By: Our Correspondent

thaksincomic1 After the military coup
in Bangkok last September 19, an admirer of deposed premier Thaksin
Shinawatra released a 212-page comic book portraying the exiled
billionaire politician as an action hero who would one day return to
Thailand to rescue the rural masses from poverty.

Although the book
reportedly only sold a handful of copies, Thaksin remains something of
a caricature. Nearly everyone has strong feelings about him. To many
Thais, he is either the most corrupt prime minister in Thailand's
history or a champion of the poor masses who have been long ignored by
previous governments.

In the first case, it
is clear that Thaksin had enormous conflicts of interest when he sought
political power as one of the country's foremost tycoons. After
transferring assets to his maid and driver, among others, he would have
been banned from politics for five years for concealing assets had it
not been for a suspect 8-7 acquittal from the Constitutional Court in

It remains to be seen
if prosecutors can now uncover any of his lawyers’ mistakes to prove
corruption allegations, or if he can get a fair trial in Thailand. But
after a year of hearing the coup leaders capitalize on anger over
Thaksin’s policies and his family’s sale of Shin Corp to Singapore-run
Temasek Holdings, the debate over where Thailand goes next is just
beginning. Much of the squabbling over the past year about the virtues
of so-called Thaksinomics vs. Sufficiency Economy — a philosophy
conceived by King Bhumibol Adulyadej that The Economist dubbed “new-age waffle” — is more about one's views towards Thaksin or the monarchy rather than actual policy.

The interim government
has further confused things. Although badmouthing Thaksin’s
free-spending populism and praising sufficiency, ministers have kept
but renamed several of Thaksin's key policy planks, including a 30-baht
universal health scheme, a village loan fund and cheap loans from
state-owned banks.

Meanwhile, the
military-appointed technocrats’ bumbled moves to impose capital
controls and revise foreign ownership rules have soured the investment
climate. An election now seems likely for November or December, but it
is unclear if that will bring stability because voters still don't know
who will be allowed to run for office or even what the new constitution
will say.

Since Thaksin's
now-banned Thai Rak Thai party found much of its support among the
rural poor, political parties are now forced to address a previously
ignored constituency. Undoubtedly poor voters liked Thai Rak Thai.
After winning about 19 million votes in 2005, the party still won 16
million in the boycotted April 2006 election — more than twice as much
as its closest rival won in 2005. Although Thaksin’s personal motives
may be questionable, his bundles of campaign promises   cheap health
care, village loans, a three-year debt suspension for small farmers,
and other giveaways   struck a chord.

Moreover, poverty under
Thaksin declined. From 2000 to 2004, the poverty rate dropped nearly by
half to 11.3 percent from 21.3 percent, according to the World Bank.
But, as development economists know, a drop in poverty alone does not
mean that Thaksin’s brand of populism had anything to do with it.

Decades of poverty reduction

Poverty in Thailand has
fallen rapidly for the past 30 years due to exceptional economic growth
rates. From 1977 to 1996, the economy grew an average of 7.6 percent
per year, and per capita income rose from about 17,500 baht to 75,103
baht in 1996, according to research by prominent Thai economist Medhi

Indeed, at previous
points in the past 30 years, poverty fell even faster than it did under
Thaksin. From 1990 to 1994, an uncertain period that featured a coup
and a bloody military crackdown on pro-democracy protesters, the
poverty rate dropped from 33.7 percent to 19 percent, according to the
latest official poverty figures developed by UNDP and the Thailand
Development Research Institute (TDRI), a think-tank.

But the drop in poverty
prior to the 1997 financial crisis did not mean the central government
cared much about rural folk, however.

“This reduction in
poverty [prior to 1997] in Thailand did not come about as a result of
any specific, well-targeted poverty reduction policies or measures,”
wrote Medhi in a 2002 paper. “It could be safely concluded that poverty
reduction in Thailand came as a result of overall economic growth.”

When the government
floated the baht in 1997, triggering a regional economic crisis,
poverty levels naturally increased. According to TDRI, the poverty rate
jumped from 14.8 percent in 1996 up to 21 percent in 2000.

So prior to Thai Rak
Thai’s first election win in 2001, the poverty rate already appeared to
have peaked from the financial crisis, and the economy was showing
signs of recovery. The public, though, was tired of the Democrat
Party's sluggishness and the business community liked the new premier’s
bold ideas and decisiveness, setting the stage for him to implement a
host of populist policies that reshaped the Thai political landscape.

To pay for the costly
programs, Thaksin told ministers to cut other spending to maintain
financial discipline. Increased growth also boosted tax revenues by 10
percent in 2002 from the previous year.

