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Written by Sam Baker
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Sunday, 26 July 2009 |
 Abhisit appears to have neutralized the color-coded elites and the military
Notwithstanding the relative calm that Thailand has experienced since
the April riots, most observers of the country have got used to the
idea that it is on a slippery slope to ever more dysfunctional domestic
politics, and many foreign portfolio investors have written the country
off as a political basket case not worth the effort to sort out.
Such
conventional wisdom risks missing what may finally be a window of
opportunity that has opened for Prime Minister Abhisit Vejjajiva to put
Thai politics and policy back on a more stable footing, and in turn to
help unleash long-stalled dynamism in the economy and reduce the
political risk premium in Thailand's financial markets. Thai stock
prices have outperformed regional competitors over the past three
months by a significant margin, anticipating what we believe are the
first baby steps to a more mature era in Thai politics.
This is
not to say that politics are heading back to the halcyon days of the
1990s when the military stayed on the sidelines and Thailand appeared
to be graduating to the ranks of the mature democracies. But it is
important to note that the relative social and political stability of
the era that preceded ousted Premier Thaksin Shinawatra wasn't
particularly "healthy" either as it reflected a suppressed social and
political debate that festered and finally found voice (thanks to
Thaksin) in the dysfunctional extra-constitutional politics of the past
few years.
There will be inevitable social and political noise
going forward in Thailand, but rather than being a sign of a slippery
slope to mob rule, it appears increasingly likely that Abhisit has a
chance to lead a transition to a fundamentally healthier, albeit noisy,
era of electoral politics in Thailand, reflected in a more robust
public discourse about social polarization in the country.
Mr.
Abhisit is now in firmer control than anyone in the Thai political
class could have ever expected when he came into office earlier this
year, thanks to his deft handling of protests in April by Thaksin's
supporters. Meantime, the "battle royal" taking place between competing
color-coded elites has turned out quite differently from what any of
the participants had in mind. Instead of one group or another ending up
the clear victor, and thus being able to call the shots on who will be
the new winners and losers in a post-King Bhumibol political landscape,
each of the primary competing elite groups, (the Red Shirts, the Yellow
Shirts and the military) has been fundamentally weakened by a
combination of over-reaching and mismanagement in their attempts to
determine a new post-monarchy political order in Thailand.
Instead it is Abhisit who has emerged as the unlikely Thai leader who
now has a chance to facilitate what we suggest is a new more mature era
in Thai politics. One thing is certain, however: if Abhisit is serious
about turning a temporary political respite of the past few months into
something more durable, he will have to successfully manage a volatile
group of mercenary partners in his ruling coalition, including the
increasingly cranky Bhum Jai Thai Party led by a former key member of
Thaksin's Thai Rak Thai Party, Newin Chidchob.
The best way
for Abhisit to keep his coalition partners in line is to build public
support for his government by showing quick results in managing and
implementing effective economic policy. Two key factors suggest he is
up to the task. For one, he has a world class monetary policy-making
partner in the Bank of Thailand. For another, his Democrat Party has a
deep bench of sophisticated, overseas educated MPs and advisors who
understand the nuances of modern economic policy making -- and Abhisit
fits this mold himself, being Oxford educated and policy-savvy.
The
proof will be in the pudding: Abhisit must achieve a meaningful
improvement in parliamentary seats for his Democrat Party (up from 164
seats out of 480 it holds today) in the next national elections – which
he has promised to call before the end of the year but some experts
expect he could delay calling until as late as mid 2010.
Thailand
has suffered badly from the global downturn—GDP fell a stunning 7.1
percent compared to the year earlier period in the first quarter of
2009. But the country is relatively well positioned to weather
additional storms, given the fact that the private and public sectors
are minimally leveraged, reflected in a strong capital adequacy ratio
in the banking sector and a minimal uptick in non-performing loans
despite the plunge in the domestic economy.
This is due in
part to the dumb-luck of political dysfunction over the last few years
that limited the ability of Thai companies and financial institutions
to participate in the excesses of the global credit boom. Dumb luck
isn't the whole story, however, as the Bank of Thailand has also
distinguished itself as one of the most independent and best-run
central banks in the world, both in terms of its conservative approach
to monetary policy and its tough banking and financial sector
regulation, which has been consistent during both the global credit
boom and now through the bust.
