The elections are over. But for Thailand’s new prime minister, Yingluck Shinawatra, the challenges of making campaign promises a reality are only just beginning.
Both the Democrats and her Pheu Thai party campaigned on unashamedly populist platforms during the general election. But Thai voters were won over by Yingluck’s promises that included increases to the minimum wage, offers of a tablet computer for every schoolchild and a pledge to buy rice from farmers at a 50% premium to market prices.
Yingluck campaigned under the slogan “Thaksin thinks, Pheu Thai Acts”. In this she referred to her brother, Thaksin Shinawatra, who was prime minister from 2001 to 2006, when he was overthrown by the military. While in office, Thaksin offered generous healthcare, laptops for schools and grants of a million baht for each village.
“Pheu Thai, and its previous incarnations, are far and away the most popular political force since the overthrow of the absolute monarchy in 1932,” says Nicholas Farrelly, a research fellow at Australian National University. “Thaksin and his allies are better at giving people what they want.”
SOMETHING FOR NOTHING
Opposition politicians warn that such populist policies are dangerous, however. “The major difference in our policies is the philosophy that we have always had, which is that we’ll help you – if you are also willing to help yourself,” says Korn Chatikavanij, finance minister under the previous Democrat administration.
“But the new giveaways the government has promised are literally that – they are giving something for nothing.”
The Democrats’ term in office was marred by bloody clashes, although they steered the economy adeptly through the recession to emerge with a growth rate of 7.5%.
There is a mixed legacy for Yingluck. The World Bank in July promoted Thailand to the status of an upper middle-income economy. Poverty levels have fallen, and the gross national income per capita has nearly doubled to $4,210.
However, the top fifth of the country earn 11 times more than the bottom fifth. According to Thailand’s National Economic and Social Development Board, about 7.8% of Thais live below the poverty line, earning 1,687 baht ($56) or less every month.
According to local polling agency Suan Dusit, more than half of the voters who only attended primary school supported Pheu Thai. Less than a third of this group opted for the Democrats.
The regional divide was also stark, with Democrats supported by Bangkok and south Thailand while Pheu Thai’s support was primarily in the poor north and north-east.
So far there has been little to indicate that the hostility will recede, though both groups have claimed they seek reconciliation. The formation of the new government was delayed by a petition from the Democrats to the Election Commission requesting the dissolution of Pheu Thai due to Thaksin’s involvement in the election campaign.
This was then followed by an attempt by the Democrats to impeach the new foreign minister, a distant relative of the Shinawatras, over his alleged attempt to secure a visa for Thaksin to visit Japan.
The military, having orchestrated 18 coups since the 1930s, however, has moved out of the picture, making several pronouncements during the election that their position would be one of neutrality.
“A coup, at this stage, would prove a final nail in the coffin of the army high command and the palace elite it serves,” says Farrelly. “So the Shinawatra team can now take their time, reinforce their dominance, and then go about undermining the strongest power blocs that seek to challenge them. For that reason, this battle is far from over.”
TWENTY YEARS ON
So far the government has cut fuel prices by reducing levies used to raise money for the country’s Oil Fund, which it plans to abolish. Other major planks of its policy agenda are being revised, particularly as Pheu Thai struggled to explain during heated parliamentary debates how it would implement the programmes.
“If they were to follow through with every one of their feted policies, they would need to borrow so much money that it would be in breach of budget laws and government borrowing laws,” says Korn, who is now shadow deputy prime minister. “I challenged them in parliament asking them exactly how they would fund their programmes, and they didn’t have the answer.”
Deputy prime minister and commerce minister Kittirat Na Ranong says the government will have a budget deficit of not more than 400 billion baht ($13.3 billion), wider than the 350 billion baht planned by the Democrats.
The government’s election pledges could cost 2.3 trillion baht, economists say.
The promises have created concern among policymakers at the Bank of Thailand, which has been battling inflationary pressure in the past year with nine rate hikes. “It’s not necessary to have additional fiscal stimulus because the economy is running close to full potential,” Prasarn Trairatvorakul, governor of the central bank, tells Emerging Markets. “There is no need for any stimulus on the domestic front.”
One of Pheu Thai’s most popular promises is a plan to raise the minimum wage to 300 baht per day, with monthly salaries for university graduates lifted to 15,000 baht. This prompted complaints from small businesses that say they might have to shut down, and other employers who say they will have to cut costs by firing staff.
An increase in the minimum wage in rural areas would reduce the incentive for investment in under-developed areas, says Rahul Bajoria, an economist at Barclays Capital. “This could have a detrimental impact on competitiveness of the Thai economy. Industry could actually become more concentrated rather than more spread out.”
The government has partially backtracked, exempting the private sector from the wage hike for university graduates. It has also delayed the nationwide rollout of the minimum wage increase, prompting unions to threaten to sue for failing to honour election policies if it did not comply fully by January.
INFLATION BATTLE
The new government is also extending its populist approach to monetary policy, as both ministers have begun to exert pressure publicly on the Bank of Thailand to cut rates by 25bp to 100bp. Both finance minister Thirachai and deputy prime minister Kittirat have criticized the central bank’s core inflation target of 0.5–3% as overly restrictive.
Kittirat has also warned that inflation will be higher than target levels due to the government’s measures to increase incomes, remarking that higher inflation and a populist policy was “not a sin” if Thais earned more.
Central bank governor Prasarn disagrees: “The inflation target range is suitable for Thailand’s long-term inflation trend,” he says. He warns against changes to the target range, as “it has some bearing on anchoring public confidence.”
INTERNATIONAL DIMENSION
As the threat of a double-dip recession in the US and Europe looms, Korn – perhaps predictably – says Thailand is well positioned to withstand even a significant slowdown in the US and the eurozone.
“They have inherited a very strong fiscal position,” says Korn. “Public-sector debt at 41% gives them a lot of fiscal space, with international reserves at record levels and unemployment at about 0.5% of the workforce. There is room for a lot of errors to be made without significant damage.”
The blow to trade would also likely be cushioned by Thailand’s success in diversifying the destinations of its exports. The US, Japan and Germany once absorbed over half of Thai exports in 1995, and now take up about 30%.
The economy is buoyant, with growth for 2011 forecast within the range of 3.5% to 4%. This figure was reduced from earlier projections of 3.5% to 4.5% due to the crisis in Japan, which resulted in contractions across Asian manufacturing sectors.
But despite Korn’s attempts to question the new government’s economic credentials, investors remain confident, perhaps reassured by the fact that both senior government ministers in charge of the economy have considerable experience. Kittirat Na Ranong, deputy prime minister and commerce minister, is a former head of the Thai stock exchange, while finance minister Thirachai Phuvanatnaranubala has served as deputy governor of the Bank of Thailand and as secretary-general of the country’s Securities and Exchange Commission.
TRADITIONAL POWER BROKERS
Policymakers in Bangkok are deep in discussions as the new government seeks to make its mark. But whatever the outcome of these talks, Thailand’s future is still in the hands of its traditional power brokers.
As the much-loved King Bhumibol ails, there is little key players can count on as certain. “The two issues that serious strategists need to pay most attention to are Thaksin’s ferocious will to power and the fragility of the remaining respect and legitimacy captured by the royal family,” Farrelly says.
“When the king dies, especially if Thaksin remains a potent force at that time, then substantial changes, perhaps of a radical nature, may start to dominate scenario planning. Until then, we all watch and wait for the challenges which loom over the horizon.”