Five years after Thailand floated the baht and triggered a disastrous regional economic crisis, analysts say plenty has been achieved, but to make the most of the current recovery reforms must go on.
As a recovery fuelled by consumer spending and an ambitious government stimulus package kicks in, economic growth predictions for 2002 have been boosted to up to four percent, a far cry from 1997 when the economy contracted by around eight percent.
Still, not everyone is enjoying the nascent upturn.
"Things were much better then," says language-school owner Tanimnan Janluan of the pre-crash days.
"I could charge students more and make money more easily. Five years ago most of my students were sent here by Japanese companies. Now they are Japanese students looking for jobs and they don’t want to pay as much."
And analysts are warning that growing optimism must not hinder reforms that the crisis period showed were crucial.
"There is not that much appetite left for reform — people are saying the economy is recovering well and we should take advantage of that," says Supawud Saichua, head of research at Merrill Lynch Phatra Securities.
"You have seen Thailand do some of the right things, but some of the things that have been too tough we have not tackled yet," he adds.
Nevertheless, Supawud says Thailand has tackled key reforms over the past five years — beginning with the baht itself.
"The most important thing was that the baht was floated, and that gave Thailand a more flexible exchange rate so we could adjust it rather than defend it by losing a lot of money," he said.
The decision by the central bank on July 2, 1997 to abandon the fixed exchange rate regime in place since 1986, in favour of a managed float, represented a de facto devaluation that drove the currency down 15-20 percent in a single day.
From 25-26 baht to the dollar where it had hovered for a decade, it now sits at about 42 to the greenback, after making handsome gains in recent months.
Thailand’s travails helped expose the deep deficiences in the so-called "tiger economies" and caused a crisis of confidence that swept the region.
Indonesia, South Korea, Thailand, the Philippines and Malaysia were most affected by the turmoil which prompted massive International Monetary Fund bailouts. Thailand accepted one totalling 17.2 billion dollars.
But things are now — cautiously — looking up.
"One of the main problems was there was too much investment, but over the past five years we have used up that excess capacity," says Supawud.
Prudential banking requirements have also become tougher, he says.
Banks have "instituted new credit standards and are looking to be much more concerned about cash flow, whereas before they were only concerned about collateral value," he says, adding that the banking sector has now probably recognised some two-thirds to three-quarters of its losses.
Corporates have downsized their assets and improved their debt-to-equity ratios from around 2.5 in pre-crisis times to 1.5, Supawud adds.
Thanawat Patchimkul, head of research at DBS Vickers Securities, agrees that the economy has improved.
"Sometimes it’s so gradual that we don’t notice it, but if we compare this time to right after the floating of the baht, we’re stronger," he says.
International reserves are up from 27.0 billion at the end of 1997 to 35.8 billion dollars, and outstanding non-performing loans (NPLs) have dropped from a peak of 45 percent to just over 10 percent.
Thanawat also says the structure of the country’s external debt — both public and private — has improved, with substantially more becoming long term.
"Even though we have had difficulties in the past few years, we are still paying off the external debt," he said.
But remaining reforms are still needed, and corporate governance in particular must be improved, according to Thanawat.
"Governance has improved quite a lot since the crisis but in the eyes of foreign investors it might not be enough," he says.
Manufacturers must also improve their productivity, and financial institutions need to increase their competitiveness, he says.
Many say that high public debt — which has exploded from 35.3 percent at the end of 1997 to 53.5 percent — must be carefully monitored.
"We have already reached the ceiling of public debt that the Thai economy can bear," Chulalongkorn economics lecturer Sompop Manarangsan says. "I don’t think the Thai government has much room for pursuing this sort of fiscal stimulus any longer."
Amendments to financial laws that proved woefully inadequate during the crisis, such as bankruptcy and foreclosure laws, are also yet to be passed.
"The last government tried very hard to have these laws amended but they still got stuck," says Sompop.
Nevertheless, compared to other countries who have suffered massive crises such as Argentina, analysts believe Thailand has struggled through relatively unscathed.
"We’ve come through the crisis very, very well … There was no violence on the streets and that demonstrates the country’s political, social and economic strength," Merrill Lynch’s Supawud says.
"We should capitalise on that and move forward."