ECONOMIC HISTORY OF THAILAND: POST-WAR BOOM AND THE THAKSIN AND POST-THAKSIN YEARS

EARLY ECONOMIC HISTORY OF THAILAND

Wetland agriculture has traditionally dominated the Thai economy. Up until the 19th century Thailand was largely a feudal society dominated by an oligarchy of powerful noble families. The opening of the commercial rice market in the 19th century changed the Thais economy from one of subsidence to cash. Around the same time the power of the noble families was weakened by the increasing power of the king and his giving more rights to farmers.

Thailand rejected planned-industrial development models like those in South Korea and Taiwan. Instead it went after foreign investors, capital and expertise. Since World War II the Thai economy has for the most part functioned along the open market lines and has had a capitalist orientation, largely operated by the private sector with supportive infrastructure furnished by the government, which had some participation in production and commerce through a limited number of state-owned enterprises. [Library of Congress*]

Thailand's rush both to develop and to satisfy the demand for consumer products had several side effects, including dwindling agricultural land, the destruction of forests, and damage to watersheds. These consequences prompted the central government, with support from international agencies, to make a concerted effort to limit population growth. *

See History

See Separate Article on the ASIAN FINANCIAL CRISIS

Economy in the 1960s, 70s and 80s

In the 1960s and 1970s, Thailand was among the fastest growing and most successful developing countries in the world. Rapid growth in production, accompanied by progress in alleviating poverty, was impressive, especially in the 1970s. By the early 1980s, however, Thailand's economic performance had slowed, partly as a result of the worldwide recession. Although its annual growth rate remained higher than the average for middle-income countries, earlier expectations had not been met. The targets of the Fifth Economic Development Plan (1982-86) had not been achieved, and serious macroeconomic imbalances persisted. [Library of Congress *]

The government sought balanced economic growth and the closing of the income gap, along with improvement of the inequitable distribution of social services. Social and economic trends included increasing urbanization, expansion of industrial activities at a faster rate than agriculture, and growth of income in the service industries. These trends, often associated with modernization, produced problems with which the government tried to cope. Bangkok continued to face serious housing shortages and severe pressure on such basic services as water, sewerage, energy, and transport facilities. Although agriculture had been the most important economic activity of the country with most of the population living in the rural areas, the area of land under cultivation was unlikely to increase. Rather, it was projected that any increase in income would have to be gained through higher productivity of the labor and land now in use and by the development and diversification of industrial production. Accordingly, the government promoted enterprises that produced agricultural products, chemicals, and mechanical and electronic equipment and those that were labor intensive or export oriented. *

Because foreign trade and investment were an important part of the economy, external conditions greatly influenced the country's economic performance. Thailand's harvests exceeded domestic consumption, enabling the country to export large quantities of food each year. The major agricultural exports were rice, cassava products, rubber, maize, and sugar; the major nonagricultural exports were textiles, electronics, and tin. Imports included more than half the country's national petroleum consumption. Although Thailand was a member of the Association of Southeast Asian Nations (ASEAN) with preferential trading arrangements, its principal trading partners were Japan, the United States, countries of the European Economic Community (EEC), and Australia. *

Outside the regular administrative structure, but subject to its control and supervision, approximately sixty-eight state enterprises were engaged as of 1987 in commercial and economic activities of major importance. In these enterprises, the government was either the sole owner or the dominant partner. Managed by senior civil servants, retired military officers, or politicians, the state enterprises permitted a major government role in virtually every facet of the economic life of the country. In fiscal year ( FY) 1986, their total budget was 9 percent more than the total budget of the government and accounted for 65 percent of external public debt. The inefficiency of these enterprises continued to affect the government's fiscal stability. Privatization of the enterprises was listed as one of the ten major programs of the country's Sixth Economic Development Plan, for 1987-91. *