While fiscal policy presents a
number of immediate challenges to the Abhisit government, it also
offers the potential for enormous political gains. The Abhisit
government has endured some political damage from recent fiscal policy
decisions, including the decision to increase sin taxes in the face of
collapsing tax revenues as well as to push a major new 400 billion baht
borrowing plan required to fund the government's multi-year 1.4
trillion baht Stimulus Package 2.
The opposition Pheua Thai
Party has made political hay with the assertion that the Democrats are
on a tax and borrowing binge that will hurt the economy and mortgage
Thailand future.
However, Abhisit can turn temporary adversity
into advantage on the fiscal front. For one, the government is smart
enough learn its lesson from the political damage caused by the new sin
taxes; no new tax hikes are likely until the economy gets its sea legs
back. This is possible because the government is starting with a
relatively strong balance sheet with debt to GDP a manageable 41
percent. A couple of years of high deficits could push debt to GDP
close to the 50 percent limit the government would like to remain
below, but for the foreseeable future Thailand is in decent fiscal
shape.
Meantime, the Stimulus Package 2 is well
designed to boost public support for the government. This is because
the government has taken a very pragmatic bottom-up approach focusing
on shovel ready projects aimed at high visibility areas of the economy,
especially in public infrastructure projects such as highways and rural
irrigation. Recent economic data suggests that government stimulus
measures are already having an effect on consumer confidence, which
rose for the first time in five months in June.
Walking or
driving around Bangkok, it is not hard to see the effect of what has
been a declining trend in public investment as a percentage of GDP over
the past several years caused by the political background noise. The
whole city looks like it could use a fresh coat of paint. Therefore, it
shouldn't be hard for Abhisit and his team to begin showing quick
results to the Thai public on new projects in the second half of the
year; if this happens then the recent political blows it has taken as a
result of criticism from the Pheua Thai party for tax-and-borrow
policies can be turned into positive political capital and momentum
ahead of the next election.
Now that Thailand's color-coded
elite conflict has effectively knocked itself out and Mr. Abhisit's own
political star is on the rise, providing him with the political space
needed to hold together a mostly mercenary ruling coalition, it is time
for him to roll up his shirt sleeves and return the country to a
semblance of political normalcy, which he can do with a
self-reinforcing cycle of savvy politicking, clean government and wise
economic policy-making.
Sam Baker is director of
Asia research for Trans National Research Corporation, a US-based
political and economic consultancy specializing in global emerging
market research.
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Economics/Business 
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Coal surge is unabated, raising environmental concerns
Government objective: Hear no evil, speak no evil
Abhisit all-too-frequently contradicts himself from one day to the next - or is undermined by contrary statements from those within his own piecemeal government. The powers-that-be are happy to allow him to make endless statements announcing the latest addition to his ever-growing wish list of "good things" (e.g. overhauling the education system, expanding the railways, Thailand to be the ASEAN "creative hub" by 2012 - and so on and on ad nauseam) because they know full well that none of it is going to happen.
This administration's hallmark is knee-jerk reaction to others' actions - with little sign of any action derived from thought-through policies of its own (so much for that "deep bench"). In itself, that is the mark of an opposition and not of a government; even after 9 months of on-the-job training, there is very little sign of "joined-up" government from this already fragile and weakening coalition. To draw the conclusions that this writer does from this record indicates a combination of naivete and wishful thinking that is jaw-dropping.
Even allowing that the focus of the article is the economy (itself very much dependent on continued political stability), to make not one mention of the widespread, deeply-felt grievances of the largely rural (but also many urban), long-abused poor is a glaring and inexplicable omission. The writer seems oblivious to the forces that are at work here. Many of those who vote with their money - i.e. investors - have certainly registered what's going on and realise that Thailand is on course for growing instability as the kingdom approaches the inevitable succession quagmire. This government's only response has been a retreat to old-style repression of dissent accompanied by reinforced propaganda claiming to protect "the high institution" in the name of "unity and reconciliation" - yet, in reality, further widening the yawning gaps in the Thai political scene and in the Thai population.