Economic crisis and the relocation of capital to the borderlands

Kicking off two years of harsh economic recession that spread throughout

Southeast Asia and beyond as far as Brazil and Russia, the Thai baht collapsed in July of 1997 in the face of massive debt and financial speculation. These trends were a reflection

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Harvey describes the 1997-98 crisis as a safety valve for capital-rich economies trying to avoid their own crisis of over-accumulation in the sense that it was a largely manipulated event, which led to the rapid devaluation of assets and the subsequent creation of immense opportunity for capital in North America and especially East Asia to buy these assets up at a lower cost and with fewer regulations. Harvey points to

of the previous decade’s drastic economic and political reforms in Thailand. In the 1980s, the Thai government followed the World Bank’s advice to liberalize its external trade and deregulate foreign investment, which helped transform the economy into one built on export-oriented manufacturing (Pasuk and Baker 2008). The following decade saw a flood of Foreign Direct Investment (FDI) into Thailand’s retail and manufacturing sectors, such as telecommunications and the automobile industry. From 1987 to 1997, Thailand experienced an economic boom with an influx of investment into industry as East Asian countries relocated their manufacturing overseas to Thai factories. Investment in property, real estate, retail, and telecoms also soared (Pasuk and Baker 2007). The biggest portion of this investment came from East Asia, particularly Japan, but also Taiwanese and Hong Kong-based firms.39 Bello (1997) points out that in Thailand during this period, fifty percent of all investment came from property-related loans and between thirty and fifty percent of annual growth of the GDP came from property development. By the 1990s, firms in the US and Europe also entered the speculation market by investing in Thai loans and property. In addition, domestic firms began borrowing from international lenders with lower interest rates than Thai banks, and to an extreme degree as they sought to keep up with the pace of growth. During the decade of economic success, the private sector’s debt “ballooned from 8 billion baht in 1988 to 74 billion in 1996” (Pasuk and Baker 2008: 7).

As soon as the Thai baht was unyoked from the US dollar in July 1997, the bubble popped and the value of the baht decreased by half over the following five

39 _{Piya (2007: 132) writes: “Between 1985 and 1990, about US $15 billion of Japanese direct investment} poured into Southeast Asia, and by 1996 about US $48 billion in Japanese FDI was concentrated in the

months. But because so much of the debt in Thailand was foreign-held, the devaluation of the baht meant that firms in Thailand had to pay out double for fixed interest debt

payments to foreign institutions (Wade and Veneroso 1998). Lenders clambered to collect their loans as borrowers defaulted on their debt; the Thai economy recoiled and effectively shuttered with GDP decreasing by eleven percent (Natenapha 2008). Instead of remedying the situation, the IMF greatly exacerbated the crisis with a support package that included deflation, further shrinking consumer spending (Pasuk and Baker 2008; Wade and Veneroso 1998).40 Many Thai finance companies closed, and banks stopped operating. As a result of the crisis, by the end of 1997, there were an estimated two million people out of work. Millions of Thais had migrated from rural to urban areas in the 1980s and 1990s, many to participate in the burgeoning manufacturing industries. As part of the gendered aspect of this crisis, hundreds of thousands of Thai women who had left agricultural villages in the north and northeast of the country to join the workforces of the garment and textile industries lost their jobs (Mills 1999; Piya 2007).41 In the few years after the crisis hit Thailand, nearly 350,000 industrial workers (including 150,000 women) lost their jobs as hundreds of factories shut their doors (Piya 2007: 134).

The crisis and the recovery moved Thailand from an economy built on domestic capital to one where it was minimal compared to the percent owned by multinational

40 _{The IMF provided a package to Thailand meant to help deal with crises related to excessive government} borrowing, not the accumulation of private debt. Their insistence on further liberalization and deregulation appears to have been built on the notion that reshaping the Thai economy to more closely resemble Western economies would help Thailand recover.

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There were certainly many men who lost their jobs as well in that the crisis hit multiple industries. However, more flexible, low-wage manufacturing industries, which have a disproportionately female workforce, were quicker to close doors and relocate elsewhere. It is often the case in financial crises that flexible industries de-materialize and re-materialize. It is also the case that women are usually the first to be laid off in such crises, with the assumption that men are the real income-earners in their households

firms. Natenapha (2008: 23) writes, “in the 10 years following the crisis, the average annual inflow of FDI was almost three times higher than in the boom decade in dollar terms, almost five times higher in baht terms, and over double as a proportion of GDP.” Japan emerged as the primary investor and the industry sector received the bulk of this investment (see Table 2). Natenapha (2008) estimates that 25% of Thai capital was either liquidated or subordinated to foreign investment acquiring stakes in those firms.

Table 2: Foreign direct investment by sector and country (1970-2006) (Nathenapa 2008: 24)

1970-1986 1987-1996 1997-2006