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The junta’s muddy
economics will give way to Thaksin-style populism if a new government
proves stable
 After claiming for
months that the election would ease political uncertainty, the
business community gave a decidedly lukewarm reaction to the People
Power Party’s decisive victory on Sunday.
The party, comprised of
loyalists of deposed Prime Minister Thaksin Shinawatra, won 233 seats
in the 480-seat legislature, prompting its bumptious leader Samak
Sundaravej to declare that he will be prime minister “for
sure.”
Immediately afterward,
Santi Wilassakdanon, chairman of the Federation of Thai Industries,
told the Bangkok Post that a Samak-led government would lead to more
protests and prolong the political crisis.
Santi and others in
Bangkok’s business community preferred Abhisit Vejjajiva, the
Oxford-educated leader of the neo-liberal Democrat Party, to head a
coalition government. This is not so much because the Democrats have
such a different vision for Thailand, but more because it’s not
as polarizing as PPP and seems more acquiescent to the royalist
political establishment, therefore making it less likely to stir up
massive street protests or invite yet another coup.
On a policy level, the
differences between the Democrat’s “People’s
Agenda” and PPP’s Thaksin-inspired populism are
miniscule. In addition to pumping money into rural areas, both
parties are proponents of free trade deals, privatization and foreign
investment.
Business leaders are
not necessarily opposed to PPP, even though many people question
Samak’s managerial competence. The business community was
thrilled when telecom tycoon Thaksin brought a CEO style to
Government House, which stood in stark contrast to the slow working
style of the Democrat government that ruled during the late 1990s.
Business support for
Thaksin only eroded when executives realized that the street protest
movement and pushback against Thaksin from the bureaucracy and
judiciary had become so great that he could no longer govern
effectively. That hurt their bottom lines.
The problem now for
industry groups is that the election did not produce a winner that
could bring stability. The Democrats swept Bangkok and did much
better than expected with 165 seats, but they would have to work with
four other parties to produce a coalition with a maximum of 247
seats, producing a very weak government.
“If all goes
well, a new government would be put in place by early March,”
wrote Supavud Saicheua, an economist at Phatra Securities, in a note
after the election. “Our central scenario calls for a coalition
of PPP and three smaller parties adding up to slightly over 300 MPs,
which would be a stable government. On the other hand, a coalition
that leaves PPP in opposition would have only [247] MPs at most,
making it far less stable since a defection of less than 10 MPs would
bring the government down.”
With all the opposition
parties combined barely cracking the 240 mark, PPP is clearly the
only party that can produce a stable government, even though it also
holds the potential of re-igniting a fight between the military and
pro-Thaksin forces.
A weak, unstable
coalition government is exactly what the junta wanted when it drafted
the new constitution with the aim of preventing the emergence of
another strong party like Thai Rak Thai. Moreover, the charter’s
half-appointed Senate is sure to include members from the
military-appointed legislature that have pushed laws to restrict
foreign investment. The many clauses in the charter seeking to define
economic policy will surely be used to challenge any policies that
anti-government groups oppose.
But while the military
can still thwart the elected government’s agenda, its poor job
in managing the economy in the 15 months since the coup means the
next government should improve things by default.
“It didn’t
make sense for the military government to create confusion by going
after one person. They created a big mess,” said Kongkiat
Opaswong-karn, CEO of Asia Plus Securities, Thailand’s
third-largest brokerage firm.
After the coup, the
military-appointed government said it would adhere to “sufficiency
economy,” a vague philosophy invented by King Bhumibol
Adulyadej that could be tweaked to fit nearly any economic ideology.
The coup-makers sold it as an alternative to Thaksin’s
populism, which included subsidized health care, cheap credit and
debt forgiveness.
Investors struggled to
understand if sufficiency economy meant that the country would turn
inward, and each time the government tried to clarify the policy more
questions were raised. The uncertainty never quite cleared up as the
government sought to twist certain laws specifically to go after
Thaksin, and its competence quickly came into question.
In late December 2006,
the government without warning shoddily imposed strict capital
controls designed to stem the baht’s surge against the falling
dollar, sending the stock exchange to its worst one-day fall since
the first Gulf War. The market eventually recovered after the central
bank exempted equities and other securities, but the public’s
trust in the appointed government was permanently damaged.
The confusing debate on
changes to the Foreign Business Act, a knee-jerk reaction to the
Thaksin family’s sale of telecommunications firm Shin Corp to
Singapore’s Temasek Holdings in January 2006, further reduced
investment and soured the overall business climate. The bill died in
the military-appointed legislature, but the debate alone was enough
to damage the economy.
