Thoughts on Thailand

Reading Time: 6 minutes

KanKan Yuenyong is co-founder and director of Thailand-based think tank Siam Intelligence Unit. In the following question and answer session he shares his views on the current political and economic situation in Thailand, which seems to have become more critical over the past months.

1. It appears that the political crisis in Thailand is heatening up, with the newly formed “People’s Army” threatening to overthrow the government. What could be the scenario?

Although it looks dangerous, at this moment I don’t think they will have enough momentum to make any impact on the government. They are from the same group of protesters of last year, of General Boonlert Kaewprasit or Seh Ai. Actually, the anti-Thaksin movement comprises of many factions including some progressive middle class, Democrat Party supporters, the Yellow Shirt people and some conservative groups. But, Seh Ai is a kind of conservative movement, which I think cannot influence many people in the country, especially in Bangkok.

The relationship between the army and the government is quite good so far. It’s not because of the civilian supremacy rule, but because the government tries to protect the army from the legal problems of the 2010 Red Shirt crackdown. And Prayuth Chan-ocha seems to secure his Commander-in-Chief position.

The White Mask movement is much more interesting and much more progressive. They are a kind of anonymous collective group from the internet, but, unfortunately, they will be eclipsed by the conservatives. And if the White Masks let that happen, they will lose control and momentum. Internal conflict between the “progressive” Red Shirts and the pro-Thaksin Red Shirts is much more concerning.

However, the most important mile stone will be (1) a verdict of the International Court of Justice on the Praviharn dispute and (2) an across-the-board amnesty bill. If the verdict is acceptable for the Thai perception, and for Cambodia’s perception, and if the government exercises a public hearing on the amnesty process or attains some sort of major consensus, they will pass the crisis. We need to monitor the two issues very closely.

2. Thailand seems to face slower growth in the second half of 2013. What are the main hampering  factors in your view?

I think it’s mainly from the baht appreciation, thus the export sector is shrinking. Thailand will lose its competitiveness in pricing  compared to other countries. I don’t think the Bank of Thailand and the Monetary Policy Committee’s inflation-targeted policy is a good idea in the current global financial situation. The quantitative easing policy by the US, UK and Japan in order to sustain their own economies will hurt other Asian nations through the appreciation of their currencies. Fed chairman Ben Bernanke’s announcement of a slowdown of the next round of quantitative easing made the US dollar unwind, shrunk down Asia’s wealth and depreciated Asian currencies.

Actually, the export-driven economic model that the Asian countries currently use is not sustainable. This model is linked to the problem of public debt and deficit in the US. Quantitative easing will make more and more problems in terms of long-term global inflation and global financial instability. This needs to get fixed very soon, or else we will face a catastrophe.

If we look at Asian countries long-term (except Japan), we see steady growth after the 1997 financial crisis. And Asian countries have excessive savings, which they use for US treasury bills – but I doubt this brings long-term stability.

In the long-term, the US will also lose their overall competitiveness. The IT sector alone can not support the whole country. This will make a problem for the US middle class and their capacity to pay tax. And it will corrode the federal tax revenue. See the below chart:

Revenue_and_Expense_to_GDP_Chart

 

So far, the GDP forecast for Thailand is quite steady. It is comparable to Malaysia’s post-1997 financial crisis economy in terms of steady growth at 4 to 6 per cent annually.

Long-term investments into the planned water management projects of around $11 billion and infrastructure projects at a value of up to $65 billion will boost Thailand’s internal economy as well. A gradual transition from an export-led growth economy to domestic consumption-led growth will make the country more resilient to global volatility.

3. The rice pledging scheme is one of the biggest unresolved problems of the Shinawatra government. How could the issue be finally tackled?

This is the problem of a lost brain war on the economic front with the government’s opposition, led by the Thailand Development Research Institute (TDRI.) The TDRI supported the price guarantee policy scheme that was used by the Abhisit Vejjajiva administration of the Democrat Party. And Thai journalists do not understand that both policies are subsidies. And that subsidies are a form of market distortion which leads to a misallocation of resources and a reduction of social welfare. If the TDRI is serious about the problem of subsidies, they need to reject both. But they are quite biased. The legitimacy of the policy, therefore, is needed to be judged at the ballots.

