Thailand's new economic logic
Thailand's new economic logic
by Shawn W Crispin
BANGKOK - Thai Prime Minister Surayud Chulanont says his interim government has
launched a "year of great reforms", with changes aimed at putting the economy on a
more sustainable long-term track. Many foreign investors, on the other hand, are
howling that recent government policies are woefully out of step with market
mechanisms and, if not reversed, could eventually cause Thailand's economic
demise.
So who's right? In an effort to erase ousted prime minister Thaksin Shinawatra's
legacy, Thailand's new military-appointed government is indeed leading the country in
a fundamentally different economic direction. Foreign investors and the
market-fundamentalist Western media have roundly blasted Bangkok's recent decisions
to impose capital controls, limit foreign ownership for certain service-sector
investments, and broadly implement King Bhumibol Adulyadej's untested "sufficiency
economy" concept.
Many investors voted with their feet when the capital controls were first imposed
in mid-December, driving down the Thai bourse 18% in a single day. But after equity
investors were exempted from the controls, the stock market has recovered most of
those losses, and now big foreign hedge funds have flocked to Bangkok to seek out
potential opportunities amid the policy confusion.
Meanwhile, the Thai currency, the baht, has continued to appreciate against the US
dollar, trading at a recent high of about 33 to the greenback in offshore markets
despite the capital controls on currency transactions. After introducing widely
perceived nationalistic amendments to the Foreign Business Act in early January,
major export-oriented multinationals, including China's Huawei, Japan's Panasonic and
the United States' Ford, have since made major new commitments to their
Thailand-based operations.
If Thailand is headed for economic doom, it's not yet apparent. Rather, a grudging
consensus is emerging among more seasoned Thai observers that there is a technocratic
logic to the government's thinking. Although not admitted publicly, the capital
controls policy was likely designed as preemptive action against an anticipated major
global economic shift: the steep and long-term decline of the US dollar and
economy.
The Bank of Thailand is not the region's only central bank grappling with the
financial wisdom of accumulating ever more US-dollar-denominated assets. For China,
which has accumulated more than US$1 trillion in foreign denominated reserves, or
nearly 42% of its gross domestic product (GDP), through years of runaway trade
surpluses is actively pursuing new ways to hedge its massive stock of depreciating
dollars.
Albeit on a smaller scale, it's an equally important issue for the region's other
export-geared, dollar-earning economies, including Malaysia, Singapore and Thailand,
where respectively exports account for 108%, 197% and 70% of GDP. That Thailand is
now partially turning away from the openness that previously fueled its economic
boom, bust, and recent strong recovery is particularly significant. And it could yet
herald a broad regional move away from reliance on Western capital and export markets
and toward more inward-looking and even protectionist economic strategies.
Historical vanguard
If so, it wouldn't mark the first time that Thailand was on the vanguard of a
sweeping regional economic trend. Throughout the 1980s and 1990s, Thailand was at the
front edge of Asia's export-driven economic emergence. Then, Japanese multinational
corporations rapidly transformed Thailand's backwater economy into an export-fueled
global powerhouse. Thailand also famously led the region into financial crisis in
1997, when foreign investors perceived cracks in the debt-driven facade and
underscored the economic risks to developing economies of unregulated short-term
capital flows.
Thailand's new direction is partially a nationalistic reaction to that bitter
experience, driven a decade later by traditional elites now represented in
government. The prevailing confusion surrounding the sudden implementation of capital
controls and anti-foreign amendments to the Foreign Business Act, followed by earnest
assurances by senior officials that Thailand will continue to engage with the global
economy, has purposefully obfuscated the government's inward-looking intentions.
The Bank of Thailand has somewhat disingenuously maintained that the motivation
for imposing capital controls was to protect Thai exporters from an appreciating
baht. Yet Thai exports surged 17% last year, higher than consensus projections and in
spite of a 15% appreciation of the baht against the dollar. The more complicated
explanation for the central bank's move is precisely the opposite: that Thailand is
now exporting too much, not too little.
Respected Thai economist Supavud Saicheua - on all accounts a dedicated free
marketeer - makes that contrarian argument in an exceptional new research report, in
which he argues that Thailand can no longer find efficient ways to allocate all of
the US dollars it is earning through record levels of exports. He argues that with
exports now accounting for 70% of GDP - more than double China's 34% ratio, and well
over the world 24% average - Thailand is long overdue for a structural economic
adjustment.
To be sure, buoyant exports sparked economic growth and helped to restore the
national accounts after the 1997 financial crisis, allowing Thailand to pay back the
International Monetary Fund two years ahead of schedule, and shave external debt down
from a crisis high ratio of 90% of GDP to its current level of about 34%.
