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Thailand's boom: Will it
last?
By David Fullbrook
BANGKOK - Definitely bubbling in Thailand these
days is talk of the economy. Stocks, property and credit
are growing fast, reminiscent of the boom that fell
silent in 1997. However, at this stage it appears more
likely the economy will move on to a less spectacular
but more sustainable growth path.
Confidence,
whether misplaced or not, is reflected in the stock
market, which comfortably doubled last year. While some
see an undervalued market moving back to more realistic
valuations, others are not so sure. "The Thai market
tends to be fairly speculative, which could result in
over-valuations," says Peter Walter, A T Kearney's
Thailand country manager.
Low interest rates are
encouraging people to take out more consumer loans, sign
up for credit cards - American Express has just joined
the party - and invest in property. "We are seeing a
strong increase in consumption of luxury goods and Thais
traveling abroad," says Professor Sompop Manarangsan of
Chulalongkorn University's economics faculty. "There is
increasing speculation, especially across the middle
class, even students are widely investing in stocks."
More shopping and speculation are not a firm
foundation, says Udom Tantiprasongchai, a businessman
who made his fortune in textiles. "I don't think it's a
boom, it's just changing consumer behavior by getting
them to spend more."
Assessing the risks
accompanying credit growth and asset speculation is
hard. Professor Ammar Siamwalla of the Thai Development
Research Institute is concerned about holes in data
tracking credit cards and consumer lending. Consequently
South Korea's personal-credit woes could be repeated in
Thailand.
Supervision and regulation remain
blunt in other areas too despite attempts to sharpen
oversight since the 1997 crunch. "There have been a lot
of changes, but there is still a lot that needs to be
done," Walter says.
"Legal and institutional
reform has not gone so well," says Sompop. "Development
of independent regulatory bodies is very important to
control and manage the situation. They are not
adequately developed." He wonders whether fast growth
can continue when regulators lack a full set of teeth
needed for a strong bite to keep banks and companies in
line.
Out on the front line, similar views are
held. "They seem to have [cleaned up] but in reality I
still believe that there is nepotism in regulation,"
says Sirivat Voravetvuthikun, who famously, and
successfully, turned to making sandwiches after the
crash wiped out his stock values and property ventures.
"It still goes on, but to a lesser extent," says
Atichart Athakravisunthorn, a property developer who
moved into airlines. "You hear stories almost on a daily
basis of projects getting funded that shouldn't. Ethics
haven't improved. It's the same people running the banks
and finance companies."
It is not just the
quality of lending that is queried. "Investment in
general is increasing at an alarming rate," Atichart
says. "Already we're seeing a boom in the construction
and property sectors, and the stock market too."
Merely expressing such sentiments, even if not
empirically accurate, implies a confidence boom that
will fuel borrowing, investment and shopping.
Booms or not, real Thailand is working hard.
Rising car sales are worsening traffic. Over the past
six months yellow tower cranes have flocked to Bangkok's
jumbled skyline as work begins on hundreds of new
projects while resuming on the skeletons of skyscrapers
abandoned after 1997. Builders are also busy in
provincial towns, a good sign that the economy beyond
Bangkok is growing too.
Such activity is
reviving memories of the good times before the 1997
crash, leading many people wistfully to conclude,
wrongly perhaps, that those go-go times are back
already. "I wouldn't put it as a boom as it's still a
recovery, until investment picks up, which is starting
to happen," says Ammar.
Ebullient Prime Minister
Thaksin Shinawatra predicts 8 percent growth for 2004.
Analysts are pitching forecasts in the 7-8 percent range
too. With more to come? Perhaps not. "We do not believe
this pace is sustainable beyond 2004 and look for growth
to slow to 5.6 percent in 2005," writes Tony Nafte,
Thailand economist at regional brokerage CLSA
Securities.
Fueling growth has been high
government spending, which is set to continue into 2005,
and a flood of cheap money being pushed out through the
state-owned Krung Thai Bank. Plus a growing appetite for
Thai exports, especially in China, where imports from
Thailand grew 60 percent last year compared with 2002,
putting that country on course to be Thailand's largest
trading partner by 2008. By then, however, Thailand's
economy will be sailing under cloudier skies.
Rising inflation will begin nudging up
historically rock-bottom borrowing costs within a year,
pinching legions of over-enthusiastic credit-card
spenders back to reality, while also reinforcing the
strengthening baht, making exports pricier for
foreigners. Nafte predicts a trade deficit next year
equal to last year's estimated $4 billion trade surplus.
Despite the overcast outlook, Thai companies are
not cutting costs and increasing productivity fast
enough. "In general Thai companies are slower to adapt
productivity-improving technologies. Productivity
improvements are very important for Thailand," says
Walter.
Nor are they investing enough in other
countries so they can expand more. "Regionalization and
globalization [are] not happening as fast as [they] need
to at Thai companies," he says.
A repeat of 1997
looks unlikely though, as Thailand is now a net
creditor. Its $40 billion foreign-exchange reserves are
more than three times its short-term foreign-currency
obligations. Seven years ago the picture was reversed.
"The last crisis, I have concluded, was almost entirely
due to foreign borrowing," says Ammar.
"Of the
last 20 years this upswing has the least chance of a
hard landing," says Walter. "However, [Thaksin] is very
growth-focused, which runs the risk of overheating."
Ascending interest rates, a likely reduction in
government spending after 2005's election, the outcome
of which is not whether Thaksin will win but whether he
will hit his 400-seat target allowing him to amend the
constitution, and slowing exports will crimp, but not
strangle, growth.
(Copyright 2004 Asia Times
Online Co, Ltd. All rights reserved. Please contact content@atimes.com for
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