Public Finance and Monetary Policies in Thailand in the 1970s and 1980s

Total government revenue averaged around 13 percent of GDP in the 1970s and remained at the same level in the mid-1980s. The Ministry of Finance required state enterprises to make specific improvements in their financial condition as a prerequisite for obtaining guarantees for borrowing. The measures included financing 25 percent of new investment from the state enterprises' own resources, forwarding at least 30 percent of their profits to the treasury, privatizing commercial enterprises, introducing corporate-planning systems, and limiting debt financing. Such measures did not lessen the burden of state enterprises on the budget, and their capital expenditure financed by the government had stayed at the same average annual rate of 3.5 percent of GDP in the 1970s and mid-1980s. It was noteworthy, however, that their performance had improved, with savings rising from 0.2 percent of GDP during the Fourth Economic Development Plan period (1977-81) to 1.4 percent of GDP by the mid-1980s. [Library of Congress, 1987 **]

With approximately 68 state-owned enterprises, Thailand had fewer than the average in other Southeast Asian countries, such as the Philippines, with 264. Nevertheless, the government was very concerned with their performance. The largest ones in terms of assets were in public utilities, transport and communication, financial institutions, and petroleum. The smaller ones were in manufacturing, agriculture, commerce, and services. The state enterprises did not represent the entire extent of public ownership in the economy; in the mid-1980s, the government received 75 percent of the shares of 24 troubled finance companies in order to rescue them from bankruptcy. In addition, the Ministry of Finance held minority shares in eighty-eight other private firms. All state enterprises were attached to a parent ministry or to the Office of the Prime Minister, and there were five core agencies and two committees to supervise their activities. Some experts suggested that, in order to improve the efficiency of state enterprises, the enterprises needed to be more decentralized and exposed to free market competition. **

Monetary policy was traditionally passive. Control over the rate of credit extension was the primary means for supporting growth, maintaining price stability, and monitoring the balance of payments. Interest rates were allowed to adjust to the rate of credit expansion and were very much affected by international rates as a result of the Thai open economy. Low returns tended to discourage private savings and encourage high demand for consumer goods. **

Domestic prices also were largely determined by world price movements as a result of the country's open economy and minimal domestic price controls. In fact the oil price increases in the early 1970s caused inflation to rise from 4.8 percent in 1972 to 24.3 percent in 1974. The deceleration of world prices in the early 1980s caused domestic inflation to decline from 13 percent in 1981 to 5 percent in 1982. Measuring by the price indexes, with 1972 as a base of 100, price increase was less for agricultural products, going from 130.2 in 1973 to 227.7 in 1983 compared with 115.7 to 276.3 for nonagricultural products. The highest increase among agricultural goods was for forest products, which went from 122.9 to 403.2 during the same period. Among nonagricultural goods, mining and quarrying showed the highest increases. The consumer price index, taking 1976 as the base of 100, showed the highest increase in transportation prices with 231.2 in 1982, while the rest of the consumption basket had an increase of about 180 between 1976 and 1982. The Bangkok metropolitan area had the highest increase with 194 in 1983, compared with 188.4 for the Northeast region, 181.6 for the Center, 180 for the North, and 178.4 for the South (these being Thailand's four geographic regions). **

Boom Years in Thailand in the Late 1980s and Early 1990s

The Thai economy began taking off in 1970s and kept growing and growing. The GNP quadrupled between 1970 and 1990 and growth averaged 7 percent and per capita incomes tripled between 1965 and 1995 (figures equaled in Malaysia and Indonesia). By contrast, the per-capita incomes increased sixfold between 1965 and 1995 in the Four Tigers—South Korea, Taiwan, Hong Kong and Singapore.

In the late 1980s, Thailand was on it way to joining the tigers like Taiwan and South Korea. Thailand had the world's fastest-growing economy for about a decade in the late 1980s and early 1990s. The growth rate was 8 percent between 1985 and 1995, peaking at 13.6 percent in 1988. There was a recession in the early 1990s. Severe flooding in November 1995 slowed the economy.

The Thai economy was fueled by cheap labor and light industry such as computer manufacturing and assembly. There was no shortage of construction jobs. Thailand became a leading exporter of rice and Southeast Asia's largest producer of cars (from Japanese-owned plants).

A sizable middle class and generation of yuppies was created during the boom years in the 1980s and early 1990s. The sales of new Mercedes rose from 5,000 vehicles in 1992 to 14,082 in 1995, when Thailand became the eighth largest market for German cars and largest consumer of 12-year-old Scotch. During the mid 1990s one million Thai tourists abroad spent more than 6 million foreign visitors in Thailand.

