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Thailand aims to let the good times
roll
By David Fullbrook
BANGKOK - With Thailand's economy motoring
along, thanks to strong exports and a growing
world economy, it is easy for Thaksin Shinawatra,
the country's first prime minister to be handed a
second term by voters, to take credit for the good
times. However, quick fixes and "Thaksinomics" may
not be enough to prop up the economy's creaking
foundations, especially if exports sag.
Thaksin's first four-year administration
quickly began spending money, as exports took off,
helping to boost the domestic economy through a
populist economic platform that became known as
Thaksinomics, akin to Keynesian pump-priming,
which nicely caught a cyclical recovery.
"During the last four years the world
economy has been pulling us along. Inflation and
interest was low," says executive director of the
Institute for Future Studies of Development Dr
Kriengsak Chareonwongsak, who is entering
parliament for the first time as a Democrat
Party-list parliamentarian. (This means he does
not have a constituency, allowing him more time to
examine new laws, attack the government,
investigate issues and formulate policy.)
The prime minister's Thai Rak Thai party
is set to continue such policies, spending
heavily, now that state coffers are brimming,
thanks to booming exports, hitting a record
US$97.7billion in 2004, up 22.1% on 2003, and a
strong domestic economy, fueled in part by easy
credit and low interest rates.
After
pouring money, at least 77 billion baht (US$2
billion) in so-called loans into villages through
various schemes during his first administration,
some of which borrowers invested in small
businesses or simply blew on televisions and
motorcycles, he is now looking to keep the
domestic economy going by spending around a
trillion baht ($26 billion) on mass transit,
railways and roads.
Spending on mass
transit, as Bangkok's traffic-jammed roads show,
or on the long-neglected railways, is overdue.
But, given the need to keep kingmakers and
supporters loyal, the pressures to go ahead with
dubious projects and hand out construction
contracts to supporters will be high.
"If
it's [spending] used to reward people, you end up
with infrastructure in strange places. If it's
well planned, it's good for Thailand's industrial
future," says Professor Kevin Hewison, director of
the Carolina Asia Center at the University of
North Carolina.
Thaksin plans to spend
this huge trillion-baht sum during the next four
years, while maintaining a debt-servicing ratio
below 15% of the government budget, a more or less
balanced current account, against a $2.7 billion
surplus for 2004, and keeping civil servants happy
with pay raises.
If most of this
infrastructure work is well underway or even
complete by the time of the next election in 2009,
it will prove a powerful weapon for impressing
voters. Such projects typically take decades in
Thailand. Bangkok's new airport, which is due to
officially open in September, began in 1961.
But the winds are changing now; interest
and inflation rates in Thailand and around the
world are creeping higher. Big question marks hang
over the US economy, a weaker dollar means Thai
exports are more expensive in the world's largest
economy.
If China keeps its economy on
track and India's boom continues, there will be
plenty of buyers for Thai exports. But every boom
begets a bust, or at least a slowdown. "The
musical chairs have to stop some time, of course
it is fine while the music keeps playing," says
Kriengsak.
With his popularity high and a
new mandate in his hands, Thaksin is determined to
push ahead with privatizing state firms,
especially utilities. Such sell-offs should earn
the government handsome sums, helping to pay for
new infrastructure. They also raise fears of
corruption, collusion and conflicts of interest.
Last year, protests by electricity workers
forced Thaksin to back down from privatization. He
is unlikely to bow this time. "If they try to
implement as they did last year, they will not get
support of the labor unions," says Kriengsak. "But
if they adjust the program there might be room for
something."
If he can paint state
employees blocking privatization as standing in
the way of developing the country, Thaksin may
cause the public to turn against the workers.
Domination of the press will come in handy.
Other problems may require big sums to
fix. Household debt is rising, reaching 110,000
baht in March 2004. "The government-owned banks
are being pushed to lend money to people at the
grassroots level who don't have the skills to make
it, do not have the training," says Kriengsak.
"They now have more debt, so they go to unofficial
channels like loan sharks to pay back the
government."
Many observers fear a debt
crisis among the poor, others argue debt has
trapped them for decades anyway. For many of the
rural poor, loans are gifts from a rich government
in faraway Bangkok. If they do not repay, can the
government jail them? Writing off debts owed to
the government will prove an affordable
vote-winner, moral hazard be damned, and is
certainly cheaper than vote-buying.
There
are, however, deep problems that need tackling
sooner rather than later if they are not to cast a
dark shadow across the economy's long-term
horizon. Agricultural prices have been riding high
over the past few years, but unless Thailand can
move away from ho-hum commodities such as rice and
sugar cane, toward more lucrative organic food -
temperate fruits, flowers and processed products -
falling prices will hit hard.
Harvests for
maize, rice and sugar cane are rising in key
competitor countries such as India and Vietnam.
And China's agriculture will not remain
inefficient forever.
Thailand's
competitiveness is not sharpening, it may even be
blunter. In the World Economic Forum rankings,
Thailand has slipped two places, remaining just
behind Malaysia, but well ahead of China and
India. However, in the International Institute of
Management Development rankings, Thailand lies
well behind Malaysia and China, while India is
rising fast, closing in on Thailand.
"If
you look at the competitiveness of the business
sector in Thailand over the last four years we
have seen a continual decline," says Kiat
Sitti-amon, a director of the Board of Trade and
president of the International Chamber of
Commerce, who is also entering parliament as a
Democrat Party-list MP. "If we don't go back to
the drawing board we will not improve our
competitiveness."
Sharpening the
competitive edge requires long-term investment in
education, research and development and clever
policies to improve efficiency, such as
well-planned infrastructure. "They [the
government] need to move up the value ladder. They
haven't shown much inclination for investing in
training," says Hewison.
US research
spending, 70% coming from the government, equals
about 2.8% of economic product. China's equals 1%,
with much of that also flowing from government
coffers, while Thailand's registers at 0.2%, with
little spent by the government. No surprise then
that most patents and Noble Prizes accrue to the
US, while Thailand is bottom of the league.
"Research and development money is not
being used wisely enough, there is not enough of
it, it is not showing up in commercialized
products or improving competitiveness," says
Kriengsak.
Meanwhile, Thailand's education
reform is crawling along and seems to lack
direction. Thaksin went through four education
ministers before taking over the portfolio
himself. Time is running out fast. Thailand needs
to rapidly improve schools and retrain teachers so
pupils can learn critical thinking and reasoning.
"We don't seem to be skilling our people for
higher levels of production," says Kriengsak.
Thoughtful policy, tax revisions and money
can go a long way to fixing these problems.
Trouble is, time may run out first.
(Copyright 2005 Asia Times Online Ltd. All
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