Thailand’s Generals Shooting the Thai Economy in the Foot
BANGKOK – Last Monday’s edition was a bizarre one for International New York Times readers in Thailand: the middle of the front page featured a large blank space. For readers elsewhere, it contained a strongly critical story about the economy. Namely, how the generals who grabbed power in May 2014 are shooting one of Asia’s most promising nations in the foot.
The junta’s amateurish shot at censorship is a timely metaphor for Thailand’s own disappearing act on the world stage. General Prayuth Chan-ocha justified his power grab in ways coup leaders often do: we’ll restore order, stability and competence to a government that’s lost its way.
Yet 561 days on, Southeast Asia’s No. 2 economy is in disarray, investors are fleeing and Prayuth’s regime looks increasingly desperate.
When you topple a government, even one with tenuous legitimacy, it’s best to have a plan. Prayuth and his men with guns are devoid of one, making things up as they go along. Case in point: Prayuth stating in a televised address in October that he might “close the country.” Not very reassuring, as these things go, and a sign that Thailand is at a dangerous inflection point: when politics risks killing the economy once and for all.
Thomas Fuller, author of the offending Times piece, challenges the “Teflon Thailand” myth – the widely-held perception that neither coups nor government paralysis nor massive protests nor Muslim insurgencies can get investors’ spirits down. No matter what shenanigans officials in Bangkok get up to, Thailand is the Detroit of Asia, an emerging-market growth star and a tourism Mecca and don’t you weak-stomached worrywarts forget it. But this latest coup is proving to be different for three reasons.
First, of course, is Prayuth’s lack of vision. In September, he assured the United Nations’ General Assembly in New York that “Thailand is undertaking comprehensive reforms on several fronts to make our country stronger and better in the hope that we will achieve security, prosperity, sustainability and pave the way toward resilient democracy.” And, somehow, with a straight face even as his government clamps down on free speech, China-style, blocks all critical news, North Korea-style and hints at shuttering the nation, Khmer Rouge-style.
Assurances that Thailand would’ve held an election or restored civilian rule by now have fallen by the wayside, as have economic reforms. Growth is slowing, exports are shrinking, household debt is surging and deflation risks are increasing. Consumer prices fell 0.97% in November, the 11th straight monthly drop as domestic consumption weakens.
Private debt has increased by more than 30% of gross domestic product since 2008, putting Thailand on the list of economies in which surging corporate borrowing is a “concern,” says Gabriel Sterne of Oxford Economics. Clearly, Prayuth’s pledge to “return happiness” to the Land of Smiles is falling way short.
Second, bad timing. While China’s slowdown is hitting all emerging-market economies, it’s slamming Asia’s weakest links especially hard. The Federal Reserve also is poised to hike U.S. interest rates for the first time in a decade. This double whammy from the external sector makes it even less likely Prayuth’s team will pursue much needed structural reforms. They include reducing red tape, attacking corruption, supporting the creation of startup companies, improving education and training, reducing the role of exports and tightening corporate governance.
The world won’t wait for Thailand. Throughout Asia, economies like Indonesia, the Philippines and Vietnam are upgrading competitive capabilities in ways that allow them to leapfrog over peers in a few short years. Instead of keeping pace, the junta is increasing the odds that Thailand will suffer a lost decade at worst possible moment.
Third, falling back on bad policies. The supreme irony of the Prayuth government 18 months on is how it’s reverted to the same disproven ideas it sought to destroy. The Prayuth-led putsch, at its core, was aimed at ending the reign of Thaksin Shinawatra once and all.
Even though Thaksin was ousted from the premiership in a 2006 coup, his shadow looms large over Thai politics and society (his baby sister Yingluck Shinawatra was prime minister from 2011 to 2013). But even as Prayuth pledges to banish all traces of the Shinawatra clan from public life, he’s resurrecting its populist tactics.
In August, Prayuth even hired Somkid Jatusripitak, Thaksin’s finance minister. Somkid wasted no time employing Thaksin-like schemes like throwing piles of cash at rural villages to bolster political support. While expedient in the short run, such handouts distract Bangkok from bolder steps to raise competitiveness and potential growth in the longer-run.
The junta has moved too slowly on plans to invest nearly $100 billion in infrastructure, including high-speed rail lines between China and Southeast Asia. Money lavished on rural areas also would be better used investing in Thailand’s human capital in ways that raise productivity and incomes.
Even worse, Prayuth’s people are costing Thailand its hard-won reputation as an open and vibrant bastion of free expression and pro-market capitalism mores. The generals can block the New York Times today, but they can’t change the broader narrative that they’re destroying the potential of a nation they promised to save.