Growth between 1991 and 1995 was 8.5 percent. At the end of 1996, foreign reserves exceeded $32 billion, unemployment was at 2 percent and inflation was 4.9 percent. Thailand was being hailed as the next Asian tiger. A Thai analyst told Time, "The economy was booming since 1961. By this time it really took off. It was mind-bending. Everyone was so rich."

From 1986 to 1989, the amount of foreign money flowing into Thailand increased 400 percent. After 1988, when Thailand posted a 13.6 growth rate. Afterwards, the pace of investment picked up as major foreign investors discovered Southeast Asia. With the baht pegged to the dollar and high rates of return, they figured they had nothing to lose. In 1993, Thailand set up the Bangkok International Banking facility to make it easier to invest money. About $50 billion in loans poured into Thailand between 1993 and 1996. and private sector borrowing jumped from 39 percent of GDP to 123 percent.

Shortcomings of the Economic Boom in Thailand

A relatively few number of people reaped the rewards of economic prosperity . Growth was concentrated mainly around Bangkok while the countryside was largely neglected. The environmental costs of rapid economic expansion have been high. Many peasant have actually been made worse by environmental damages caused by unbridled growth.

The Thai education system has failed to produce a skilled workforce that could compete with workers from countries like Taiwan and South Korea. The government failed to invest in educational infrastructure to prepare its workers for the high tech world. As of 1997, only 17 percent of Thais had graduated from high school and Thailand had 260 engineers per 1 million compared to 2,500 per million South Korea. The result for Thailand was high labor costs and low productivity. [Source: Newsweek]

In the 1990s, Thai manufacturing was plagued by low production and sloppy work; the manufacturing base was weak; and the component base of industry was foreign owned.

Asian Economic Crisis

See Separate Article on the ASIAN FINANCIAL CRISIS

Real Estate Market Starts to Pick Up

The real estate market in Thailand was devastated by the 1997-1998 Asian financial crisis. A glut of more than 14,000 unoccupied units brought a halt to the start of new projects between 1997 and 2002. The slump was exacerbated by legislation that banned foreigners from owning property in Thailand.

In 2003 the real estate market in Bangkok was starting to pick up. That year the price of luxury condominiums jumped 34 percent; half-finished buildings abandoned during the crisis were completed and sold; and developers were demolishing neighborhoods to make way for new buildings. On top of that reservations for not-yet-built units were being traded on informal speculative markets like they were before the 1997-1998 Asian financial crisis . The revival was helped by the partial repealing of legislation that banned foreigners from owning property in Thailand. [Source: Shawn W. Crispin, New York Times, December 2, 2004**]

In the mid 2000s, $650,000 could buy you a three-bedroom condominium with sweeping views and a private pool in a luxury high-rise in the heart of Bangkok. While this may sound like a lot it was significantly cheaper than similar digs in Singapore, Hong Kong or Shanghai. In 2004, a square meter of luxury condominium space was going for one tenth the price of similar units in Hong Kong, one third in Singapore and 10 percent less than Shanghai. This meant a condo that sold for $450,000 in Bangkok would cost as much as $5 million in Hong Kong. Put another way money used to pay for an average condo in Hong Kong or Singapore could pay for a luxury condo in Bangkok. **

By 2006, the luxury condo market began drawing foreign developers, The addition of foreign buyers was a welcome development as some said there weren’t enough rich people in Bangkok to absorb the supply. In 2004, foreigners made up about 10 percent of the purchasers of luxury dwellings but buy 2006 they were making up almost 40 percent.

Thaksin’s Economic Domestic Policy

Thaksin promised to bring prosperity to Thailand by running it as a CEO does a large corporation. He stimulated the economy with populist programs, cheap credit and heavy government spending. to. He set up a national assets management company which took over many of the bad loans from banks. He cut taxes to induce spending, offered tax breaks to attract foreign investors and gave farmers above market prices for their crops. Some of Thaksin’s initiatives were more dubious. He once hurried off to a small town by helicopter in a futile effort to track down a horde of wartime gold reportedly left behind by the Japanese. He also regularly consulted a fortuneteller.