With those external bills now paid, and the previous government's various
import-intensive infrastructure spending plans put on ice, exports are now arguably
generating more dollars than the Thai economy can efficiently absorb - similar to the
inrush of foreign capital that inflated Thailand's 1997 bubble, yet different in that
the foreign-denominated flows are being earned rather than borrowed.
Equitable economics
Enter King Bhumibol's "sufficiency economy" concept into Thailand's new policy mix.
The government's precise ideas for implementing the revered monarch's widely
misunderstood philosophy are now starting to come into sharper focus. And they appear
to jibe with the wider academic literature dedicated to sustainable economic
development, which contrary to Western capitalism's drive for short-term maximum
profits, strive for the long-term optimal use of resources.
It's literature that's just now beginning to get a serious second reading, with
the emerging global consensus surrounding the risks of greenhouse-gas-driven global
warming, and related realizations that multinational manufacturers' operations often
recklessly degrade the natural environment of less litigious and lightly regulated
developing countries. [1]
"The sufficiency-economy philosophy is a Thai model for sustainability, the
importance of which is only now becoming recognized around the world," Surayud said
last week to a meeting of the Joint Foreign Chambers of Commerce. "As an early
adopter of a sustainable approach to development, Thailand should, I believe, be
praised, for it is on a path down which every country or company will have to travel
sooner rather than later."
This week, Surayud called on Thai industrialists to begin implementing the
monarch's concept, namely through risk-management tools that allow for greater
flexibility and minimize debts, greater investment in human resources and research
and development, and setting business targets focused more on long-term rather than
short-term returns. The royalist premier also suggested that - contrary to the global
capitalist order - Thai factory owners should refrain from taking advantage of
consumers, labor, or material suppliers.
Significantly, Surayud's government is re-exerting sovereignty over Thailand's
future economic direction from a position of economic and financial strength -
providing crucial insulation to a market backlash against its contrarian philosophy.
While imposing capital controls on certain types of foreign inflows, the Bank of
Thailand in January more quietly eased longtime restrictions on Thai nationals
investing abroad, allowing mutual funds and securities companies to invest as much as
$50 million offshore without central-bank permission. Depending on the eventual
implementation, Thailand could soon emerge as a net exporter, rather than net
importer, of capital.
At the same time, the combination of capital controls, amendments to the Foreign
Business Act, and the rescinding of government concessions to Thaksin's publicly
listed companies will all inevitably spook certain investors and lead to less
short-term capital inflow. It's clearly a risk a more discerning Thailand is willing
to take in the pursuit of more sustainable growth and protection against foreigners
exporting future economic volatility from Western to Thai shores.
For better or worse, Thailand's emerging economic model is one many regional
governments will likely give a long, hard look in the months and years to come.
Note 1. Thailand's predominantly foreign-invested electronics sector
contributes a substantial 35% to total national exports, but independent studies have
found that few properly dispose of their toxic waste. As of 2001, less than 10% of
the hazardous industrial waste produced in Thailand was properly stabilized,
processed and disposed of.
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Disclaimer
Thaksin's loss, US's gain
Thaksin's loss, US's gain
by Shawn W Crispin
BANGKOK - Thailand's unfolding political drama pitting exiled former prime
minister Thaksin Shinawatra against the military-run Council for National Security
(CNS) that ousted him has cast the United States in an awkward but familiar position,
where realpolitik imperatives now, as historically, have trumped Washington's stated
public position of non-support to governments that seize power through
anti-democratic means.
When coup makers ousted Thaksin last September 19, Washington was legally bound to
suspend about US$14 million in military-to-military aid earmarked for Thailand. The
US State Department on cue publicly admonished the CNS for seizing power through
undemocratic means and urged a quick return to democracy, which the junta has
promised for this year.
That's still the State Department's public line, but President George W Bush and
senior US envoys in Bangkok have signaled clearly to the junta that Washington has
scant intention of downgrading bilateral relations because of the coup.
In many ways, Thailand's coup has served US regional interests well. Thailand is
historically Washington's most trusted strategic ally in Southeast Asia, and US
officials are leveraging their senior military contacts now in government in a bid to
counterbalance China's expanding regional influence. While the US maintained strong
ties with Thaksin's authoritarian administration, particularly through cooperation on
counter-terrorism issues, there were concurrent concerns in Washington that the
ethnically Chinese Thaksin [1] was gradually moving Thailand closer to Beijing
at the United States' strategic expense.
Those concerns would help to explain why Bush received coolly last April Thaksin's
pleading personal letter, where the then-embattled premier claimed "anti-democratic"
forces were attempting to knock him from power through "extra-constitutional" means.
