Question

between 1996 and 1998 Thailand has moved from a current account deficit of about 9% of GDP to a current account surplus of 8% of GDP. why is this a crisis? explain.why is it painful for a country to make such a move in such a short period of time? explain.

Answer 1

Current account deficit is a scenario when there is a higher amount of exports from the country and lower amount of import into the country so the net balance will be negative and current account deficit will be better for the country in order to have a higher amount of foreign reserves and it is also leading to improvement into the development of the country because of higher current account deficit as there is higher amount of exports from the country.

in this case when the current account surplus has been reported in such a short period of time, it will mean that the export from the Thailand has completely shrunken and it lead to increase in the import so there was lack of development into the economy due to low export.

This is a crisis because this is reflecting that the country was not able to export and it was importing highly so it was leading to a current account surplus for Thailand and it was reflecting that there was lower exports and lower development of domestic industry and the lower production of jobs.

It is painful for a country to make such move in a short span of time because the countries are always trying to increase their exports and have higher amount of foreign inflows in their country in order to boost growth because higher export will reflect that domestic industries are booming and there is higher level of employment in the economy and hence it was a pain because there was lots of jobs and loss of businesses along with lower exports.