When Thaksin took office, Thailand was recovering from the Asian financial crisis of the late 1990s To prevent a 1997 bust from occurring again Thaksin imposed restrictions on foreign investors, prevented developers from borrowing money from banks to buy land and develop golf courses, and passed laws to control hot money and keep the stock market from overheating. In the past Thailand had relied on exports to countries such as the United States to keep its economy going, but it this was becoming more as the strength of the Chinese economy grew. Thaksin's focus on the countryside and the poor aimed to build a more self-sufficient economy, less dependent on the export market. He also prodded growth through deregulation and funded huge public works projects such as Bangkok’s new airport.

Thaksinomics came to mean a duel policy of promoting exports and foreign investment in Thailand while pushing economic self-reliance and increased consumption at home. Under his leadership Thailand privatized state-owned assets such as the country’s airports and the national oil company, things his predecessors said they were going to do put were unable to achieve.

Among Thaksin’s goals were making Thailand a "hub" of "value added" products. His plan involved utilizing Thailand’s geographic location at the crossroads of West and East Asia to become a regional and intercontinental hub for trade, industry and tourism. "Hub" and "value added" became buzzwords for Thailand drive to make into the ranks of the developed world. According to the New York Times: “Since Thailand, with 60 million people, lacks sufficiently cheap and abundant labor to compete with China, or the high-technology skills to compete with more industrialized economies like South Korea and Taiwan, Thaksin seeks to maximize the value of what his country can deliver in areas like lifestyle, ranging from food and handicrafts to boutique hotels and health spas.”

When the economic was growing in the early 2000s, energy was heavily subsidized. In 2004, when oil hit $50 a barrel, Thais spent about the same for diesel fuel as they when oil was cheaper because the government paid $5.5 million a day in subsides on oil. These measures helped Thaksin in the 2005 election but of course increased the national debt.

In 2005 Thaksin tried to prop up the economy by boosting consumer confidence and cutting fuel consumption. He introduced a stimulus package to try and achieve the former and cut subsidies on fuel prices to cut consumption of oil products. He also named Thanong Bidaya—best known as the man who decided to devalue the baht, triggering the 1997-1998 Asian financial crisis—as finance minister again.

In June 2005, aimed to cut fuel consumption by reducing the hours gas stations could sell fuel and limiting the time bright billboards could keep their lights on. Subsidies on diesel fuel were phased out gradually There was even discussion of forcing television station to stop broadcasting after midnight.

Economy Under Thaksin

Thaksin’s populist programs of offering cheap credit and heavy government spending boosted the economy, which expanded 44 percent between 2001 and 2005. Growth rose from 2.2 percent in 2001 to nearly 7 percent in 2003, when the Bangkok stock market rose 87 percent, and 6.1 thousand in 2004 and 4.5 percent in 2005. Overseas investment nearly doubled between 2002 and 2005 On the downside average household debt rose 53 percent between 2001 and 2004

Unemployment was 1.5 percent in much of 2004, the lowest in Asia and compared to 9.9 percent in Indonesia. The number of poor dropped by 2 million between 2002 and 2004. In percentage terms, the poverty rate declined from 15.6 percent in 2002 to 12 percent in 2004 and to 9.8 percent in 2005, according to the World Bank. Economists said te increase was due more to economic growth than government policies.

There were some worries about bad loans. The government said bad loans were only 13 percent. Many thought this was understated, with the true figure around 24 percent. Even so Thailand’s large reserves allowed its credit rating to be raised. Many loans were rescheduled, especially those held by those with political connections, and allowed to go bad later. In 2004, Krung Thai Bank, Thailand’s second largest bank, was criticized for giving out loans for dubious projects and building up over $1 billion in non-performing loans.

Some accused Thaksin of allowing the kind of easy credit that paved the way for the 1997-1998 Asian financial crisis. Other said the growth that occurred during his years in power was not the result of his policies but rather was the outcome of the global recovery in the early 2000s. Other give him more credit saying his policies led to early repayment of the $3.4 billion IMF loan—given after the 1997-1998 Asian financial crisis—early, in 2003.

Growth in 2004 of 6.1 percent was achieved through strong domestic consumer demand and manufacturing exports despite a hike in oil prices. The economy shrunk 0.6 in the first quarter of 2005, the first quarter after the December 2004 tsunami, but reached 4.5 percent for the year thanks to a strong harvest and record exports. Growth improved at the end of 2005 as tourists began returning and sales of automobiles, rubber and computer parts increased.

