Thai recovery sets political quandary
By Shawn W Crispin
BANGKOK - An economic recovery is taking hold in Thailand, one of the region's
most export-dependent and worst hit economies by global economic and financial
turmoil. If the economy bounces back as strongly as some economists predict,
the rebound will play into the ruling Democrat Party's apparent plan to hold a
general election next year coinciding with an economic upturn.
Production, employment and private consumption measured by collections of
value-added tax improved substantially from the first to second quarter after
nearly all economic measures cratered in the fourth quarter of 2008. The
Ministry of Finance now reckons gross domestic product (GDP) will contract 3.5%
this year, averting by a large margin the 9% collapse some private economists
had earlier projected.
JP Morgan economist David Fernandez estimates that the Thai
economy will expand briskly next year, rising in line with a global upswing. He
said that 6% GDP growth is "baked in the cake" for next year, regardless of
whether the government actually mixes in a portion of the US$44 billion (1.43
trillion baht) worth of fiscal measures it announced at the height of the
crisis. Credit Suisse and HSBC have similarly bullish projections for Thai
growth in 2010.
The projected up-tick, some say, puts Prime Minister Abhisit Vejjajiva's
Democrat Party in a political quandary; fiscal prudence would dictate paring
back earlier ambitious spending plans born in a crisis environment, but that
would risk greater discord with the party's Bhum Jai Thai (BJT) coalition
partner, which controls the ministries where the lion's share of the fiscal
spending is scheduled to pass, and contribute to its candidates' election
chances.
Finance Minister Korn Chatikavanij, a Democrat, said in a phone interview that
the government is "upbeat and positive" about the emerging evidence, which he
partially attributes to his ministry's emergency spending package released amid
opposition criticism earlier this year. He said the government remains
committed to dispersing over the next fiscal year the first 900 billion baht -
700 billion baht from special legislation and 200 billion baht for state
enterprise investments - of the total 1.43 trillion baht earmarked for its thai
khem kaeng (Thai strength) investment drive.
Budget cuts would win plaudits from sovereign risk analysts but raise hackles
with the BJT, which broke away late last year from Peua Thai - the party
aligned with exiled former premier Thaksin Shinawatra - to join a Democrat-led
coalition. BJT leaders have recently crossed swords with their Democrat
counterparts over projects, budgets and official appointments, raising
speculation that the coalition could collapse. All four coalition governments
formed between 1988-1997 fell due to scandals.
BJT will challenge Peua Thai at the next polls mainly in the northeastern
region, the country's most populous area where support for both newly formed
parties is believed to run strong. BJT aims to translate its share of the
spending into winning rural hearts, minds and votes in a bid to split the
traditionally pro-Thaksin region and through greater parliamentary numbers
bolster its negotiating leverage vis-a-vis the Democrats in a new coalition.
The Democrats, on the other hand, are expected to dominate their stronghold
southern region, maintain support in Bangkok, take at least half of the central
plains and through marketed fiscal spending make inroads in the Peua
Thai-dominated northern region. According to one Democrat party insider,
Abhisit is keen to hold an election next year to shake perceptions that the
military played a role in cobbling together his coalition and to bump Peua Thai
politicians from their leading positions in various parliamentary committees.
Another party advisor predicts Abhisit will time new polls with an economic
"sweet spot" some time next year. Finance Minister Korn, meanwhile, says that
the government will need at least six months and ideally a calendar year to
assure that its investment program is securely in place, insinuating that new
polls wouldn't likely be held until next year.
A robust economic recovery managed under the Democrats' watch would discount
Thaksin's claims from exile that only he could steer the country back towards
fast growth. During an April 8 video-link speech to an estimated 100,000 of his
red-shirt wearing protestors in Bangkok, Thaksin vowed in populist fashion to
completely eradicate poverty in the country should he ever retake the
premiership.
