BANGKOK – Thai households are piling on debt — and there is no easy way out for the former Southeast Asian economic powerhouse that has fallen on harder times and is now under military rule.
Sommai Phasee, finance minister, predicts a “headache for maybe a few years” as Bangkok grapples with household borrowings that have soared close to the highest levels in the region.
While Thailand is seen as much better protected from financial crisis than during the baht’s 1997 meltdown, the debt data make ugly reading and cast further doubt on the generals’ sputtering plans to revive Southeast Asia’s second-largest economy.
Mr Sommai, a long-serving economic bureaucrat who was also drafted in by the military after a previous coup in 2006, said this month that household debt had edged above 85 per cent of gross domestic product. That puts Thailand among the most indebted countries in the region.
But perhaps the more striking trend is the sharpness of the increase in Thai household debt as a proportion of income since 2007. While many other countries hit by the western financial crisis have either cut this ratio back or at least limited its growth, it has risen more than 25 percentage points in Thailand.
Analysts say the speed with which indebtedness has risen exacerbates its limiting effect on consumption.
“Thailand’s household debt stands out as problematic relative to its peers, given the low level of per capita incomes and the fact that the debt was built up over a very short period of time,” said Rahul Bajoria, a Singapore-based regional economist with Barclays. “This makes it hard for the central bank to stimulate consumption by lowering interest rates, as there’s little appetite to take on fresh loans.”
Frederic Neumann, chief Asia economist at HSBC, says the rise in household debt suggests “Thailand needs to find other drivers of growth”, while allowing it to rise further “without proper prudential controls could ultimately pose a risk to financial stability”.
One important reason for the Thai debt rise is the financial largesse after 2001 of the government of Thaksin Shinawatra, the plutocrat turned populist prime minister, and his allies. Policies including generous rice-farming subsidies, business development loans in rural areas and tax breaks on new car purchases helped propel the Shinawatra party machine to victory in every election for the past 14 years.
But household debt also rose steadily during the 2008-2011 rule of Mr Thaksin’s arch-enemies in the Democrat Party. The military and its traditional establishment allies gerrymandered a Democrat-led coalition into power after deposing Mr Thaksin in a 2006 coup, sparking a long-running political crisis that has hobbled Thailand politically and economically ever since.
Mr Sommai says he is confident household debt can be controlled through a mix of fair economic winds, including banks extending repayment windows, eventual rises in commodity prices and growth in factory job numbers. But the minister is hamstrung by sluggish economic growth and the limited shelf life and administrative capacity of this military-dominated government, which is due to hold elections next year.
Like so many of Thailand’s long-running political and economic problems, the leap in household debt is a shared responsibility of the various players who have fought so bitterly for power over the past decade. So far, there is little sign of the generals reversing this worrying trend.