ASIA HAND Thai government's great gambit
By Shawn W Crispin
BANGKOK - Thai Finance Minister Korn Chatikavanij says he was raised as a
mandarin but that his economic policies are all for the people. The former JP
Morgan investment banker designed and this week partially passed through the
senate what promises to be the largest fiscal push in Thailand's modern
Oxford-educated Korn, 44, says in an interview with Asia Times Online that the
total 1.5 trillion baht [US $44 billion] program, including 800 billion baht
worth of borrowing outside of the normal budget, is designed to lead the Thai
economy over the next three
years and will be "historic" in its scope and proportion. His ruling Democrat
Party is touting the fiscal program's over 6,000 different projects as Thai Khem
Kaeng, or Thai Strength.
The unprecedented spending comes notably at a time of exceptional Thai
weakness, with the export-geared economy contracting 7.1% year-on-year in the
first quarter and full year gross domestic product (GDP) projected by some
private investment banks to contract by around 5%. Private consumption and
investment are stuck in the doldrums, with average factory usage rates of under
Critics of the government's great gambit say many of the policies smack of
influence-peddling and veiled vote-buying at a time the government's coalition
partners gear up for new elections, most likely to be held in mid to late 2010.
Others see repackaged versions of former exiled prime minister Thaksin
Shinawatra's populist policies, which while in the opposition the Democrats
sharply criticized as fiscally reckless and morally corrupt.
Thailand's economic woes have been compounded by years of political
instability, which reached chaotic new proportions in April when
anti-government protesters blocked roads and rioted violently in the streets of
Bangkok. When the military restored order, some viewed it as further evidence
that the Democrats were in league with conservative pro-establishment forces
that allegedly had a hand in forming its coalition government.
In a June 25 interview with ATol's Southeast Asia Editor Shawn W Crispin, Korn
countered such characterizations and outlined how the government and his
ministry are willing to risk "political suicide" to close Thailand's yawning
gap between rich and poor.
ATol: Your fiscal stimulus program ambitiously aims for the
government to lead the Thai economy over the next three years. With the
collapse of global trade and your country's heavy reliance on exports for
growth, does Thailand need a new economic model and one that is more state-led?
KC: God, I hope the second part is never true. I'm not a believer
of a state-led economy in the long term. In every parliamentary speech I give
about the need for government action today, I always pre-empt that by saying I
see this very much as a short- to medium-term state of affairs.
The mark of success of government participation in the economy is how fast it
can pull back to allow for a strengthened private sector to take charge. My
perspective is, and I know from experience of being in both the private and
government sectors, that the public sector just doesn't spend the money as
efficiently as the private sector, both in terms of knowing where the money
should go and also in terms of efficiency in disbursement and usage.
I don't do so with reluctance, because I know as of today there is no other
option. The Bank of Thailand tells us we have 1.7 trillion baht [roughly US$50
billion] of excess liquidity, money that is just not being used, partly because
the private sector isn't investing and doesn't need the funds beyond working
capital, partly because banks aren't approving loans because of heightened
concerns about credit risks.
For whatever reason, the money is just sitting there and unless the government
acts as the agent to put that money to good use, the economy will stall. So I
have no hesitation in doing what I believe the government needs to do today,
but I certainly don't see this as an ongoing operating philosophy.
ATol: Bureaucratic foot-dragging has stalled the implementation
of previous government's ambitious fiscal programs. How quickly and efficiently
do you think the projects can be implemented?
KC: First of all, nothing has ever been attempted of this scale
or in this manner I guess by any government since the last Democrat-led
government. We always seem to be on board when there is a crisis and a need for
But this time we are moving with much greater transparency, much greater speed
and on a bigger scale, a historic scale: 1.5 trillion baht is about 16% of GDP,
to be spent over three years. That's on top of the annual budget deficit that
we will need to maintain for the next few years as well.
We specifically selected projects - some are large projects, including one or
two mass transit lines and an airport expansion, for example - but also small
water and road projects spread all over the country designed to create local
and regional jobs. These are not transformative projects, but they are long in
the waiting and designed to create jobs, inject demand into the local economy
and fill that gap of efficiency at the grass-roots level.
In about 10 days, we are launching the first financial aspect of the Thai Khem
Kaeng (TKK) program which is the launch of a TKK bond, a high-interest savings
bond. There will be a national campaign designed on the one hand to provide a
lift of the very low interest level of deposits, and also to link the general
population to the government investment program, so that there is a
psychological and mental linkage between the population providing the funds and
for the government to make these historic investments.
ATol: Some analysts and opposition members say that certain
mega-projects have been broken into smaller quanta and that smaller line items
avoid the extra scrutiny required by law for projects of over 1 billion baht.
