Shawn W Crispin
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.
