE 1. BANK OF THAILAND, ISSUE DEPARTMENT: ASSETS AND LIABILITIES, END OF YEAR, 1942-601 (In millions of bakt) 1942 1043 1944 1945 1946 1947 1948 1949 1950 LIABILITIES Note issue In circulation 391 648 1,161 1,839 2,119 2,107 2,390 2,566 3,278 In Banking Department 2 10 14 264 86 67 13 31 19 Total (= Assets) 393 658 1,175 2,103 2,205 2,174 2,403 2,597 3,297 ASSETS Thai Government securities* 200 249 285 418 934 830 776 371 339 A. Denominated in baht* Special Treasury bonds its ies soi soi sw 166 Treasury bills B. Denominated in foreign currencies Sterling bonds .... 41 sr s» U.S. dollar bonds Other securities —- — — — 147 48 47 41 409 IBRD U.S. dollar bonds IBRD sterling bonds Sterling securities — — — — 14? 48 47 41 Foreign exchange8 61 159 571 1,346 352 527 811 708 1,072 Sterling .... — — '— .... 448 J&8 688 .... U.S. dollars .... — — — .... 79 313 ISO .... Yen .... 169 671 1,346 Gold 132 250 319 339 772 769 769 1,477 1,477 For footnotes, see next page. ©International Monetary Fund. Not for Redistribution TABLE 1 (concluded). BANK OF THAILAND, ISSUE DEPARTMENT: ASSETS AND LIABILITIES, END OP YEAR, 1942-601 (In millions of baht) 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 LIABILITIES Note issue In circulation 4,052 3,998 4,338 4,817 5,543 5,802 5,993 5,864 6,249 6,661 In Banking Department 15 39 29 8 38 23 35 67 28 90 Total (= Assets) 4,067 4,037 4,367 4,825 5,581 5,825 6,028 5,931 6,277 6,751 ASSETS Thai Government securities8 371 367 875 1,528 1,220 1,220 1,127 1,200 1,379 1,593 A. Denominated in baht2 860 686 915 Special Treasury bonds Treasury bills — — tea SfS 91B — — B. Denominated in foreign currencies 1,820 1,880 1,187 940 764 678 Sterling bonds to to 19 17 18 U U.S. dollar bonds 1.XOO i,too 1,108 9S3 7S8 864 Other securities 940 286 229 201 126 150 139 136 118 131 IBRD U.S. dollar bonds 186 150 1S9 1S6 118 131 IBRD sterling bonds Sterling securities .. __ ,___ _ Foreign exchange 1,350 1,972 1,850 1,683 1,989 2,210 2,518 2,351 2,533 2,781 Sterling 386 940 948 944 1,003 1,018 1,015 U.S. dollars 1,297 1,049 1,868 1,674 1,S48 1,581 1,766 Yen Gold 1,406 1,412 1,412 1,412 2,246 2,246 2,246 2,246 2,246 2,246 Sources: Bank of Thailand, Annwd Reports. 1942 to 1957, and Monthly Returns. 1 Excluding the accumulated income from the Bank's security holdings. 1 For the period up to March 1955 may include also "government guarantees" (for which data are not available), given for the part of the note issue not covered by government securities, or gold and foreign assets. 1 Data for 1942-45 exclude foreign exchange and securities held in the United States and the United Kingdom. ©International Monetary Fund. Not for Redistribution 468 INTERNATIONAL MONETARY FUND STAFF PAPERS In March 1950, Thai Government paper denominated in baht was dis- continued as legal currency reserve, and, following a revaluation of gold and foreign exchange in March 1955, the government guarantees were liquidated. Thereafter, through August 26, 1958, the currency reserves comprised exclusively gold, foreign exchange, foreign se- curities, and Thai Government securities denominated in foreign currencies. But as these requirements came to be regarded by the authorities as too rigid, the Currency Law was amended on August 27, 1958. The amendment stipulated that a minimum of 60 per cent of the currency cover should consist of official holdings of gold, foreign exchange, and foreign securities of less than one-year maturity. The remaining 40 per cent may comprise Thai Government securities denominated in any currency, Thailand's gold subscription to the International Monetary Fund, and commercial paper; the last of these, however, may not exceed 10 per cent of the total amount of notes in circulation. Of the 40 per cent, however, only Thai Government bonds and Treasury bills have been used as currency reserves so far. At the end of 1960, the percentage distribution of the currency reserves was as follows: gold, 33.3 per cent; foreign exchange, 41.2 per cent; Thai Government bonds denominated in U.S. dollars and pounds sterling, 10.0 per cent; IBRD dollar bonds, 1.9 per cent; and Thai Govern- ment Treasury bills, 13.6 per cent.