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    Southeast Asia
     Oct 5, 2006
In Thailand, a return to 'sufficiency'
By Shawn W Crispin

BANGKOK - Is Thailand's new military-appointed interim government headed down the path of more economic nationalism?
That's the signal interim Prime Minister Surayud Chulanont gave many foreigners when he announced he would pursue gross national happiness over gross domestic product (GDP), and that his economics would be guided by the inward-looking ideals of His Majesty King Bhumibol Adulyadej's self-sufficiency economic

philosophy. The sufficiency model also figures prominently in the preamble of the new interim charter.

Surayud, a career soldier, is widely expected to hand economic
management responsibilities to a team of technocrats, most likely to be headed by market-friendly Bank of Thailand governor Pridiyathorn Devakula. But Surayud's new economic lieutenants will also be under strict marching orders to implement more fully aspects of Bhumibol's contrarian Buddhist self-sufficiency economic philosophy, which, counter to neo-liberal prescriptions, stresses moderation over maximization. [1]

The monarch's self-sufficiency-economy concept gained currency in the aftermath of the 1997-98 Asian financial crisis. In a now-famous 1997 speech, Bhumibol called on the Thai population to scale back its reliance on exports and shift toward a more self-sufficient, localized economic system, where 25% of the economy would be geared toward local production for individual needs. "A careful step backward must be taken; a return to less sophisticated methods must be made with less advanced instruments," the highly respected monarch said.

Bhumibol's back-to-basics message ran counter to the orthodox prescriptions offered by the World Bank and International Monetary Fund, which called for more, not less, openness to restore economic growth and financial stability. Then, Bhumibol's message presented a direct challenge to the country's traditional pro-globalization stance but resonated deeply with many Thais who had lost their factory jobs and were forced to reintegrate into the lower-earning rural sector.

Some of Thailand's most neo-liberal economic thinkers embraced Bhumibol's philosophy, which they construed broadly to emphasize long-term optimal over short-term maximum production and consumption - as most liberal Western economies are geared. The King's message helped Thailand weather the economic storms of 1997 without the social unrest seen in neighboring Malaysia and Indonesia.

Now, the country's new military leaders are invoking the monarch's message to help reconcile the political damage and economic distortions caused by ousted prime minister Thaksin Shinawatra's five years of divisive and some say morally corrupt rule. Yet it's unclear exactly how much emphasis the country's new leaders will place on the contrarian philosophy, which sends an inherently protectionist message.

Significantly, Thaksin had co-opted and subsequently subverted the monarch's message through his heavily touted "dual-track" development strategy, which aimed to pump up domestic, grassroots consumption alongside export-led growth. Rather than encouraging Buddhist moderation over market-driven acquisitiveness, Thaksin's rural strategy aimed to convert the country's poor peasantry into a new class of export-oriented, profit-maximizing capitalists.

Those policies - including a revolving village-development fund, a scheme for cheap universal health care and a debt moratorium for cash-strapped farmers - effectively built up Thaksin's strong rural support base, which he later leveraged into overwhelming election victories.

Debunking Thaksinomics
One of the new military-appointed government's challenges will be to erase Thaksin's strong economic legacy in rural areas before calling for new democratic elections, now scheduled for next October. Corruption findings against Thaksin and his senior party members will not have the same political punch in the rural heartland than they would among Bangkok's educated masses. The new government clearly hopes to replace - and perhaps in places re-brand - Thaksin's populism with the King's sufficiency concept.

As Thailand's new royally endorsed interim government angles to distance and differentiate itself from Thaksin's high-octane growth strategies, overemphasis of the sufficiency concept risks alienating the foreign investors that are still the primary driver of the country's growth. With huge uncertainty on the political front, sovereign analysts say it's essential that the country's new interim leaders avoid sending similarly confusing signals about their economic intentions.

Standard & Poor's Ping Chew says he left confused after a Monday meeting with Ministry of Finance officials that spoke about the need for more sufficiency. "No one knows what [sufficiency economy] really means," said Ping Chew, S&P's director of sovereign ratings in Singapore. "What is clear is that Thailand can't afford to stand still, and if the government intends on becoming less competitive, then that is a cause for concern."

There is a definite risk that Thai bureaucrats may overplay the sufficiency concept in expression of their loyalty and affection for the monarch. There is a concurrent risk that the royal philosophy will be twisted by less scrupulous government officials as an opportunity to abuse their authority for rent-seeking and extortion, particularly among foreign-invested concerns.

One enduring Thaksinomics myth, frequently perpetuated by the mainstream Western media, was its supposed emphasis on the grassroots economy. From a budgetary standpoint, Thaksin's populist policies targeting mainly rural ethnic Thais were minuscule compared with his government's massive state bailout of the predominantly ethnic-Chinese urban-based corporate sector.

