How to Save the Thai Economy By TOM FELIX JOEHNK and FORREST COOKSONSEPT. 10, 2015
Photo
Food vendors in Bangkok. Real G.D.P. growth in Thailand slowed to 2.8 percent year-on-year in the second quarter of 2015, down from 3.0 percent in the first quarter. Credit Rungroj Yongrit/European Pressphoto Agency.
BANGKOK — The return of autocracy to Thailand is putting a hole in the people’s pockets. Sixteen months after the coup that brought down the democratically elected government of Yingluck Shinawatra, incomes in rural areas, where more than 34 million Thais live, have collapsed. Exports fell by 4.9 percent during the first half of 2015, according to the Thai government.
Some reasons for this decline are structural. Thailand’s export-dependent, open economy has been roiled by the rise of the Chinese economy and then by its deceleration. After China became a formidable competitor in low-tech industries and electronics, the falling yuan further undermined the competitiveness of Thai exports in the Chinese market.
But the junta led by Gen. Prayuth Chan-ocha has also compounded these difficulties. When it should have been encouraging domestic spending, it suspended the massive agricultural subsidies put in place by the Yingluck government. It has announced that it will speed up spending on some 17 so-called mega-road and -railway projects worth $47 billion. But an infrastructure-centered stimulus will not have an impact on domestic demand for years.
The generals’ economic policy is hampered by concern for their core constituents, the Bangkok-based establishment: a patronage network among the bureaucracy, the judiciary, the army, business elites and the palace. That network has created staggering inequality: Just 0.1 percent of Thais hold nearly half of the country’s total wealth, according to a 2012 study by the National Economics and Social Development Board, the state economic planning agency.
Real G.D.P. growth slowed to 2.8 percent year-on-year in the second quarter of 2015, down from 3.0 percent in the first quarter — and that includes the effects of a surge in tourism; discounting that, G.D.P. actually shrank. (The recent bombing of the Erawan Shrine in Bangkok will dampen foreign visits for a time.) Imports in capital goods have been falling for years, despite the state’s ever more generous incentives for foreign investors.
Thais are pouring idle cash into luxury condominiums and high-end shopping malls. Some $1.5 billion have been earmarked for the construction near Bangkok’s historic center of IconSiam, a shopping mall with retail space the size of 75 soccer fields. Touted as a symbol of “eternal prosperity,” this grand palace of commerce is also a monument to the junta’s misguided economic vision: the promise of consumption with too few consumers who have the income to fulfill it.
Gen. Prayuth seems finally to have realized these mistakes, and that the economy is his government’s Achilles’ heel. He sacked his economic team last month, replacing its head, Pridiyathorn Devakula, a former central bank governor from the conservative policy establishment, with Somkid Jatusripitak, the architect of many progressive social and economic policies when he was finance minister under Thaksin Shinawatra, the populist former prime minister and brother of Ms. Yingluck. Gen. Prayuth’s government also recently set up a national savings fund long in the making, which aims to help up to 30 million Thais without pensions.
These are welcome moves, and signs that the junta is breaking away from a style of economic management that until now one might charitably have called controlled inertia. But this is not enough. The only way to jolt Thailand out of its economic stagnation is to implement two measures that are sure to upset the Bangkok-based traditional elites: dramatically raise rural incomes (to spur domestic consumption) and aggressively devalue the baht (to boost exports).
The Thai state spent more than 72 percent of public funds in greater Bangkok, where only 17 percent of Thais lived, according to 2012 figures from the World Bank, the most recent data available. Mr. Somkid has already announced a $4 billion stimulus package for the rural economy, such as interest-free loans through the state-directed microfinance scheme. But these are essentially unconditional, short-term handouts that will at best cause a small and brief burst in consumption.
To stimulate sustainable domestic spending, especially among the poor, the Thai government should increase public expenditures in the provinces to at least one half of the total by 2025, up from nearly 28 percent in 2012. Support should be determined based on the recipients’ income rather than their localities or the crops they cultivate, as has traditionally been the case.
