BANGKOK – Thailand’s new economics guru, Somkid Jatusripitak, is trying to turn around one of the region’s worst performers, offering some 136 billion baht ($3.7 billion) in interest-free loans and cash injections to help reinvigorate small businesses in the country’s rural heartland. At the same time, he is offering a series of tax waivers and other incentives to lure high-end manufacturers to the country and persuade those already here to stay.
It won’t be easy to get Thailand moving again, though, or the rest of Asia, for that matter.
“The problems are very different from before. In the 1990s it was the rich who were affected after the baht was floated,” Mr. Somkid said, referring to the continentwide currency crisis that spread out from Thailand.
“Today it’s the sluggish grass-roots economy that is holding us back,” he said in an interview. And if he needs to deploy more measures, “I have two or three more arrows in my bag,” Mr. Somkid said.
Worries about China’s growth have pushed down the stock valuations, currencies and the prices of everything from rubber and rice to oil and circuit boards, thinning out consumers’ wallets. Household spending has fallen sharply in Southeast Asia in particular. It dropped more than 4% on year in the second quarter in both Indonesia and Malaysia as the prices of commodities such as palm oil and rubber slumped.
The one bright spot in consumer spending might be China itself, where shoppers appear to be a little more resilient than their neighbors and expanded retail sales by 10.8% on year in August.
But in Thailand, where the central bank’s private consumption index fell 1.4% on year in August and dropped 1.8% in July, the problems are worsened by a sharp slump in exports—down nearly 7% on year in August—and the collapse of a government program to support rice prices.
“Things might get better next year if the global picture improves, but right now we need to get things happening before the patient goes into cardiac arrest,” said Supavud Saicheua, an economist with Phatra Securities in Bangkok.
The rice problem is especially severe. For three years, Thailand bought grain from farmers at up to double market prices in an aggressive attempt to jack up rural incomes and boost spending. The program fell apart in early 2014 after incurring paper losses of some $15 billion, with much of the grain left unsold in government warehouses. The prime minister at the time, Yingluck Shinawatra, is now fighting criminal charges for allegedly failing to intervene. She denies any wrongdoing.
The aftershocks of the rice debacle have swept through Thailand’s rice-growing heartland. Pranee Treesak said she and her family used to go to shopping malls or eat in local restaurant chains when rice-price supports were still in effect. “Sometimes we would drive to Hua Hin or Rayong to eat fresh seafood. We’d stay at a hotel near the beach,” Ms. Pranee said.
“Now my husband and I are relying on our oldest son for support and ask around for day jobs,” she said.
Her situation is being replicated across the country, from the south, where rubber is the main crop, and across the rice-growing plains which make up much of the rest of the country. Mr. Somkid says his task is to help keep people afloat until commodity prices improve and export shipments begin to tick up again.
But he also says Thailand has to change the way it views its role in the world economy. “We can no longer be a place where people manufacture things cheaply. That can be done cheaper in Myanmar or Cambodia,” he said. “That’s our real focus. We have to restructure the way our economy works.”
With that in mind, Mr. Somkid is aiming to attract the kinds of businesses that need to pursue research with tax breaks, particularly technology firms, and expand tourism. He is also encouraging low-margin textiles and footwear manufacturers to relocate to new economic zones near the borders of Myanmar and Cambodia, where they can skip Thailand’s 300 baht-a-day minimum wage—some $8.20—and instead pay lower wages to people who cross the border each day to clock-in at work.
Mr. Somkid, 62 years old, has tried something like this before. A dozen years ago, he left behind a career in marketing and academia to emerge as the architect behind a package of policies—ranging from cheap health care to establishing village investment funds—that collectively came to be known as Thaksinomics, after Thailand’s prime minister at the time and Ms. Yingluck’s brother, Thaksin Shinawatra.
His efforts were never fully realized. Mr. Thaksin was ousted in a coup in 2006, as was Ms. Yingluck’s government last year after a series of mass protests driven in part by middle-class opposition to Thaksin-style populism.
That Thailand’s current junta has hired a man so closely associated with their policies has been taken in some quarters as an admission that the country’s economy is in crisis. Mr. Somkid, though, says he views it as an opportunity to try again—but without the handouts of the past.
“What we need to do is create the conditions whereby people can start generating their own money. We must target the roots,” he said.