From a macroeconomic
standpoint, the results were immediate. GDP growth more than doubled to
5.4 percent in 2002 from 2.1 percent in 2001, and increased to 7.1
percent in 2003. Meanwhile, public debt dropped to 50.6 percent of GDP
from about 57 percent the prior two years, and the general government
balance showed a surplus in 2003 for the first time since 1997.

Oil prices end the populist party

So did Thaksin’s
dual-track policy directly boost GDP growth? Certainly, although again
he got some help from external conditions. In 2002, the global economy
recovered from the post-September 11 recession, real interest rates
were low and crop prices rose.

“Due to increases in
world prices, prices of major crops, including rice, rubber, tapioca,
palm, and oilseeds, rose and nominal farm incomes rose in both 2001 and
2002,” the World Bank said in its October 2003 Thailand Economic
Monitor. “The relative price of agricultural products to manufactures
also increased. With low inflation, higher real farm incomes lifted
household consumption and reduced poverty.”

Thailand’s exports also
outpaced regional economies as the country sold more electronics, cars
and auto parts to the Western world. Thaksin started giving incentives
for auto companies to base in Thailand, and sought to boost exports
further through trade deals and new markets.

Meanwhile, on the home
front, Thai Rak Thai’s pump-priming put money into the countryside.
Consumer confidence hit a record high in July 2003 as private
consumption jumped to 6.3 percent on increased sales of cars,
electrical appliances, mobile phones, and telecommunication services.

Times were good. But they didn’t last.

The favorable external
environment took a turn for the worse late in 2003 when oil prices
began to spike. In January 2004, Thaksin put a cap on the diesel price,
believing that subsidies would act as a quick fix. But oil kept rising
and rising, eventually doubling 2003 price levels. By the time the
government floated oil prices in 2005, it had racked up more than US$2
billion in debt.

Since Thailand’s
economy is the most oil-dependent in Asia, growth naturally suffered.
After peaking in 2003, GDP growth dropped to 6.3 percent in 2005 and
4.5 percent the next year.

Meanwhile, private
consumption slowed with the increase in oil prices, inflation and
household debt. Although farm prices had jumped 9.6 percent in 2003 and
19.5 percent in 2004, crop production had lowed and the outlook for
2005 was grim.

Also in 2004, the first
real data showing increased debt levels emerged. A socioeconomic survey
said that about a third of household loans were spent on consumption,
and the poorest households saw debt increase by 22 percent since
2002—“partly a result of government programs aimed at increasing access
to finance, particularly of grassroots households,” the World Bank

In 2006, a private
investment boom to boost capacity was supposed to drive economic
growth, but political uncertainty dampened the outlook from when
Thaksin called an early election in February 2006 until today.

Poor implementation

Although the
demonization of Thaksin has muddied the policy debate in Thailand, many
of his policies had basic anti-poverty components found throughout the
world. Microcredit, debt relief, and cheap health care have lifted
millions out of poverty around the globe.

“Everything that we
have done has been simply to help the poor, to help communities survive
and prosper,” Somkid Jatusripitak, a key member of Thaksin’s economic
team wrote last week in a Bangkok Post supplement marking the
anniversary of the 1997 financial crisis.

“Should such policies
be readily dismissed as wasteful political ploys?” he went on. “To me,
they represent genuine efforts to alleviate poverty and ensure
sustainable prosperity.” I agree, however, that whether a policy is
good or bad depends much on implementation. But I believe that the
basic philosophies have remained correct. The ideas weren’t wrong.”

Indeed, the problem
most academics had with the programs was the implementation. Instead of
leading to increased efficiency and sustainable growth, much of the
money was spent on consumer goods that ended up boosting household

“We have to give credit
to Thaksin’s policy because it inserted a lot of money into low-income
farmers and workers, which reduced poverty,” said Somchai Jitsuchon,
research director at TDRI who now serves as an advisor to the Finance
Ministry. “But it was just temporary. The money just went from hand to
hand without increasing the potential for production or income

Thaksin certainly spent
a lot of cash on anti-poverty programs, boosting total expenditure to
2.3 percent of GDP in 2002 from a mere 0.74 percent in 1999, according
to a 2005 World Bank study on the Northeast. But most of that money
never made its way to the poor. The study found that nearly 90 percent
of beneficiaries of both the debt moratorium and the revolving village
fund were non-poor households.

“Many of these programs
have low levels of coverage and high leakages of benefits to the
non-poor as they cover large populations,” the study said. “Improved
targeting by defining better criteria for allocating resources will be
essential to reduce the population of poor people.”

Many critics of
Thaksin’s policies feared they were creating a culture of dependency in
which people would come to rely on cheap money from the state. If the
villagers couldn’t pay back the loans, they would just caravan to
Bangkok and sit in front of Parliament until they got what they wished.