So far, some people go on pointing out the government’s policy as populist which will ruin the Thai economy. Actually, every government will follow the ruling Pheu Thai party’s policies which are agricultural subsidy and logistic reforms, like all governments after Thaksin have had to follow his policies, such as the 30 baht universal health care and the global village fund. Thus, it is needed to be controlled through  financial discipline, which would keep public debt in the range of 50 to 60 per cent of GDP. And the government needs to maintain a balanced budget in the future, not a never-ending deficit.

So far, in line with this financial discipline, the government has decided to cut down the rice buying price for the farmers in the next crop cycle, which I think is very good.

Actually, I think the government tries to manipulate the global rice price as well which we experienced during Thaksin Shinawatra’s  term. But they failed with the attempt. Since, the price will be around $500 to $600 for many years to come. The Organisation of Rice Exporting Countries (OREC)’s progress is not quite as fast as expected.

Many western media seem to attack the price manipulation, which I think is unfair. Many western countries practice subsidies for their agricultural sector, for renewable energy, etc. Even commodities such as aluminium have been manipulated by financial institutes in the US.

The improvement of Moody’s credit rating for the long-term LC bond ceiling from A1 to Aa2 (two steps) is a good sign for Thailand’s credibility.

Democracy Monument4. The gap between the rural population and those living in urban areas in Thailand is widening in terms of income, access to education and job opportunities. Isn’t this a dangerous development that the government should rapidly address?

The provincial GDP in Thailand is different from top to bottom. But according to  income distribution statistics – we normally use Gini Index, the lower the number the better income distribution -, Japan’s Gini index is 38.1 while it is 40.0 for Thailand.

It surprises me that Thailand has a better income distribution compared to countries such as Malaysia (46.2) and the US (45). And that the unemployment rate is very low – 0.8 per cent in May 2013, according to the National Statistic Office.

So my view has changed. It seems that Thailand is now facing the problem of a political conflict between the two major middle classes, the lower middle class and the upper middle class. This seems to be a result of long-term economic development in “Tiger Asia”. And I think countries such as Malaysia and Singapore are also facing the same problem.

The government needs to make an inclusive development for these two different classes. The upper middle class must leave internal economic room to the lower middle class, and they need to compete on the global stage instead. This is really a major problem of how they can build up their capacity to compete on the global level.

5. New reports show that corruption is growing instead of being reduced in Thailand. Why is this problem getting out of hand and why are anti-graft controls failing?

I’m not sure. We need to wait and see the Corruption Perceptions Index (CPI) from Transparency International instead. It does not mean that I don’t trust the Thai rating. But it seems we have too much polarised politics in the country, and that can bend the perception of the people. Please notice that the Bangkok governor election poll made a significant error in the last election.

Thailand’s 2012 CPI score is 3.4 – 4.0. I think it will remain in this range. Please see our compilation of the comparative CPI here (in Thai.)

However, currently, there is critique on comparing the CPI because there is a different definition of corruption according to law in different countries. And the CPI is just a perception, although Transparency International tried to explain that this happens because it can not make a direct measurement, see this example.

I think the latest Global Corruption Barometer (GCB) is quite good. It shows the direct experience of bribery. Thailand’s GCB stands at 18 per cent, which is better than Taiwan’s (36 per cent), South Africa’s (47 per cent), the Ukraine’s (37 per cent), Indonesia’s (36 per cent) and Greece’s (22 per cent). However, we need to catch up to countries such as Japan (1 per cent), Malaysia (3 per cent) and South Korea (3 per cent).

However, the GCB has nothing to do with factual problem such as rents and conflict of interest issues that relate to political and economic problems. We need different analytic tools to get a precise picture.