Despite the painful
year, the fundamentals are solid and every political party more or
less shares the same economic policies. While many things could go
wrong, everything is already in place for the economy to take off.
“The new
government doesn’t have to draw up any new plans or anything,”
Kongkiat said. “They just need to come in and push the button.”
For starters, all the
parties campaigned on policies that mirrored Thaksin’s
populism, so these programs, which were watered down or eliminated
after the coup, should be resumed fairly quickly. More village loans
and agricultural price supports should boost domestic demand and
increase confidence among local investors.
Although the junta
spent lots of energy demonizing these programs as fiscally
unsustainable, Kongkiat downplayed those concerns. “After the
financial crisis we spent more than one trillion baht bailing out
companies that defaulted on loans,” he said. “The village
fund program cost may be 70 billion baht, and the default rate is
very low. There is no comparison. Any government that comes in will
have to lift the GDP per capita of low-income earners as they
comprise 80% of the population.”
Secondly, firms are
just waiting to invest. Industrial capacity utilization is now
averaging about 80%, according to statistics from Thailand’s
central bank. This is the highest level since just prior to the 1997
economic crash, when firms over-expanded. Now the private sector
needs to invest to grow, but businesses are waiting for political
stability before spending.
Thirdly, plans for
massive public infrastructure projects initiated during Thaksin’s
government have already been drawn up and are just waiting to be
implemented. The military government has already secured financing
for at a new subway line, and more are planned for the future.
Moreover, large investments in power plants, highways, logistics
services and a new industrial estate along the country’s
southern seaboard have already been planned and just need approval.
The increased public
investment should boost imports and ease Thailand’s ballooning
current account surplus, which will take some pressure off of the
baht. The elected government will likely do away with capital
controls, as they have had only a marginal affect on the currency
caught between China’s pegged yuan and the falling US dollar.
Despite all the
positive signs, investors are likely to tread cautiously for a few
months. If the PPP manages to form a government as expected,
rumblings from the military or other parts of the pro-coup political
establishment could again keep the economy from firing on all
cylinders.
“People in the
urban areas, especially the middle class in Bangkok, will feel very
untrusting of a new PPP-led coalition government,” said Sompob
Manarangsan, an economist at Chulalongkorn University. “It’s
not only economic policy itself that’s a factor but political
problems are also a prominent obstacle for the Thai economy.”
This is where the
outspoken Samak could be a problem as prime minister. A PPP
government that focuses on economic issues could do away with the
military government’s murky economic policies and establish
clear-cut laws and regulations, restoring the confidence of investors
and reinvigorating the economy. But if Samak pushes too strongly for
Thaksin’s return and the dissolution of the junta-led
investigation into his financial dealings, then the coup-makers might
get antsy.
So far, it looks as if
the People’s Alliance for Democracy (PAD), which spearheaded
the movement against Thaksin in early 2006, will not make a comeback.
The criminal court just sentenced key PAD financier Prachai
Leophairatana to three years in jail for share manipulation, and
fiery publisher Sondhi Limthongkul also just received three years in
jail for defaming Thaksin during the protests.
Analysts are hoping the
country can move beyond the fight over Thaksin and instead unite to
boost the country’s competitiveness. While the army has spent
valuable time and energy debating the word “sufficiency”
and combing through Thaksin’s business dealings with little to
show for it, businesses have shifted investment to other countries in
the region, most notably Vietnam.
Now Thailand has a
chance to win back the trust of the global business community. But,
as Sompob said, “It will take a leader who looks forward
instead of backward.”
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Economics/Business 
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The grim truth of war remains: hearts and minds are lost in the campaign to get the enemy by the balls
Government objective: Hear no evil, speak no evil
1.1.08.
The factor which divides Thailand more than any other is the monarchy, not Thaksin. Most Thais say exactly the opposite of what they mean. They can't say anything else. Why, if the people love the king so much, is it necessary to have strict laws which virtually make it an offence not to do so. As for the "sufficiency Economy", who understands this vague dribble. It is only accepted because H.M. has "invented" or 'dreamed up' the idea. If the wealth of the royal family were spread around, it could raise the standard of living so much that poverty would be virtually eradicated. Through the Crown Property Bureau, the palace aggressively pursues more and more profits at the expense of the Thai people. It is time the French / Russian / Nepali solutions were implemented and extended to all the 'elite'. Saraburian is right in saying that Thais are he laughing stock of the world. They will continue to be so while ever they have a Clown Property Bureau and the P.C. ringmaster cracking the whip to the order of his boss.