Similar to the criticisms leveled against his administrations, which with heavy
political marketing over state-controlled television doled out village
development funds, a cheap universal healthcare scheme and debt discounts to
beleaguered corporations and entrepreneurs, Thaksin has accused the Democrats
of bankrupting the national coffers through ramped up fiscal spending that has
included 2,000 baht cash handouts to millions of low income earners.
Protest risk
Financial analysts say that the public debt load looks manageable but that the
bigger risk to recovery is more street chaos, as witnessed in April when the
Thaksin-aligned United Front for Democracy Against Dictatorship (UDD) blocked
Bangkok traffic, violently disrupted a meeting where global leaders were in
attendance and clashed with security forces. That mirrored the tactics of the
anti-Thaksin People's Alliance for Democracy (PAD), which last year blockaded
Government House for nearly three months and laid siege to Bangkok's
international and domestic airports.
Investment banking analysts say that portfolio flows to Thailand have in recent
months lagged those going to other markets in the region precisely because of
its higher political risk premium. Street mayhem has eased by degrees in recent
months as the UDD concentrated its anti-government protest efforts on cobbling
together a petition begging King Bhumibol Adulyadej to pardon Thaksin of a
criminal conflict of interest conviction and two-year jail sentence he fled by
going into exile.
As the Democrats aim to take political credit for an economic turnaround, the
UDD is simultaneously girding to intensify its protests, including a
mobilization this weekend in Bangkok to mark the three-year anniversary of the
September 2006 military coup that knocked Thaksin from power. Some political
analysts believe that the UDD and Peua Thai have a growing incentive to make
mayhem and undermine rising local consumer and investor confidence that
threatens to bolster the Democrats' popularity.
Proposed constitutional reforms could also galvanize the now dormant PAD, which
has threatened to take to the streets if legal amendments include any amnesty
for former Thaksin-aligned politicians before expiry of their five-year bans
from politics handed down by a military court in mid-2007. Nationwide survey
results released by the Asia Foundation on Wednesday found that less than
one-third of the electorate believes that the country is moving in the right
direction - though it isn't clear if the survey was conducted before or after
signs of economic recovery became more apparent. Respondents were split evenly
on whether charter change would improve or deepen the political crisis.
As both sides gird for possible new street confrontations, some economists
believe that the government's preoccupation with political survival and
domestic security may have cost the country a golden opportunity at
crisis-propelled economic reform, including policies that structurally, rather
than through one-off spending, address the country's yawning wealth gap and
skewed access to resources that Thaksin and the UDD have exploited for their
own political and personal ends.
Emory University political scientist Rick Doner notes in recent research that
factional politics and self-interested politicians have over history impeded
economic reform and institution building. Doner notes that previous Thai
leaders have only pushed for substantive economic reforms when faced with
external threats, popular pressures or resource constraints.
Only the threat of communist insurgency in the 1970s, fueled by widespread
farmer, worker and student protests, prompted the government to push
substantive rural development initiatives. A debt crisis in the 1980s coaxed
then prime minister Prem Tinsulanonda into trade reforms that re-geared the
economy towards export-driven growth, opened the country to foreign tourism and
opened the way for more foreign invested manufacturing.
History also shows Thai leaders often back away from tough reforms forged in
crisis once signs of recovery emerge. One perhaps pertinent example: in the
wake of the 1997-98 Asian financial crisis, a Democrat-led government mapped an
ambitious industrial restructuring plan but stalled in its implementation once
signs of an export-led recovery became apparent by 1999.
Finance Minister Korn acknowledges the criticism as "fair", saying that the
government's fiscal measures were designed to bring a crisis situation under
control. He sees a need for "substantial restructuring of key sectors" -
including education, energy, and public health - which he says the government
plans to address in the months ahead.
But as the Thai economy bounces back and the Democrats look to shore up their
mandate through new polls, it's not clear that's where the government's
immediate priorities lie.
Shawn W Crispin is Asia Times Online's Southeast Asia Editor. He may be
reached at swcrispin@atimes.com
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