Thailand Far From Overheating, Says Calif. Consulting Firm

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Thailand faces little risk of economic overheating, according to a California-based independent investment research firm. Contrary to consensus opinion, rapidly growing credit card debt and strong expansion of private sector investment do not threaten economic stability, says Jeph Gundzik, president of Condor Advisers, an eight-year-old investment consulting company based in Mammoth Lakes, Calif.

According to Gundzik, who predicted Thailand’s economic collapse in 1997, rapid economic growth should continue in Thailand at least through 2006. “Credit card debt represents less than two percent of total bank credit outstanding and private sector investment has only just begun to recover,” Gundzik says.

Gundzik, who has published independent emerging markets investment risk analysis for the past 10 years, notes that overall credit growth in Thailand continues to be weak because private commercial banks remain saddled with distressed assets. Domestic credit is now equivalent to only 86 percent of GDP compared to 132 percent of GDP in 1996. “Stories about super fast growth of credit card debt and rising household debt burdens are focused almost exclusively on what has occurred in Thailand in the past two years. Looking further back, the picture changes from excessive expansion to fledgling recovery,” he says.

Gundzik adds that a very similar picture emerges of private investment when viewed over a longer term. Private sector investment expanded by 13 percent in 2002 and 18 percent in 2003. This has alarmed some analysts who have begun drawing parallels with over-investment that characterized Thailand in the mid-1990s. However, private sector investment accounted for only 15 percent of expenditure-based GDP last year. In 1996, private investment accounted for 32 percent of expenditure-based GDP. “Even if investment growth accelerates to 20 percent annually it will take several years before pre-crisis investment levels are reached. Accelerating private sector investment does not threaten Thailand’s economy at all,” he says.

Gundzik stresses that rapid credit and investment growth did not trigger Thailand’s economic crisis in 1997. The blame for the for the crisis lies with international banks, which ignored deteriorating economic fundamentals in Thailand and continued to expand their lending to the country’s commercial banks. By 1996 Thailand’s commercial banks had amassed net foreign liabilities worth nearly $50 billion. “The reckless lending of banks was supported by assumptions that multilateral lenders would bail them out if the country faced liquidity problems. When international banks finally recognized that Thailand’s banks were struggling to repay loans, they stopped rolling over credit and the economic crisis was born,” he says.

According to Gundzik, a repeat of these events in Thailand is impossible because the country’s commercial banks now hold net foreign assets worth about $7 billion. In addition, Thailand’s private sector external debt has declined from $92 billion in 1996 to only $35 billion at the end of 2003. Public sector external debt has also dropped from its peak of $36 billion in 1999 to only $17 billion last year. “Thailand is a far better credit now than it was in the mid-1990s. This should give the country’s corporations relatively easy access to external credit, helping to finance domestic investment and sustained strong economic growth,” he says.

Only one factor could dull Thailand’s otherwise promising economic outlook, says Gundzik. “Prime Minister Thaksin impressive political power is leading the government toward autocracy. There have been several violent popular revolts against autocratic leaders in Thailand’s modern history. Hopefully the prime minister is aware of this,” warns Gundzik.

Condor Advisers, a Mammoth Lakes, Calif.-based consulting firm specializing in emerging markets investment risk analysis, has been serving institutional investors globally since 1995. Condor’s research has foreseen all the major crises in emerging markets, including the Asian liquidity crisis in 1997, Russia’s default and devaluation in 1998, Brazil’s devaluation in 1999 and Argentina’s default and devaluation in 2001. Jeph Gundzik is available to speak to the media about global political and economic trends, and investment risk and opportunities in emerging markets. He can be reached in the United States at 760-937-7152 or by email at For more information please visit

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