How do you respond that your ministry cut down the size of projects to avoid
KC: We didn't cut up anything actually. These were projects that
were already in the system waiting for funds, waiting for execution. So nothing
was actually cut up. Like I said, it is a mix of large projects - the new
airport wing, the double track rail linking the northeast to the southern
seaboard, mass transit lines, and some large water projects, such as linking
the water reservoirs in the eastern seaboard to each other - as well as small
localized work projects designed to help people in rural areas. So it's a
combination of all, but none of these projects were actually cut up as such.
ATol: So how much leakage do you expect?
KC: That's always a challenge. You will have seen over the past
several weeks and months the government and prime minister [Abhisit Vejjajiva]
in particular has shown every indication of taking this issue very seriously,
within the coalition and otherwise. So the Ministry of Finance helps by
providing maximum transparency to these projects. We will be up-linking all the
projects on the web, including information regarding specifications and tender
price, and then updating progress made. We hope that through this transparency
there will be less leakage.
ATol: Some analysts have speculated that both the Democrats and
your main coalition partner Bhum Jai Thai (BJT) party will deploy budgets and
have designed projects in ways to bolster party popularity before new
elections. How do you respond?
KC: They weren't designed that way. The projects are first of all
spread to all 76 provinces, though not necessarily equally. We worked on it not
from a provincial perspective, but from a project perspective, so we looked for
projects that were viable and doable.
And then, almost as an afterthought, we asked so where are the projects going?
And it turned out that [the northern province] Chiang Mai, which clearly isn't
our political territory - we don't have any MPs there and its not seen as a
stronghold - will receive the bulk of the initial money. The northeast is
getting significant money, more than the [Democrat stronghold] south.
If you look at the numbers it is clear we're not favoring any particular
provinces and that indicates we didn't have votes as a primary objective.
However, we are hopeful that a successful implementation will make the
government more popular, but that's fair enough - right?
ATol: There are competing academic notions about how effective
loose coalition governments like yours are at implementing fiscal measures,
particularly as ambitious as you've outlined. One argument is that they lead to
fragmented policy responses because of a lack of cooperation between ministries
controlled by different parties.
KC: That's fair. It's not as good as a single-party government.
But then again it depends on who the single party is. Because there is a check
and balance that is going on within our coalition government and the public has
seen that through the press.
In many ways, this past month or two, the opposition has been invisible and
policy debate has taken place within the government, with the senate's help.
So, as I said it, depends on who that single party is - but nothing beats a
quality single-party government.
But having said that, there is every incentive for every party involved in the
coalition to go out there and spend this money according to plan. There is no
good reason at all they should choose to sit on this money for the parts they
are responsible. And I'm sure they won't.
ATol: How have you found, in your capacity as minister of
finance, working with Bhum Jai Thai, which controls the Transport Ministry?
KC: The interesting thing is that the politics of the northeast,
which is where they [BJT] are from, and the politics of Bangkok and the south,
there are a lot similarities but just as many differences. We just need to
understand that. Southern voters are more ideological, less concerned about
projects and funds; northeastern voters are quite the opposite. No right or
wrong, it just means people have different needs and expectations.
We manage the situation based upon common interests of an understanding of the
fact that the country's best interests are served by ensuring we have a stable
government and one that is in a position to implement the TKK strategy for at
least another year. I say another year because even though it's a three-year
project, the bulk of the projects will be initiated in the first year and
completed within three. Once we've started these projects, even if there is a
change in government, the projects are in place, the funds are in place, and
the rest is just a matter of follow through.
ATol: There is a strong perception that the Democrats are more
comfortable selling their economic vision to foreign audiences than to local
constituencies. Former prime minister Thaksin Shinawatra's Thai Rak Thai party
used slick political marketing and simple messages to sell his policies at the
grassroots level. What is being done to communicate your economic message to
rural constituencies, particularly in the northeast where elections are won and
KC: What we all learned from Thai Rak Thai's mass communication
strategies that were employed to popularize his policies is that communication
is a necessary and important part of what governments have to do in this day
We're working on a mass media program on Thai Khem Kaeng, everything we
do in regards to the different projects, even the financial part with the
savings bond, is partly designed to finance the program but also partly
designed to get the general public involved.
Imagine there are over 6,000 projects of different nature - hospitals schools,
roads, water - all over the country every project is going to be branded.
Individual projects will be launched as part of the broad Thai Khem Kaeng
policy. So people will know not that a road is being built, but that it's being
built as part of the Thai Khem Kaeng program, by this particular
government. We'll be going all out to do that.
ATol: So how much of that political marketing will mirror the
marketing Thaksin did of his policies?
KC: Well, at least we'll be telling the truth.