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Reading Time: 6 minutes

Kan Yuenyong is co-founder and director of Thailand-based think tank Siam Intelligence Unit. In the following question and answer session he shares his views on the current political and economic situation in Thailand, which seems to have become more critical over the past months.

Reading Time: 6 minutes

KanKan Yuenyong is co-founder and director of Thailand-based think tank Siam Intelligence Unit. In the following question and answer session he shares his views on the current political and economic situation in Thailand, which seems to have become more critical over the past months.

1. It appears that the political crisis in Thailand is heatening up, with the newly formed “People’s Army” threatening to overthrow the government. What could be the scenario?

Although it looks dangerous, at this moment I don’t think they will have enough momentum to make any impact on the government. They are from the same group of protesters of last year, of General Boonlert Kaewprasit or Seh Ai. Actually, the anti-Thaksin movement comprises of many factions including some progressive middle class, Democrat Party supporters, the Yellow Shirt people and some conservative groups. But, Seh Ai is a kind of conservative movement, which I think cannot influence many people in the country, especially in Bangkok.

The relationship between the army and the government is quite good so far. It’s not because of the civilian supremacy rule, but because the government tries to protect the army from the legal problems of the 2010 Red Shirt crackdown. And Prayuth Chan-ocha seems to secure his Commander-in-Chief position.

The White Mask movement is much more interesting and much more progressive. They are a kind of anonymous collective group from the internet, but, unfortunately, they will be eclipsed by the conservatives. And if the White Masks let that happen, they will lose control and momentum. Internal conflict between the “progressive” Red Shirts and the pro-Thaksin Red Shirts is much more concerning.

However, the most important mile stone will be (1) a verdict of the International Court of Justice on the Praviharn dispute and (2) an across-the-board amnesty bill. If the verdict is acceptable for the Thai perception, and for Cambodia’s perception, and if the government exercises a public hearing on the amnesty process or attains some sort of major consensus, they will pass the crisis. We need to monitor the two issues very closely.

2. Thailand seems to face slower growth in the second half of 2013. What are the main hampering  factors in your view?

I think it’s mainly from the baht appreciation, thus the export sector is shrinking. Thailand will lose its competitiveness in pricing  compared to other countries. I don’t think the Bank of Thailand and the Monetary Policy Committee’s inflation-targeted policy is a good idea in the current global financial situation. The quantitative easing policy by the US, UK and Japan in order to sustain their own economies will hurt other Asian nations through the appreciation of their currencies. Fed chairman Ben Bernanke’s announcement of a slowdown of the next round of quantitative easing made the US dollar unwind, shrunk down Asia’s wealth and depreciated Asian currencies.

Actually, the export-driven economic model that the Asian countries currently use is not sustainable. This model is linked to the problem of public debt and deficit in the US. Quantitative easing will make more and more problems in terms of long-term global inflation and global financial instability. This needs to get fixed very soon, or else we will face a catastrophe.

If we look at Asian countries long-term (except Japan), we see steady growth after the 1997 financial crisis. And Asian countries have excessive savings, which they use for US treasury bills – but I doubt this brings long-term stability.

In the long-term, the US will also lose their overall competitiveness. The IT sector alone can not support the whole country. This will make a problem for the US middle class and their capacity to pay tax. And it will corrode the federal tax revenue. See the below chart:

Revenue_and_Expense_to_GDP_Chart

 

So far, the GDP forecast for Thailand is quite steady. It is comparable to Malaysia’s post-1997 financial crisis economy in terms of steady growth at 4 to 6 per cent annually.

Long-term investments into the planned water management projects of around $11 billion and infrastructure projects at a value of up to $65 billion will boost Thailand’s internal economy as well. A gradual transition from an export-led growth economy to domestic consumption-led growth will make the country more resilient to global volatility.

3. The rice pledging scheme is one of the biggest unresolved problems of the Shinawatra government. How could the issue be finally tackled?