The transfers should also be made conditional on the beneficiaries’ compliance with, for example, vaccination requirements and the enrollment of children in school. Promoting socially responsible behavior in exchange for funds would not only serve the public good; it would also go some way toward appeasing the Bangkok elites who resent redistribution policies as a form of state charity.
Devaluing the baht — by, say, 20 percent — also is necessary, to stimulate exports of goods such as rice, rubber, electronics and cars. The standard risks of devaluation would be minimal: Thailand has a tiny stock of foreign-denominated debt, and prices for consumer goods are falling. Yet the Bank of Thailand, the central bank, has been reluctant to significantly weaken the baht. The power elites, facing a sluggish economy at home, have been investing overseas, incurring liabilities in foreign currency; they want to buy their dollars for cheap.
The Bangkok-based establishment also fears the political implications of a devaluation. When the baht collapsed in 1997, many fortunes were wiped out. Then the whole economy collapsed, discrediting the traditional elites’ stewardship. That in turn led to the adoption of a liberal constitution that restrained their political power and paved the way for the rise of Mr. Thaksin, whose progressive policies weakened their grip even more.
In a time of prosperity, the Prayuth government might have been able to keep pleasing its main supporters without scuttling the economy. Not these days. Last weekend the junta’s legitimacy took another hit when its proxies voted down its own draft constitution — a move widely seen as a ploy to delay elections that had been planned for early 2016 and extend the generals’ rule.
The junta, if it wants to stay in power, must embrace tough measures that run against the vested interests of its core constituents. It has no other choice, and neither do they — at least not if they hope to maintain the system of soft economic dictatorship that has served them so well.
Tom Felix Joehnk is a Bangkok-based journalist. Forrest Cookson is an economist.
Follow The New York Times Opinion section on Facebook and Twitter, and sign up for the Opinion Today newsletter.
A version of this op-ed appears in print on September 11, 2015, in The International New York Times.
Photo
Food vendors in Bangkok. Real G.D.P. growth in Thailand slowed to 2.8 percent year-on-year in the second quarter of 2015, down from 3.0 percent in the first quarter. Credit Rungroj Yongrit/European Pressphoto Agency.
BANGKOK — The return of autocracy to Thailand is putting a hole in the people’s pockets. Sixteen months after the coup that brought down the democratically elected government of Yingluck Shinawatra, incomes in rural areas, where more than 34 million Thais live, have collapsed. Exports fell by 4.9 percent during the first half of 2015, according to the Thai government.
Some reasons for this decline are structural. Thailand’s export-dependent, open economy has been roiled by the rise of the Chinese economy and then by its deceleration. After China became a formidable competitor in low-tech industries and electronics, the falling yuan further undermined the competitiveness of Thai exports in the Chinese market.
But the junta led by Gen. Prayuth Chan-ocha has also compounded these difficulties. When it should have been encouraging domestic spending, it suspended the massive agricultural subsidies put in place by the Yingluck government. It has announced that it will speed up spending on some 17 so-called mega-road and -railway projects worth $47 billion. But an infrastructure-centered stimulus will not have an impact on domestic demand for years.
The generals’ economic policy is hampered by concern for their core constituents, the Bangkok-based establishment: a patronage network among the bureaucracy, the judiciary, the army, business elites and the palace. That network has created staggering inequality: Just 0.1 percent of Thais hold nearly half of the country’s total wealth, according to a 2012 study by the National Economics and Social Development Board, the state economic planning agency.
Real G.D.P. growth slowed to 2.8 percent year-on-year in the second quarter of 2015, down from 3.0 percent in the first quarter — and that includes the effects of a surge in tourism; discounting that, G.D.P. actually shrank. (The recent bombing of the Erawan Shrine in Bangkok will dampen foreign visits for a time.) Imports in capital goods have been falling for years, despite the state’s ever more generous incentives for foreign investors.
