The Trouble with Thailand’s Economy

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The Trouble with Thailand’s Economy

Anemic performance is denting confidence in the ruling junta.

The Trouble with Thailand’s Economy
Credit: Flickr/Prachatai

When Thailand’s coup-makers quickly disbursed over $3 billion owed to farmers from the ousted government’s politically hamstrung rice price subsidy scheme, it appeared that the country’s new military rulers had the will and means to break the bureaucratic inertia that had stalled fiscal spending under successive elected administrations.

One year on, however, promised big ticket infrastructure projects are stuck in the same red tape at a time when the country desperately needs a fiscal infusion to invigorate its slumping economy. The bureaucratic paralysis has raised uncomfortable parallels to the last coup-installed government, widely perceived as asleep at the economic wheel from 2006-7, and spurred growing perceptions that the military government’s hard focus on overhauling politics and squashing dissent has come at the expense of the economy.

The Bank of Thailand recently predicted 2015 GDP growth could dip below 3 percent, with consumption restrained by household debts of over 85 percent of GDP, exports at their lowest levels since the 2011 cataclysmic floods, and factory production flagging to the extent some analysts believe the country is starting to de-industrialize due to declining global competitiveness. Reflecting the slowdown, the Thai bourse has fallen around 15 percent this year, while the baht this month plumbed a six-year low.

The anemic performance has dented confidence in Prime Minister Prayuth Chan-o-cha’s administration, crucially among the Bangkok business class that backed his takeover and suspension of democracy for the sake of stability. Business leaders and associations have urged Prayuth to shuffle his economic team and shift policy course — calls the premier has so far resisted on the grounds Cabinet ministers should have the opportunity of a full year in office to prove their mettle.

Deputy Prime Minister for Economic Affairs Pridiyathorn Devakula, a former central bank governor and finance minister under the earlier coup government, has come under the toughest scrutiny. His dogged advocacy of a “digital economy,” one of the junta’s flagship policies, has failed to convince analysts and bankers who view the gambit as more rhetoric than substance in view of Thailand’s innovation gap, and geared more to promote cyber-surveillance than tech-driven growth.

Despite Prayuth’s deflections, Pridiyathorn is widely expected to be removed at a Cabinet reshuffle, perhaps as early as September. One Bangkok-based financial analyst with a line to Pridiyathorn’s family claims the minister has already been informed of the decision. That would potentially explain why Pridiyathorn was quoted in local media saying Prayuth “lacks knowledge” on the economy during a July 17 meeting with a local bankers association. It could also mean economic policy is now in the hands of an embittered, lame duck minister.

Prayuth’s economic lieutenants have been broadly criticized for taking a rigid policy approach focused narrowly on big ticket infrastructure projects, including ambitious high-speed rail lines, while dogmatically avoiding any grassroots outlays that could be construed as short-term populism. Coup-ousted Prime Minister Yingluck Shinawatra now faces a possible decade in prison for failing to prevent alleged graft in her government’s loss-making populist rice price policy. Thaksin Shinawatra, Yingluck’s self-exiled, criminally convicted brother, pioneered using heavily marketed populist policies to win elections.

Anti-corruption measures — including a law passed in November that makes civil servants criminally liable and financially responsible for losses caused by malfeasance — have aimed to boost Prayuth’s government’s reform credentials. However, the measures have simultaneously engendered a culture of fear among bureaucrats who foresee they could be targeted for political retribution under a new elected government for implementing the junta’s policies. Polls are now tentatively scheduled for September 2016, though many analysts doubt Prayuth will step down until the royal succession is secured.

The deployment of soldiers, many lacking in economic and financial acumen, to check ministerial spending has added another layer to Thailand’s already labyrinthine bureaucracy and sown confusion among private investors over who holds ultimate decision-making authority. That includes foreign companies with interests in the various capital-intensive rail schemes Prayuth earlier pitched as economic growth drivers but to date have failed to break ground. A Mass Rapid Transport Authority policy shift in June requiring private companies with concessions to build and operate electric rail lines in Bangkok to fully finance the projects promises to cause further delays.

As economic decline threatens to weigh on political stability, Prayuth will no doubt be tempted to break with prudence and spend his way out of trouble. In that direction, many analysts believe Prayuth is poised to appoint the junta’s chief economic advisor, Somkid Jatusripitak, to take Pridiyathorn’s post. A U.S.-educated marketing expert, Somkid was instrumental in devising and implementing the first wave of Thaksin’s populist policies while serving as his finance minister, but broke allegiance with the premier after the 2006 coup that toppled his government.

There are already hints of Somkid’s rising influence. Prayuth’s announcement in June that the government would allocate working land to needy farmers and mobilize existing village and community funds to support small- and medium-sized enterprises was in line with Somkid’s advice and philosophy. Somkid is also known to have advocated for cash transfers to farmers affected by severe drought conditions, a policy some analysts expect him to prioritize if appointed to the Cabinet. While any such outlays would likely be portrayed by the government as humanitarianism, it will take all of Somkid’s marketing savvy to avoid politically sensitive comparisons to Thaksin’s and Yingluck’s populism.