This is the problem of a lost brain war on the economic front with the government’s opposition, led by the Thailand Development Research Institute (TDRI.) The TDRI supported the price guarantee policy scheme that was used by the Abhisit Vejjajiva administration of the Democrat Party. And Thai journalists do not understand that both policies are subsidies. And that subsidies are a form of market distortion which leads to a misallocation of resources and a reduction of social welfare. If the TDRI is serious about the problem of subsidies, they need to reject both. But they are quite biased. The legitimacy of the policy, therefore, is needed to be judged at the ballots.

So far, some people go on pointing out the government’s policy as populist which will ruin the Thai economy. Actually, every government will follow the ruling Pheu Thai party’s policies which are agricultural subsidy and logistic reforms, like all governments after Thaksin have had to follow his policies, such as the 30 baht universal health care and the global village fund. Thus, it is needed to be controlled through  financial discipline, which would keep public debt in the range of 50 to 60 per cent of GDP. And the government needs to maintain a balanced budget in the future, not a never-ending deficit.

So far, in line with this financial discipline, the government has decided to cut down the rice buying price for the farmers in the next crop cycle, which I think is very good.

Actually, I think the government tries to manipulate the global rice price as well which we experienced during Thaksin Shinawatra’s  term. But they failed with the attempt. Since, the price will be around $500 to $600 for many years to come. The Organisation of Rice Exporting Countries (OREC)’s progress is not quite as fast as expected.

Many western media seem to attack the price manipulation, which I think is unfair. Many western countries practice subsidies for their agricultural sector, for renewable energy, etc. Even commodities such as aluminium have been manipulated by financial institutes in the US.

The improvement of Moody’s credit rating for the long-term LC bond ceiling from A1 to Aa2 (two steps) is a good sign for Thailand’s credibility.

Democracy Monument4. The gap between the rural population and those living in urban areas in Thailand is widening in terms of income, access to education and job opportunities. Isn’t this a dangerous development that the government should rapidly address?

The provincial GDP in Thailand is different from top to bottom. But according to  income distribution statistics – we normally use Gini Index, the lower the number the better income distribution -, Japan’s Gini index is 38.1 while it is 40.0 for Thailand.

It surprises me that Thailand has a better income distribution compared to countries such as Malaysia (46.2) and the US (45). And that the unemployment rate is very low – 0.8 per cent in May 2013, according to the National Statistic Office.

So my view has changed. It seems that Thailand is now facing the problem of a political conflict between the two major middle classes, the lower middle class and the upper middle class. This seems to be a result of long-term economic development in “Tiger Asia”. And I think countries such as Malaysia and Singapore are also facing the same problem.

The government needs to make an inclusive development for these two different classes. The upper middle class must leave internal economic room to the lower middle class, and they need to compete on the global stage instead. This is really a major problem of how they can build up their capacity to compete on the global level.

5. New reports show that corruption is growing instead of being reduced in Thailand. Why is this problem getting out of hand and why are anti-graft controls failing?

I’m not sure. We need to wait and see the Corruption Perceptions Index (CPI) from Transparency International instead. It does not mean that I don’t trust the Thai rating. But it seems we have too much polarised politics in the country, and that can bend the perception of the people. Please notice that the Bangkok governor election poll made a significant error in the last election.

Thailand’s 2012 CPI score is 3.4 – 4.0. I think it will remain in this range. Please see our compilation of the comparative CPI here (in Thai.)

However, currently, there is critique on comparing the CPI because there is a different definition of corruption according to law in different countries. And the CPI is just a perception, although Transparency International tried to explain that this happens because it can not make a direct measurement, see this example.

I think the latest Global Corruption Barometer (GCB) is quite good. It shows the direct experience of bribery. Thailand’s GCB stands at 18 per cent, which is better than Taiwan’s (36 per cent), South Africa’s (47 per cent), the Ukraine’s (37 per cent), Indonesia’s (36 per cent) and Greece’s (22 per cent). However, we need to catch up to countries such as Japan (1 per cent), Malaysia (3 per cent) and South Korea (3 per cent).

However, the GCB has nothing to do with factual problem such as rents and conflict of interest issues that relate to political and economic problems. We need different analytic tools to get a precise picture.

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