With elections possible as early as June, Thailand stands on the brink of yet another political stand-off. And one that both sides claim yet again they should win.
The uncertain outcome of planned general elections could deepen or heal the divisions laid bare by the unrest that rocked Bangkok last year, when 91 lives were lost and thousands were wounded. This April was the first in several years to pass without incident, but weeks of hard campaigning lie ahead.
The Democrats assumed power in December 2008 with the support of the military, royalist protestors and a court ruling. But they have faced significant opposition from the opposition “red shirts”, who are predominantly rural supporters of former prime minister Thaksin Shinawatra, and who have staged a series of large-scale protests culminating in a 10-week rally last spring that was bloodily dispersed by the army.
The government has recently announced a package of redistributive economic and social reforms, largely targeted at the north and north-east of the country, regions which provided much of the manpower behind the opposition red shirt movement, and where Thaksin retains strong support.
It hopes that the reforms will help to provide them with the mandate they lack in the eyes of large sections of the population in those regions. However, Thaksin and his Puea Thai party have accused the Democrats of stealing his policies, while analysts warn that with tensions remaining heightened, the prospects of another military coup are growing.
THE REAL THING?
Finance minister Korn Chatikavanij believes that the reforms – which include income guarantee schemes for farmers, loans for the poor, efforts to improve access to financial services, education that is now free for 15 years, and the creation of a social safety net for nearly half the country that do not have pensions – will genuinely help to address grievances and will prove popular.
“We are introducing schemes that will allow every working Thai to receive a pension in the future and sick pay,” Korn tells Emerging Markets. “I can now confidently travel to every province and know that, if I talk about these three or four things, they will be very well received in every province in Thailand.”
He insists that that the Democrats had already campaigned on these programmes previously, and that the protests last year meant that their supporters were now willing to accept such a widespread package of policies.
“The social upheavals helped us because they awoke the rest of the general public to the need for us to do what we set out to do,” Korn says.
“There was not as much resistance from the middle class as one might have expected had there not been stark reasons, given the need to make sure we direct a lot of government resources towards helping the poor. It helped focus the minds of the government and give it just that little bit more sense of urgency.”
However, Supavad Saicheua, chief Thai economist at Bank of America Merrill Lynch and a former economic adviser to Thaksin, believes that the policies are largely replicas of initial plans outlined by the deposed prime minister.
“It was Thaksin who introduced the populist policies,” he tells Emerging Markets. “He’s like Coke, he’s the real thing, and the Democrats are just following up, trying to imitate him.”
He therefore remains sceptical about the ability of the reforms to appease the opposition. “The Democrats think that they are tackling the fundamental issue by doing wealth and income distribution, but the problem is more that the military may decide to intervene again,” he adds.
MACRO CHALLENGES
As if the tense political situation wasn’t enough, Korn faces significant near-term macroeconomic policy challenges. Like many other policymakers in the region, he must balance the difficult mix of rising inflation, moderating growth and dealing with a buoyant currency as investors search for yield. The central bank of Thailand has hiked rates six times in the past year to 2.75%, and has signalled that tightening will likely continue. Rates could hit 3.25% by the end of 2011.
Nevertheless, the economy is sound, with a debt to GDP ratio of 40%, and Korn expects inflation to stay within the range of 3.5%, with real GDP growth of 4.5% for the year. Exports are resilient, with February figures showing a rise of 31% year-on-year and a 22% jump from January.
Prime minister Vejjajiva Abhisit says his priority is to reduce the impact of inflation and his main campaign pledge is to provide a buffer by increasing wages 25% in the next two years.
This is key given that the oil fund used to subsidize fuel costs spends $10 million a day and could run out of money in July. Inflation is expected to accelerate once the government ends the measure. The government has also implemented price controls on key foodstuffs such as cooking oil and sugar.
TACKLING INEQUALITIES
This emphasis on ensuring that prices don’t spiral out of control is likely due to a growing realization that inequalities have grown in recent years, and need to be addressed. Food and energy inflation tends to disproportionately affect low earners.
“The wealth gap is the main driver of our policy thinking,” Korn says, citing data compiled by the Ministry of Finance tracking profits for corporates since the 1997 financial crisis, which revealed that they had surged over 200% to record levels this year. In real terms, workers’ wages stayed static.