Of course those anti-democratic forces - the royalist military officials who
spearheaded the coup - were and remain some of the United States' best in-country
contacts. And since Thaksin's ouster, to the deposed premier's apparent chagrin, the
US has kept close working tabs with the junta and its interim civilian
administration.
Importantly, the suspension of military aid has so far been more symbolic then
substantive. As required by law, the US has suspended its International Education and
Training Program for Thai military officials, but the US Defense Department has
conspicuously tarried on decisions whether to scrap a joint memorandum on
military-to-military logistics, an arms-procurement program that provides cheap loans
to the Thai military when purchasing US hardware, the United States' continued use of
U-Tapao Air Force Base, and the annual Cobra Gold joint military exercises.
"The official US policy is mandatory, but we sense the [US] Defense Department is
trying to work its way around the measures," said an adviser to the Thai prime
minister. "Washington understands fully well that the military is in the driver's
seat and China is waiting in the wings." To underscore that point, he said, coup
leader and army commander General Sonthi Boonyaratklin made a recent trip to Beijing
for undisclosed reasons.
Moreover, the sanctions notably did not require the US to sever funding for the
secretive Counter-Terrorism Intelligence Center (CTIC), established jointly in 2001
between the US Central Intelligence Agency (CIA) and select Thai intelligence
officials. As of 2002, the US was providing annually between $10 million and $15
million as well as advanced surveillance equipment to the CTIC, which is tasked with
tracking and hunting down regional Muslim terror suspects.
According to the Washington Post, Thailand also hosted one of the CIA's
now-notorious secret prisons, where Muslim terror suspects were held without trial
and at times administered interrogation techniques that rights groups say are
tantamount to torture. Thaksin had publicly denied the existence of any CIA prison on
Thai soil, but because the US ally is not a signatory to either the United Nations
Convention Against Torture or the International Criminal Court, which hypothetically
could attempt to try US soldiers and CIA agents for war crimes, European diplomats
contend that Thailand would be a legally logical and secure location for such a
facility. (US officials in Bangkok have consistently declined comment on the
secret-prison allegations.)
That said, senior Thai police counter-terrorism officials have openly carped that
US Federal Bureau of Investigation terror-related sting operations have frequently
impinged on Thai sovereignty. Despite these official complaints, and Thaksin's push
for a highly unpopular free-trade agreement with the US, the anti-government
demonstrations that paved the way for his military ouster notably never took on an
anti-US bent - as did, for instance, the popular uprising of 1973 that led to the
downfall of the corrupt and heavy-handed regime of then-US-backed Field Marshals
Thanom Kittikachorn and Praphat Charusathien.
Xenophobic energies
The anti-Thaksin movement concentrated its xenophobic energies instead on Singapore,
which through its state-run investment vehicle Temasek purchased Thaksin's
family-held Shin Corporation in a controversial $1.9 billion transaction only months
before his ouster. The CNS has since inflamed still-simmering popular resentments
against Singapore, accusing the island state of using the satellite it purchased from
Thaksin to tap the mobile-telephone conversations of senior military officials.
That the CNS has played its foreign-bogey card against Singapore rather than the
US underscores the strong personal connections top coup makers have with senior US
political and military officials. While Thaksin pays US lobbyists to plead his case
on Capitol Hill, in Bangkok US officials are leveraging their military contacts to
score diplomatic points over China, which has pursued its diplomacy toward Thailand
more through political and economic rather than military channels.
The US military jump-started Thailand's move toward capitalism, pumping more than
$2.5 billion between 1951 and 1975 in military-related aid into the country to
develop a regional bulwark against the spread of communism. During those decades of
authoritarian military rule, the US often assisted in suppressing government
opponents, including pro-democracy activists, and the CIA frequently meddled in
Thailand's domestic politics. [2]
Fast-forward to the present, and it's no surprise when a Bangkok-based US diplomat
confirms that US-Thai military-to-military relations have remained firmly "on track"
despite the suspension in aid. Noted one longtime Thai observer: "The US is saying to
itself: they may be generals, but they're our generals."
Indeed, current premier and former army commander General Surayud Chulanont
received military-college training in the US and his presence in senior military
leadership positions was, according to one US diplomat, a factor in Washington's 2003
decision to elevate Thailand to the status of a major non-North Atlantic Treaty
Organization ally, a distinction that paved the way for the country to purchase
state-of-the-art US military equipment, including, presumably, the helicopters now
circling Bangkok on national-security patrols.
