ASIA HAND Saluting Thailand's military-run economy
By Shawn W Crispin
BANGKOK - For those looking for chinks in Thailand's new government's armor,
they'll be hard-pressed to find any vulnerability in the military-appointed
interim administration's economic stewardship.
Six weeks after the September 19 coup, the Thai economy is moving from
statistical strength to strength. While tanks rolled along Bangkok's streets,
Thai exporters ran up the country's largest-ever monthly trade surplus at
US$1.4 billion. Those
revenues contributed to Thailand's biggest balance of payments surplus since
1997, evidence that foreign investors were pouring money into the country
before, during and after the military seized power. Surging capital inflows
last month pushed the baht to a six-year high against the greenback.
Standard & Poor's and Fitch Ratings provisionally placed Thailand on a
so-called rating watch negative list after the coup, but both credit-rating
agencies retracted their alarm after new Prime Minister Surayud Chulanont
consolidated his power and appointed well-respected technocrats to key economic
and finance portfolios. Now, a growing number of foreign investment banks have
revised up their Thailand economic growth forecasts for 2007 from below 4% to
near 5%, on expectations that the recent 25% decline in global oil prices will
spark a new consumption and investment cycle.
That's significant for Thailand, where economic dips have historically presaged
bouts of political instability. So far investors believe that the September putsch
has shored up stability after a year of anti-government street protests and
general political chaos - though self-exiled and former premier Thaksin
Shinawatra's ambitions and His Majesty King Bhumibol Adulyadej's health are
still two major, potentially volatile, wild cards. And because Surayud's
government derives its legitimacy from the crown, it's wholly unclear how
Thailand's power balance would recalibrate and foreign investors react if the
ailing revered monarch were to pass in the coming months.
Firm salute
While most of Thailand's good economic news has been externally
driven, Surayud's government deserves a firm salute for maintaining foreign
investor confidence during tumultuous times. He dazzled foreign reporters
and business people alike during a Tuesday speech, where in prepared
English-language remarks he reaffirmed his government's commitment to a "free-market economy"
and asserted that its application of King Bhumibol's "sufficiency economy"
should not be confused with protectionism.
"The meaning of growth should be broader, embracing not only competitiveness
but also sustainable development, social justice and contentment," said
Surayud, a former army commander. And in a not-so-subtle jab at the outgoing
administration, "The way rules and regulations governing commercial and
investment practices are implemented will be improved through greater
transparency, and hence predictability. We will do away with double standards."
Surayud's
clear-headed presentation was in stark contrast to Thaksin's first internationally
received speech in 2001, where he clumsily unveiled his "dual
track" economic policy and through its "inward-looking" message managed to
panic foreign investors for many years. Later in 2001, Thaksin alienated the
Japanese investment community when he unilaterally amended contracts already
held by Japanese construction companies to build the terminal at the new
Bangkok international airport, requiring that they source 80% of their building
materials locally.
Throughout his five-year tenure, Thaksin never really shook the political
opposition's "policy corruption" criticisms, which alleged broadly that his
government implemented policies and deployed state funds to the benefit of his
and his cabinet ministers' private business interests, and frequently at the
country's long-term economic expense. Thaksin famously ramped up economic
activity through regulatory loosening, force-feeding state bank liquidity into
the financial system and go-go bold economic predictions. He famously predicted
in 2003 that the Thai economy would expand 10% in 2006.
While the Shinawatra family's Shin Corp and his cabinet ministers' private
businesses' share prices and profits soared, the feel-good national spending
spree pushed average household debt levels to new highs, according to recent
government research. When the Bank of Thailand - then led by new Finance
Minister Pridiyathorn Devakula - in late 2004 questioned the integrity of $1
billion of state bank lending, Thaksin and his business cronies moved to
consolidate their financial gains and run for the exits, including, notably,
Thaksin's own family through its sale of the Shin Corp to Singapore's
Temasek.
Leading real-estate developer Land & Houses, known for its strong links to Thaksin's
administration, in September paid out a surprise 100% dividend to shareholders
- including the 30% held by company founder Anant Asavabhokhin - worth
1.4 billion baht (US$38 million), a move that shocked credit analysts and substantially
inflated the publicly listed company's net debt profile. Recently
launched corruption investigations into Thaksin's policies threaten to hit
other cronies, particularly the cabinet family members who received share
allocations beyond legal limits for state energy concern PTT's partial
privatization in November 2001.
Technocratic competence
Surayud has so far demonstrated that his group of respected technocrats is a
more honest custodian of the national interest and better all-around economic
manager than Thaksin's private business-driven administration. Surayud's more
moderate, less conflicted, economic strategy notably stresses scrutiny over
speed, and rhetorically aims to separate the national economic interest from
particularistic private business ones.
"I am not a politician and I am not bound
by special interests," said Surayud, overtly contrasting himself with Thaksin's
big-business background. "Moreover, I have the authority and power that come with
being an appointed prime minister to act quickly and decisively."
In that direction, Surayud's economic lieutenants have significantly
scaled back Thaksin's $44 billion infrastructure spending plans, scrapping
previous pork-barrel designs to build a new satellite city 60 kilometers
outside Bangkok, a Japanese-style bullet train extending from the country's north
to south, and an elevated bridge designed to extend over the Gulf of Thailand
for a 40km stretch. It's a level-headed move that has no doubt peeved
certain foreign investors who eyed lucrative construction contracts, but
underscores Surayud's clean-hands, moderate approach.
Yet Surayud is also reaching out to the Japanese investors that Thaksin's
favoritism often alienated. Surayud notably prioritized finalizing a new trade
and investment deal with Japan - far and away Thailand's largest foreign
investor - which would provide new incentives for Japanese companies to expand
their Thailand-based production facilities, particularly for automobiles and
electronics. Meanwhile, the Japan Bank for International Cooperation has been
tapped to provide the bulk of project financing for the government's recently
approved $4.4 billion extension of three crucial subway lines around Bangkok.
Moreover, Surayud has appointed a more qualified team of economists and
technocrats than Thaksin ever assembled during his five years of merry-go-round
cabinet reshuffles.
Thaksin often placed questionable personnel in his government's top economic positions, including Pansak Vinyaratn,
whose economic qualifications are dubious, and outgoing finance minister Thanong
Bidhya, Thaksin's former banker, who in a previous political incarnation as
finance minister presided over the country's disastrous 1997 financial
collapse.
Nobody questioned Thaksin's
economic and financial judgment, which contributed
to unchecked abuses and finally his political
demise. A recent respected international survey on
government corruption showed that Thailand slipped
substantially down the ratings during Thaksin's
tenure, which perhaps explains why the stock
market rallied when he first stepped down in
April.
A year is unquestionably a long time in Thai politics, but so far
Surayud's no-nonsense approach to economic policy has commanded the foreign
investment community's respect.
Knock
on wood that the country's next democratically elected government is more
like Surayud's and less like Thaksin's.
Shawn W Crispin is Asia Times Online's Southeast Asia editor.