Despite widespread fears of a fiscal blowout, Thaksin's actual spending on populist policies was always modest, never amounting to more than 80 billion baht (US$2.1 billion) per year. In comparison, his government earmarked nearly 900 billion baht for the establishment of the Thailand Asset Management Corp, a state-run, taxpayer-financed corporate-rescue facility that generously bailed out indebted Thai businessmen who had expressed political loyalty to Thaksin's Thai Rak Thai Party.

Those same favored, rehabilitated tycoons were first in line to receive new credits from state-owned banks - of which at least $1 billion was fingered by the Bank of Thailand to be tainted with irregularities. Thaksin's interventionist approach to economic favoritism badly skewed the financial-incentive system and returned Thailand to the crony capitalism that had contributed to its 1997 demise. It also contributed largely to his political demise.
Middle economic path
There is no doubt that Thailand's economy needs to return to some sort of middle path after five years of high-speed Thaksinomics. Economics will take a back seat to politics as the new government aims to set the country on a more stable democratic course. Previous plans to splurge $38 billion on new infrastructure spending will inevitably be scaled back and planned free-trade agreements with the United States and other large countries could be reconsidered.

Significantly, the anti-government demonstrations - a mixture of anti-privatization trade unions, anti-globalization non-governmental organizations and anti-capitalist development groups - that helped to topple Thaksin found common cause in opposition to his liberal economic policies and in promotion of Bhumibol's economic model.

The yellow-shirt-wearing movement built up a strong royalist-nationalist political identity, mostly by defining Thaksin and his pro-globalization, capitalist regime as the enemy of the nation, the Buddhist establishment and the King. Thailand's new royally endorsed interim government may feel obliged to some degree to answer those nationalistic calls to consolidate its delicate political position among Bangkok's vocal progressive movement.

Notably, Thaksin's and foreign investors' interests often overlapped, most evidently in his family's $1.9 billion sale of its majority stake in the Shin Corporation to Singapore's Temasek Holdings in January. One investment-banker insider at the time portrayed that strategic tie-up as Thaksin's attempt to leverage foreign capital to mount an unprecedented financial, perhaps final, assault on the interests of the traditional landholding aristocratic elites that at first opposed and later protested his rule.

The new sufficiency-guided government's stance on foreign investment and privatization will be tested in its dealing with small retail demands to curb the expansion of foreign hypermarts, allegations that the Shin-Temasek deal and 16 other major foreign-invested concerns are in violation of the Foreign Business Act through their use of local nominees, and the ruling on whether to scrap the partial privatization in 2001 of state energy concern PTT.

The Bank of Thailand's Pridiyathorn has already moved to reassure the foreign community that sufficiency and market-liberalization policies can co-exist peacefully. He says the government's policies will represent a hedge against over-investment and industrial overcapacity, which may allay foreign concerns but does not quite jibe with the sufficiency philosophy's core inward-looking message.

So far, Thailand's economic performance has transcended its political woes, growing 6.1% and 4.6% in the first and second quarters respectively. Some would argue that's exactly because the Thai economy has never in its history been more externally oriented, where exports contribute more than 63% of total GDP. In August, exports and tourism were up respectively 17% and 13% year on year, resulting in a $813 million current-account surplus, the highest so far this year.

While gross domestic happiness may surge with Thaksin's ouster, GDP growth is expected to slow to about 3% for the remainder of this year. Importantly, few Thai governments have historically been able to maintain their political popularity coincident with such a slow level of economic growth - which could in the short term tempt economic managers to emphasize sufficiency over export-led growth. Sovereign analysts are concerned that the delay in the 2007 budget's disbursement could reveal problems hidden by Thaksin's off-balance-sheet spending.

Yet a lurch toward more protectionism could dry up flows of foreign capital and put the sufficiency model to a sudden drastic test. It's clear that Thailand's new government, which strongly derives its political legitimacy from the palace's overt endorsement, wishes to honor King Bhumibol by more widely implementing his philosophy. As the highly respected monarch once suggested, Thailand has often needed to take one step backward before taking two steps ahead - that looks to be true, both politically and economically.

1. "A sufficiency economy is not self-sufficiency. It is a philosophy rather than a theory. But the philosophy can be applied to every level of the economy. Households should avoid overspending, businesses should avoid over-expansion and the government should concentrate on protecting national resources." - Pridiyathorn at a forum held by the Thai Chamber of Commerce in Bangkok on Tuesday.

Shawn W Crispin is Asia Times Online's Southeast Asia editor.

(Copyright 2006 Asia Times Online Ltd. All rights reserved. Please contact us about sales, syndication and republishing .)

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