Former intelligence chief, new constitution-drafting chairman and pivotal
behind-the-scenes coup maker Prasong Soonsiri was trained and some say retained for a
stint in the 1980s by the CIA, and is now known to have close personal relations with
US Ambassador to Thailand Ralph "Skip" Boyce. The two developed their friendship
during the Thai-speaking Boyce's previous two postings to Thailand.
Most significant, perhaps, former prime minister and current Chief Privy Councilor
Prem Tinsulanonda, seen by many as the mastermind behind last year's coup, has strong
Cold War ties to several senior US Republican Party operators. During a private
dinner in 2000 sponsored by the Johns Hopkins University School of Advanced
International Studies, in a speech Prem voiced his "heartfelt" appreciation to Paul
Wolfowitz, then the school's dean, for his role in assisting Thailand after
Vietnamese communist troops invaded neighboring Cambodia in 1979 and threatened to
continue their march into Thailand.
While publicly condemning the Khmer Rouge for their atrocities, the US
simultaneously and clandestinely commenced funneling so-called "non-lethal" supplies,
including radio equipment, to the murderous Maoist group to help it hold the line
against Vietnam on Thailand's eastern border. It was a controversial decision that
re-cemented bilateral ties after a rocky period when the US abruptly pulled out of
Thailand after the Vietnam War - lasting ties that have influenced Washington's
decision concerning which side to take during Thailand's current political
standoff.
Repeating history
To some, the US has today made a similarly controversial policy position in
supporting the coup makers who ousted a twice democratically elected leader. While
publicly lamenting Thailand's retreat from democracy, and more recently criticizing
protectionist economic policies that threaten certain US business interests, in
private US officials have persistently reaffirmed to Thailand's ruling generals
Washington's long-term commitment to keeping bilateral ties on track.
During last November's Asia-Pacific Economic Cooperation meeting in Hanoi, Bush
met with Surayud on the sidelines and conveyed that Washington "understood"
Thailand's political situation. The following month, his father, former president
George H W Bush, paid a personal private visit to His Majesty King Bhumibol Adulyadej
- widely viewed in Thailand as a symbolic endorsement of the royalist coup.
For Washington, last year's military takeover has presented a unique opportunity
to steal a march from China, which through soft economic power has seen Beijing
consolidate strong alliances in neighboring Myanmar, Cambodia and Laos. It is
therefore no coincidence that Thaksin, spurned by what he perceived to be his former
US ally, has chosen to launch his anti-junta propaganda campaign, in attempted
divide-and-rule fashion, from China and Singapore.
In recent interviews with the mainstream Western media, Thaksin has endeavored -
doubtless at the advice of his Washington-based private lobbyists and public
relations consultants who arranged the appointments - to portray himself poignantly
as a popularly elected leader who has been ousted through illegal means.
International publications, including those previously sharply critical of
Thaksin's style of governance, have dutifully played up those themes - though at the
time of the coup Thaksin was no longer legally Thailand's elected leader after
annulled democratic elections in April, and in spite of his illiberal record of
promoting extrajudicial killings of drug suspects and disappearances of Muslim
militant suspects, and his systematic and punitive suppression of press freedom.
More seasoned observers draw parallels between Thaksin's current propaganda pitch
with former Thai fascist leader Field Marshal Phibun Songkhram, who from exile in the
1940s criticized the monarchy and portrayed himself as a man of the people, and who
on retaking power years later presided over a hard-knuckled, illiberal and corrupt
military-led regime that at times ran counter to Washington's wishes.
[3] Washington, it appears, has come to a similar conclusion about Thaksin's
usefulness to the United States' future interests.
One well-placed source close to Ambassador Boyce says that the US no longer views
Thaksin as a "political factor" and that to date Washington believes the junta is
doing a "satisfactory" job of administering the country. Should Boyce be proved wrong
and one day Thaksin return to political prominence - perhaps hypothetically after the
passing of King Bhumibol - the US can probably count on a piqued Thaksin avenging the
perceived snub by moving Thailand closer into China's regional orbit.
It's a calculated risk Washington is clearly willing to take and, at least for
now, Thaksin's loss is the United States' gain.
Notes
1. Although Thaksin pledged allegiance to his US roots during a visit to his alma
mater Sam Houston State University, where he joked that Texas was his second home,
many perceived his pilgrimage to the grave markers of his ancestors in China's Fujian
province as the more meaningful personal connection.
2. See Daniel Fineman's excellent A Special Relationship: The United States and
Military Government in Thailand, 1947-1958, University of Hawaii Press, 1997.
3. When Phibun was subsequently ousted in an internal 1957 putsch led by Field
Marshal Sarit Thanarat, who more than Phibun favored the United State's
foreign-investment-led development model, the US State Department issued a statement
three days later affirming the military coup would not alter bilateral relations.
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