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2 ASIA HAND Thailand's
new economic logic By Shawn W
Crispin
BANGKOK - Thai Prime Minister
Surayud Chulanont says his interim government has
launched a "year of great reforms", with changes
aimed at putting the economy on a more sustainable
long-term track. Many foreign investors, on the
other hand, are howling that recent government
policies are woefully out of step with market
mechanisms and, if not reversed, could eventually
cause Thailand's economic demise.
So who's
right? In an effort to erase ousted prime minister
Thaksin
Shinawatra's legacy,
Thailand's new military-appointed government is
indeed leading the country in a fundamentally
different economic direction. Foreign investors
and the market-fundamentalist Western media have
roundly blasted Bangkok's recent decisions to
impose capital controls, limit foreign ownership
for certain service-sector investments, and
broadly implement King Bhumibol Adulyadej's
untested "sufficiency economy" concept.
Many investors voted with their feet when
the capital controls were first imposed in
mid-December, driving down the Thai bourse 18% in
a single day. But after equity investors were
exempted from the controls, the stock market has
recovered most of those losses, and now big
foreign hedge funds have flocked to Bangkok to
seek out potential opportunities amid the policy
confusion.
Meanwhile, the Thai currency,
the baht, has continued to appreciate against the
US dollar, trading at a recent high of about 33 to
the greenback in offshore markets despite the
capital controls on currency transactions. After
introducing widely perceived nationalistic
amendments to the Foreign Business Act in early
January, major export-oriented multinationals,
including China's Huawei, Japan's Panasonic and
the United States' Ford, have since made major new
commitments to their Thailand-based operations.
If Thailand is headed for economic doom,
it's not yet apparent. Rather, a grudging
consensus is emerging among more seasoned Thai
observers that there is a technocratic logic to
the government's thinking. Although not admitted
publicly, the capital controls policy was likely
designed as preemptive action against an
anticipated major global economic shift: the steep
and long-term decline of the US dollar and
economy.
The Bank of Thailand is not the
region's only central bank grappling with the
financial wisdom of accumulating ever more
US-dollar-denominated assets. For China, which has
accumulated more than US$1 trillion in foreign
denominated reserves, or nearly 42% of its gross
domestic product (GDP), through years of runaway
trade surpluses is actively pursuing new ways to
hedge its massive stock of depreciating dollars.
Albeit on a smaller scale, it's an equally
important issue for the region's other
export-geared, dollar-earning economies, including
Malaysia, Singapore and Thailand, where
respectively exports account for 108%, 197% and
70% of GDP. That Thailand is now partially turning
away from the openness that previously fueled its
economic boom, bust, and recent strong recovery is
particularly significant. And it could yet herald
a broad regional move away from reliance on
Western capital and export markets and toward more
inward-looking and even protectionist economic
strategies.
Historical vanguard If so, it wouldn't mark the first time that
Thailand was on the vanguard of a sweeping
regional economic trend. Throughout the 1980s and
1990s, Thailand was at the front edge of Asia's
export-driven economic emergence. Then, Japanese
multinational corporations rapidly transformed
Thailand's backwater economy into an export-fueled
global powerhouse. Thailand also famously led the
region into financial crisis in 1997, when foreign
investors perceived cracks in the debt-driven
facade and underscored the economic risks to
developing economies of unregulated short-term
capital flows.
Thailand's new direction is
partially a nationalistic reaction to that bitter
experience, driven a decade later by traditional
elites now represented in government. The
prevailing confusion surrounding the sudden
implementation of capital controls and
anti-foreign amendments to the Foreign Business
Act, followed by earnest assurances by senior
officials that Thailand will continue to engage
with the global economy, has purposefully
obfuscated the government's inward-looking
intentions.
The Bank of Thailand has
somewhat disingenuously maintained that the
motivation for imposing capital controls was to
protect Thai exporters from an appreciating baht.
Yet Thai exports surged 17% last year, higher than
consensus projections and in spite of a 15%
appreciation of the baht against the dollar. The
more complicated explanation for the central
bank's move is precisely the opposite: that
Thailand is now exporting too much, not too
little.
Respected Thai economist Supavud
Saicheua - on all accounts a dedicated free
marketeer - makes that contrarian argument in an
exceptional new research report, in which he
argues that Thailand
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