The regional disparities within Thailand are stark. According to assistant professor Duangmanee Laovakul of Thammasat University, the north-east and south have the lowest rate of students progressing to high school. Duangmanee highlights the “inequality in budget allocation” in education and health provision, pointing out that the government spent less per student in the poor provinces than in Bangkok and other wealthier regions.
CHANGING THE MODEL
Korn acknowledges that the country’s export-dependent model “hasn’t addressed the needs and wants of the general population”. He argues that the country needs a top-down and bottom-up approach to economic development, with policymakers in Bangkok canvassing provinces for their own plans and integrating these into a national strategy.
“Thailand is a fairly big country, and what the central government or Bangkok thinks the country needs very often isn’t what the people want or need at all,” says Korn.
This view squares with a growing consensus among Thailand watchers. Rahul Bajoria, an economist who covers Thailand for Barclays Capital, agrees that the form of the country’s investment is one key reason for the country’s problems with the export-dependent model, particularly as the growth rate of capital stock has dropped since the 1997 financial crisis.
He says that the bulk of investment in Thailand today is in sectors such as transport and machinery, with a typically high rate of depreciation. “You’re running faster to stay still,” he says. But he points out that productivity levels in Thailand remain high.
“If there’s ever a situation where investment ratios can increase significantly, there would be larger opportunities for Thai workers and GDP growth can be lifted higher,” says Bajoria.
POPULIST CREDENTIALS
Korn also criticizes Thai corporations as being “closeted by connections and government protection”, calling for greater competition to “help promote wealth creation through innovation and hard work, as long as that wealth creation isn’t a result of economic rent”.
These comments appear at least partly designed to address criticism of his party as being elitist. The two most powerful members of the government are emblematic of Bangkok’s privileged establishment. Abhisit attended Eton, one of the UK’s most elite secondary schools, while Korn headed to similarly exclusive Winchester, also in the UK, before they became contemporaries at Oxford University.
Korn has embraced both traditional and social media in a bid to emphasize the government’s popular appeal. The finance minister recently appeared on popular Thai soap opera to extol the virtues of a programme to reduce the use of loan sharks, who charge interest rates of up to 40%. The government now offers loans of up to 200,000 baht ($6,700) for debtors to repay the loan sharks.
Standing nearly two heads above the trio of actors on the set, he stared directly into the camera and said, “The government of prime minister Abhisit Vejjajiva has already helped about 500,000 people and reduced the debt burden by about 3 billion baht ($100 million) per month. For those who have registered but have yet to receive help, you can call our hotline.” Then asked to give advice on the characters’ love lives in the soap, Korn grinned and shrugged. The clip notched up more than 200,000 hits on YouTube.
Korn’s Facebook page has over 164,000 fans. This is suitably eclipsed by Abhisit, who boasts more than 599,000. Both Korn and Abhisit tweet regularly, as does Thaksin, who also has his own website, where he recently published a photo of himself standing in front of the International Criminal Court (ICC).
Lawyers acting on his behalf are seeking an inquiry by the ICC into the deaths during the demonstrations last year, accusing the Thai government and military of crimes against humanity.
ELECTIONS AHEAD - OR ARE THEY?
With elections looming – Abhisit has announced his intention to dissolve parliament later this month, paving the way for elections to be held as early as June – this has accelerated campaigning efforts on both sides.
The Democrats hope that the package of economic reforms will help to win support for them among poorer, rural voters.
Thaksin is not running directly as he is banned from political involvement and faces arrest if he sets foot on Thai soil. However, his influence over policy is extremely strong; as of April 26, the party had yet to announce a prime ministerial candidate, while the party’s slogan is “Thaksin thinks, Puea Thai does”. Puea Thai promises to resolve the country’s political divisions, build large infrastructure projects and introduce a combination of tax cuts and funding for farmers, the poor and universities.
But the best-laid plans of politicians are often thwarted by the Thai military, which has remained a constant in the country’s political process (and has been responsible for 18 coups in the past 80 years). And in the past few weeks, rumours that the military may be planning to intervene directly once again have begun to circulate with increasing frequency.
A filing of criminal complaints by an army commander against several top opposition activists and an escalation of a border skirmish with Cambodia have been seen as signs of increasing assertiveness by the army.
In the days running up to Emerging Markets going to press, military leaders have repeatedly denied that a coup is in the offing. But given the current tensions and the army’s track record in Thailand, nobody is taking anything for granted.