By Anne Hyland
A year on since a coup brought Thailand’s military to power, the economy is feeling the strain of neglect and mismanagement. Elections next January could change that – but don’t hold your breath
Thailand’s next elected government will take power in January, and its top priority will be to rescue the country’s ailing economy. Thailand’s economy – dubbed the Thaitanic – has been sinking because of neglect and mismanagement by a military-appointed government, which grabbed power on September 19, 2006.
The coup ended 15 years of civilian government, but nonetheless many Thais initially greeted the coup leader general Sonthi Boonyaratglin and his troops with smiles and flowers. They were grateful that the military intervened to end years of turmoil, uncertainty and scandal under the government of Thaksin Shinawatra.
A year later, however, Thailand’s citizens and companies have little to celebrate. Consumer confidence in Thailand is at a five-year low despite the central bank slashing interest rates by 175 basis points so far this year to 3.25%.
“This military government has been much more about politics than economics, but they haven’t righted the alleged political wrongs,” says Michael Montesano, assistant professor at the National University of Singapore. “This is part of the reason they have failed in the past 12 months, because the economy wasn’t really their concern.”
The military government has focused its efforts on proving the corruption allegations against former Prime Minister Thaksin. The military government has frozen the bank accounts of Thaksin, who is in self-exile in London, and also dissolved his Thai Rak Thai political party. Thaksin and 110 other senior Thai Rak Thai party members have been banned from politics for five years. Still, the military has not been able to prove a corruption case against Thaksin. “They have not been able to justify in any way the need to throw out a twice-elected prime minister,” Montesano says.
Chris Bruton, who runs Bangkok-based business advisory firm Dataconsult, says it is difficult to identify any successes from the military government’s year in office. “They haven’t done much but hold the fort.”
Promises, promises
When General Sonthi grabbed power, he promised to unify citizens and reduce the violence in the country’s majority Muslim south, which is fighting to be a separate state. But Thai society remains polarized more firmly because of rising income inequality and the number of killings, which has risen in southern Thailand under the military government.
Peter van Haren, chairman of the Joint Foreign Chambers of Commerce in Thailand, says the military rule has led to a collapse in government spending, triggering a loss of confidence among businesses and consumers, who in turn have also stopped spending. “There’s been little or no decision-making going on in the past year, especially related to spending on government projects,” van Haren says.
The military government has failed to implement the plans of the previous administration, which were to spend billions on developing new transport and energy infrastructure, which is needed not only to give Thailand’s economy a boost and create jobs, but also to maintain its industrial competitiveness in the region.
Instead, this government proposed controversial changes to Thailand’s Foreign Business Act, retail law and foreign employee rules, which scared off foreign investors. Ford Motor Company had indicated it wanted to make a $1 billion investment to expand its auto production in Thailand, but since the coup it has not proceeded.
Van Haren says the turmoil in Thailand has discouraged many foreign firms from making new investments in Thailand. Instead, he says they have gone to Vietnam, Malaysia, India and China. “When you lose a customer, it’s hard to get them back.”
The government has also been criticized for doubling the military’s budget to 143 billion baht ($4.5 billion) in the past year. Boonrak Boonyaketmala, a professor at Thammasat University, says the money could have been spent on infrastructure, education or healthcare instead.
Followers of Thaksin
Thailand’s former central bank governor Pridiyathorn Devakula, briefly finance minister for the military government before quitting, said in mid-September that Thailand’s next government must be “decisive, so that people will forget that knight on the white horse”. He was referring to Thaksin, whose popularity remains strong among rural Thais, who account for the majority of voters.
Despite his controversial time as prime minister, Thaksin did improve the living standards of many rural Thais by introducing cheap healthcare for all, giving away educational scholarships in every Thai village and offering better credit facilities to the rural businesses.
In August, a referendum to approve a new constitution, which grants the coup leaders amnesty, was passed. Still, there was a large no vote against the constitution from many rural Thais who remain loyal to Thaksin.
Van Haren says he does not expect Thailand’s economy to show signs of improvement until the end of 2008.
The military government has forecast that the economy will expand between 4% and 4.5% this year, which would be respectable – if Thailand’s regional peers were not growing at an average annual rate of 6%.
The export sector, which accounts for two-thirds of Thailand’s GDP, has been the main driver of growth. Exports are expected to expand 12.5% this year, compared with 17.4% last year. This year-on-year decline in Thailand’s exports will be exacerbated if the sub-prime credit problems worsen in the US and Europe and if energy prices soar.
The coup has also been bad for Thailand’s tourism industry, which accounts for 6% of GDP. Tourist arrivals from January to August were down almost 20% from last year. This decline is expected to increase following the fatal air crash in the resort town of Phuket in September, which killed 89 passengers, many of whom were foreigners.
In an election
Thailand is expected to have an elected government by early January, following the December 23 poll. The military promised that it would return power to an elected government in a year, having completed its task of removing Thaksin. So far, the military is only running a few months behind its deadline.
Political observers, however, do not believe that one political party is popular enough to win an outright majority to form the next government of Thailand, so a coalition government will be necessary.
If a weak coalition government is formed from the December election – Thailand has a history of weak coalition governments – then getting consensus and quick policy-making decisions could be difficult and in turn hinder Thailand’s economic recovery, particularly if an economics team with vision and a strong will is not put in place. Aside from spending on large infrastructure and energy projects, the next government will also been under pressure to liberalize Thailand’s sheltered services sector; privatize more state enterprises; and reform the country’s abysmal education system to ensure it remains competitive in the region.
Earlier this month, Surin Pitsuwan, the new secretary-general of the Association of South-East Asian Nations, warned foreigners and Thais against having “over-expectations” of how quickly an economic recovery can be achieved.
Kitti Nathisuwan, head of research, at TMB Macquarie Securities in Bangkok, says political turmoil will continue to plague Thailand. “I don’t think the [elected] government will survive a full four-year term,” Kitti says. “They’ll probably be in for two years and then call a snap election.” Thailand has endured 23 coups and attempted coups since it became a constitutional monarchy in 1932.
The military government has promised that the election in December (still no certainty) will be free and fair, but so far it has refused to sign an agreement allowing EU election observers.
The risk of another coup remains high and could derail the election. An upset within the military, where there are enormous rivalries and power struggles, could trigger another putsch.
General Sonthi, the coup leader who retired as head of the military at the end of September , may yet make a bid to become the country’s next prime minister. This could spark a public backlash if it transpires, further weakening international confidence and keeping Thailand’s economy and its citizens and companies in the doldrums.