ATol: The Democrats were highly critical of Thaksin's ramped up
spending policies and populism while in the opposition. But many see vestiges
of his economic legacy in several of your policies, including the sufficiency
development funds and 2,000 baht handouts to low-income earners. What did
Thaksin get right and how do your policies distinctly differ from his?
KC: He got the people involved, which I think is right. I'm the
son of a civil servant, a Ministry of Finance civil servant, and then I was a
career banker for almost 20 years, so I have the classic upbringing of the
so-called mandarin class.
I've been in electoral politics for four years now, fought two elections, and I
actually have an increasing not decreasing belief that the general population
is more often than not right and that the elite minority, with all their
rationality and reason, is often misguided in their self-beliefs.
The fact that Thaksin went out to the broad population I think will serve the
country well in the long term. The problem is he did it, frankly, with false
and misleading information, which is the dark side of his legacy and also turns
something that could be positive for the country potentially into something
that is very dangerous. Which is the kind of situation that we've had for the
last year or so and this government is trying to amend.
So get the people involved, but make sure that they are properly informed,
don't mislead them with false promises and distorted facts, and, above all,
don't in the meantime engage in corruption. I guess what at the end of the day
brought down Thaksin and people's faith in him wasn't the fact that some of his
policies were flawed - and so many of them were flawed in execution, if not in
conception - but the fact that at the end of the day people thought whatever
good he did was all self-serving.
ATol: Do you think that foreign investors associate your
government with the nationalistic policies put in place by the military
appointed government installed after the 2006 coup that ousted Thaksin?
KC: No, I don't think so. I mean, for example, the military
government imposed capital controls and you're never going to see an ex-JP
Morgan banker do that.
ATol: But there are perceptions that conservative forces aligned
behind the formation of your coalition government and that the same
nationalistic elements are still lingering in the background. Are you having a
difficult time putting these perceptions to rest?
KC: On Monday [in the senate] we were debating against that
particular conservative force, some of whom were saying why don't we just sit
back and go back to sufficiency economy rather than trying to invest our way
out of this crisis. We're not polarized in that way - this government is a
government for unity, really.
I don't think it will be very easy for anybody to pigeonhole this particular
government as being a conservative force or pro-military force or whatever.
Thailand has never been radicalized and in many ways I think this government
better reflects true Thailand than any previous government over the last 10
ATol: To what extent is the so-called establishment an impediment
to reform in this country? Are the Democrats to your mind part and parcel of
KC: I like to think not; let me give you a concrete example. We
at the Ministry of Finance are now thinking about reforming property laws. I've
been told that this is something we should stay away from, that it's political
suicide ... But in terms of the need to reform the way tax is collected here in
Thailand, I don't think there is any doubt and so therefore I fully intend to
work towards achieving this.
The bulk of our tax income comes from revenues. And there's an inherent
unfairness of that as compared to collecting taxes from people's wealth and
assets. There needs to be a balance - I'm not saying it should be all one way
or the other. But right now only 10% of government revenue is from assets.
That's far too low compared to other economies.
I took the issue and gave a presentation to party members yesterday [June 24],
very interesting, lots of debate saying "don't do it because it will bring the
government down"; "do it because it is fair and it will be this government's
legacy"; "do it but pretend not to be doing it", all kinds of opinions. The
prime minister is behind this, the timing is always critical, and proper
communication is important.
I've reserved some funds in the current budget precisely because I feel there
will be a need to communicate with the public on several key laws and issues.
Our intention is to affect the right kind of change. I'm not here just to be
here. If I can't do things that I feel need to be done I might as well be lying
on a beach.
ATol: There is a perception that your government is
pro-establishment, so by putting this land tax policy on the agenda you are
clearly going after certain establishment interests. Is this being done
purposefully to change perceptions of your government's image?
KC: Let me tell you, let me tell you. We discussed a waiver [for
the land tax], to draw a line who should be netted and who should be waived.
And this tells a story. If you look at agricultural land across the nation, and
if we were to say that those who own land valued at less than one million baht
are exempted from this property tax that would equate to an exemption of 90% of
all agricultural land holdings - yet we would lose only 10% of the expected tax
revenue. That tells the whole story.
If I am able to communicate, I can tell the majority of the public, "Don't
worry, you're not going to be taxed." At the same time I can tell my tax
authorities, "Don't worry, you'll still get 90% of your expected revenues." And
I think that speaks for the unequal distribution of wealth and assets here in
Thailand. That's a problem that any self-respecting government must address
regardless of potential political pitfalls.
ATol: You earlier broached tax reforms that would have equally
gone after establishment interests through the proposal of an inheritance tax.
Why has that since fallen off the table?