Thais are pouring idle cash into luxury condominiums and high-end shopping malls. Some $1.5 billion have been earmarked for the construction near Bangkok’s historic center of IconSiam, a shopping mall with retail space the size of 75 soccer fields. Touted as a symbol of “eternal prosperity,” this grand palace of commerce is also a monument to the junta’s misguided economic vision: the promise of consumption with too few consumers who have the income to fulfill it.
Gen. Prayuth seems finally to have realized these mistakes, and that the economy is his government’s Achilles’ heel. He sacked his economic team last month, replacing its head, Pridiyathorn Devakula, a former central bank governor from the conservative policy establishment, with Somkid Jatusripitak, the architect of many progressive social and economic policies when he was finance minister under Thaksin Shinawatra, the populist former prime minister and brother of Ms. Yingluck. Gen. Prayuth’s government also recently set up a national savings fund long in the making, which aims to help up to 30 million Thais without pensions.
These are welcome moves, and signs that the junta is breaking away from a style of economic management that until now one might charitably have called controlled inertia. But this is not enough. The only way to jolt Thailand out of its economic stagnation is to implement two measures that are sure to upset the Bangkok-based traditional elites: dramatically raise rural incomes (to spur domestic consumption) and aggressively devalue the baht (to boost exports).
The Thai state spent more than 72 percent of public funds in greater Bangkok, where only 17 percent of Thais lived, according to 2012 figures from the World Bank, the most recent data available. Mr. Somkid has already announced a $4 billion stimulus package for the rural economy, such as interest-free loans through the state-directed microfinance scheme. But these are essentially unconditional, short-term handouts that will at best cause a small and brief burst in consumption.
To stimulate sustainable domestic spending, especially among the poor, the Thai government should increase public expenditures in the provinces to at least one half of the total by 2025, up from nearly 28 percent in 2012. Support should be determined based on the recipients’ income rather than their localities or the crops they cultivate, as has traditionally been the case.
The transfers should also be made conditional on the beneficiaries’ compliance with, for example, vaccination requirements and the enrollment of children in school. Promoting socially responsible behavior in exchange for funds would not only serve the public good; it would also go some way toward appeasing the Bangkok elites who resent redistribution policies as a form of state charity.
Devaluing the baht — by, say, 20 percent — also is necessary, to stimulate exports of goods such as rice, rubber, electronics and cars. The standard risks of devaluation would be minimal: Thailand has a tiny stock of foreign-denominated debt, and prices for consumer goods are falling. Yet the Bank of Thailand, the central bank, has been reluctant to significantly weaken the baht. The power elites, facing a sluggish economy at home, have been investing overseas, incurring liabilities in foreign currency; they want to buy their dollars for cheap.
The Bangkok-based establishment also fears the political implications of a devaluation. When the baht collapsed in 1997, many fortunes were wiped out. Then the whole economy collapsed, discrediting the traditional elites’ stewardship. That in turn led to the adoption of a liberal constitution that restrained their political power and paved the way for the rise of Mr. Thaksin, whose progressive policies weakened their grip even more.
In a time of prosperity, the Prayuth government might have been able to keep pleasing its main supporters without scuttling the economy. Not these days. Last weekend the junta’s legitimacy took another hit when its proxies voted down its own draft constitution — a move widely seen as a ploy to delay elections that had been planned for early 2016 and extend the generals’ rule.
The junta, if it wants to stay in power, must embrace tough measures that run against the vested interests of its core constituents. It has no other choice, and neither do they — at least not if they hope to maintain the system of soft economic dictatorship that has served them so well.
Tom Felix Joehnk is a Bangkok-based journalist. Forrest Cookson is an economist.
Follow The New York Times Opinion section on Facebook and Twitter, and sign up for the Opinion Today newsletter.
A version of this op-ed appears in print on September 11, 2015, in The International New York Times.