“Grassroots borrowers
now appear to expect that the government will always come in and write
off their debt if they cannot service it themselves,” current Finance
Minister Chalongphob Sussakarn and academic Pakorn Vichyanond wrote
this year in the Asian Economic Policy Review. “Cases of mobs demanding
debt forgiveness (and getting it) are becoming regular events.”

Thaksin’s policies were
also seen as fiscally irresponsible since many of the programs were
funded off-budget through state-owned banks. The IMF and credit
agencies warned for years that these could disguise the state’s real
liabilities, and the military-installed government claimed it would
need to pay 54.6 billion baht in debt from the Thaksin era during this
fiscal year, according to the Bangkok Post.

While the populist
programs may have proved an inefficient use of state funds, the current
government’s finances are also under scrutiny. Of the reported 54.6
billion baht in populist debts incurred this fiscal year, 18 billion
went to cover a rice-price intervention scheme by the Bank for
Agriculture and Agricultural Co-operatives (BAAC); 7.7 billion went to
pay for the 30-baht universal healthcare scheme; 7.1 billion to boost
rubber prices; 8.8 billion for salary hikes to teachers; and another 13
billion for the village fund.

By comparison, the
military has upped its 2008 budget to 143 billion baht from 86 billion
before the coup—a 57 billion baht increase. Moreover, fears of secret
off-budget allocations have increased recently after the outgoing
president of the state-run Telephone Organization of Thailand, which is
chaired by assistant coup leader General Saprang Kalayanamitr, revealed
an off-the-books 800 million baht purchase. “That screams slush fund,”
according to one diplomat who closely follows security affairs.

Interestingly, the
state-run banks that took the losses for Thaksin’s programs, BAAC for
price subsidies and Government Savings Bank (GSB) for village loans,
have both remained profitable. After the coup, the GSB told the
military government it wanted to keep funding the village fund and
other Thaksin-era microcredit schemes.

Although the off-budget
expenditures during the Thaksin era posed a threat to the country’s
fiscal position if the debt turned bad, the country’s finances improved
over the past few years. Thailand’s foreign reserves are now equal to
the amount of foreign debt. International credit ratings agencies,
while expressing concern about the programs, also reaffirmed that
Thailand’s fiscal position was strong.

“The recent rapid
increase in off-budget expenditures, especially in the form of credit
extended by state-owned financial institutions, poses some risk to the
government finance, as some of such credit could be soured in the
future,” Japan Credit Ratings (JCR) said in January 2004 when it
upgraded the outlook on government debt. “However, given the relatively
limited scale of such spending, JCR thinks that potential government
liabilities that could be incurred will remain within a manageable

Time to look forward

The evidence on
Thaksin’s economic management is mixed. His external policies helped
boost exports, the main driver of economic growth, which helped reduce
poverty. But his domestic stimulus measures were inefficient at
targeting the poor and ultimately unsustainable.

By concurrently
offering cheap loans and debt forgiveness, Thaksin was hardly
instilling principles of sound economic management while creating a
dependent rural population that could be counted on to keep Thai Rak
Thai in power.

Indeed, early on in
Thaksin’s tenure economists warned about the problem. “The development
policies of the [Thaksin government] have taken into account various
measures to increase social welfare of the Thai people,” Medhi wrote in
2002. “However, many of these policies measures are inefficient and
wasteful as they distort the working mechanisms of the market.”

So far, the main
opposition Democrat Party—the only one with concrete policies now that
Thai Rak Thai was dissolved and new parties are still banned—has laid
out a liberal economic agenda. It would scrap the current government’s
moves to redefine foreign ownership and restrict privatization, while
at the same time trying to make Thai Rak Thai’s health care plan and
microcredit schemes sustainable.

In addition, it hopes
to improve Thailand’s long-term competitiveness. “We need to agree
first on what kind of end result…is required and move toward
overhauling the system to make it happen. We remain stuck in process
tinkering, rather than being specifically goal-oriented,” Korn
Chatikavanij, secretary-general to the Democrat Party and former head
of JP Morgan’s Thailand operations, wrote in an opinion piece
distributed to local newspapers this week.

Whereas Thaksin’s
schemes may have boosted the country’s rural poor, the country’s
long-term competitiveness hasn’t improved much. Of course, it takes
time to upgrade infrastructure, overhaul the education system, start
the transition to a knowledge economy, boost crop yields, wean the
economy off oil and increase farm productivity— but many critics
believe the gimmicky programs took away from the focus on the larger

Even so, the personal
animosity many have for Thaksin should not dismiss his policies
outright. Certainly his cheap health care and microcredit programs will
not be abolished. Either way, no matter which party gets elected next,
it would be a grave mistake to proceed with the military government’s
policies of revenge. Now that Thaksin’s personality cult is appearing
to wane, politicians can hopefully start looking forward to the next
election and how Thailand will look in a decade, instead of continuing
the military government’s attempts to roll back the clock a few

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