KC: I'm less keen on that, I must say. First of all, I can't do
two at the same time. But philosophically I feel, number one, in practice it's
hard to go after the inheritance tax and the truly rich can get away with it
and it will be those somewhere in the middle that will end up paying.
Secondly, if I can successfully put in place a fair asset and property tax then
there is less need to tax the transfer of that asset. It doesn't matter who
owns it, father or son, you'll still be taxed in a fair way and long term. So I
feel one negates the need for the other.
ATol: So again are the Democrats a part of the establishment or
are they taking on the establishment?
KC: Neither. We don't feel we are doing either. We are working
with the entire country. We are here to work for the people. If that sometimes
means we have to step on a few toes, establishment or otherwise, then we'll do
so with our customary politeness, making sure we apologize in the meantime.
ATol: Other countries in the region have leveraged the crisis as
a political opportunity to push difficult economic reforms to spark more
domestic demand-led growth. For instance, Malaysia has liberalized many service
sub-sectors and allowed foreigners to take greater equity stakes in banks and
insurance companies. Why haven't we seen similar competition-promoting measures
KC: Funny enough, I was able to go to a launch recently of a
Malaysian bank, CIMB, taking a controlling stake in a bank [Bank Thai]
previously owned by the Thai state. The law has been changed to allow the
minister of finance to provide a waiver for 49% foreign ownership for banks.
I am in a position whereby I have been sending out signals saying that I'm
willing to consider [using the waiver] whereby I think the system and overall
economy will benefit. I've also at the same time made it clear that I see lack
of competition in the financial services segment as a key impediment to
development of capital markets and also the banking system.
So, it's easy enough to read between the lines. We're also working on a capital
market development plan which will be concluded in the next couple of months.
There will eventually be some very significant signals that will be sent from
ATol: Can you give me a hint as to what signals will be sent?
KC: Well, from the basic of stock exchange commercialization,
liberalization of the brokerage industry, to considering how to move towards
greater ability of foreign investors to participate directly in shares of
companies on the stock exchange without being encumbered by the ownership laws
[that limit foreign holdings].
ATol: So then your view is that by rolling back these various
foreign ownership restrictions now in place it will give the domestic economy a
needed jolt and spur the private investment that your fiscal measures are
actually trying to set in motion?
KC: Absolutely, absolutely. I've always thought that if you can't
think of anything else, then at least make sure there is free and fair
competition. I do believe in markets.
ATol: And you agree that many markets in Thailand are captive to
some very large conglomerate interests that perhaps it would be better for the
country if they were broken up and exposed to more competition from the
KC: I'm not against large companies as long as there is no abuse
or monopolistic or oligopolistic power they might have over the market. I
hesitate to answer your question as posed because I think that there are
situations where having large strong champions can be positive for the economy.
The problem is that we've tried to rein them in through the use of regulations
[1999 Trade Competition Act], but so far regulations have not proved to be as
effective as one might hope in making sure there is free and fair competition.
And that might be cultural or otherwise, but that is why we are moving towards
ATol: All of this is no doubt positively received by capital
markets, but there is still the black cloud on the horizon of potential for
more political instability. I know some in the Democrats feel that the party
benefited perceptually from the chaotic street protests in April and that they
tarred Thaksin's and his supporters' image.
KC: It didn't tar him, it brought him to light - there's a
difference. The risk is still there, definitely. I think I can safely say that
the majority of the population wishes that it wasn't still there. But I don't
think we can deny the fact that there is a remaining legacy.
I don't think we can deny and have to acknowledge the fact that Thaksin, with
all the financial resources he has, still feels that the only way to regain
what he feels is lost is through the creation of chaos, perhaps leading to some
type of a vacuum into which he can be sucked. That's very unfortunate, but as I
said it shines light on his true self.
I fully believe that the current trend of his declining popularity and
credibility, both domestically and internationally, will continue. We, as the
government, need to remain patient, resolute and continue to work for the
people. I think there's no easy short cut out of this situation. It may mean
Thailand underperforms its potential until we can be free of this particular
dark legacy. Our job is to work towards that.
ATol: Do you think that political stability going forward is
directly related to Thaksin's access to financial resources?
KC: His access to funds is definitely an issue. The reality is,
rightly or wrongly, he still has a very strong base of very organized core
supporters here in Thailand, especially in the northeast and the upper north.
We must acknowledge that and must address that.
Even with all the money he has, if he didn't have genuine organizational and
popular support he wouldn't be able to cause as much trouble as he has caused
and appears to be intending to continue to cause. So it isn't one single
factor: money is important, but to say it's all about money would be doing
ourselves a disservice.
Shawn W Crispin is Asia Times Online's Southeast Asia Editor. He may be
reached at[email protected]