Inflation rose to 4.5 percent and the trade deficit increased in 2005 as a result of higher oil prices. After Thaksin ended subsidies on fuel prices. Labor unions threatened to strike over the minimum wage which they said wasn’t enough to cover basic living costs.

Economy After the Coup in 2006 and the Appreication of the Baht

The military coup that took place on September 19, 2006, did not have a serious impact on the economy. The baht and financial markets experienced brief declines but soon stabilized when investment experts speculated that the coup would help resolve a political standoff that was hurting the economy. Thailand’s bond ratings were unchanged; however there were worries that credit rating agencies would downgrade Thailand. According to investment experts, the economy was strong enough to overcome the temporary disruption caused by the coup.

Growth in 2006—boosted by exports and not hurt too much by political turmoil—was 5 percent. After the coup in September 2006, the stock market didn’t collapse and foreign investors didn’t flee. The military junta introduced the “sufficiency economy” that championed modest, sustainable growth

The baht rose 16 percent in 2006 and reached a nine year high in December 2006, reaching almost 35 to the dollar, which in turn pushed up foreign investment, exports and tourism money. Driving up the value of the baht was the fact there was too much foreign currency and not enough baht. A stronger baht reduced the trade surplus but made Thai exports more expensive. Complicating matters was the existence of onshore and offshore market that came into existence after capita controls were imposed.

The high value of the baht pushed growth down in 2007 as Thai exports and tourism became more expensive and investor confidence dropped because of doubts about the handling of the economy and political trouble such as protests, bombings and the coup.

In December 2006, as part of an effort to stem speculation and appreciation of the baht, the Thai government placed restrictions on the foreign capital flows and crackdowned on foreigners using loopholes to maintain control of their companies. The currency controls required inventors to keep at least 30 percent of their money in the country for one year. Investors who tried to withdraw money got two thirds back.

The plan was regarded by investors as draconian and sent the stock market into a tailspin, losing 15 percent of its value in one day, the steepest drop since 1990, wiping out $23 billion from the value of Thai stocks, producing drops across Asia. Most of the capital controls were withdrawn the next day which raised question about the government’s skill in dealing with financial matters.

In January 2007, the government drafted law tightened restrictions over foreign ownership of Thai companies. Investors were given two years to reduce their stakes in local companies to less than 50 percent. This move sent markets crashing by two percent. Analysts wondered why such a move was necessary. There were no problems under the system that existed. The move seems to have been at least partly motivated y the Temasek sale (See History)

The value of the baht continued to rise in 2007, rising seven percent against the dollar in the first six months of 2007, hitting a 10-year high. By July the value of the baht was to 29.5

In Thailand, large-scale antigovernment demonstrations erupted in 2006, 2008 and 2010. Economists estimate the demonstrations in 2010 caused 460 billion yen worth of damage to that nation’s economy.

Thai Economy During the Global Economic Crisis in 2008 and 2009

During the early part global economic crisis in 2008 Thailand was hurt by falling demand for its exports but the full impact of the crisis didn’t sink in until 2009. In 2008 Thai economy was also hurt by a fall tourism that followed the shutdown of the country’s two airports due to political protests. The relatively high growth figure of 4.6 for 2008 was the result of strong agricultural production and exports. Growth was 5.3 percent in the second quarter of 2008 and 4 percent in the third quarter. The stock market fell 50 percent between May, when street protest started, and December, when the airports reopened. Inflation reached a 10 year high of 9.2 percent in July 2008 and then fell to 3.9 percent in October allowing the central bank to lower interest rates to help boost the economy.

The economy shrunk four straight quarters from the forth quarter of 2008 to the third quarter of 2009 before recording 5.8 percent growth in the forth quarter of 2009. Growth fell 7.1 percent in the first quarter of 2009; fell 4.9 percent in the second quarter; and 2.8 percent in the third quarter. The shrinkage was due to declining exports and general economic malaise associated with the 2008-2009 global financial crisis. Protests and political turmoil in Thailand didn’t help matters.

There were layoffs in the vast industrial zones around Bangkok. Unemployed workers were encouraged by Thaksin supporters to join the protests to oust Abhisit in the spring of 2009. One protestor told the New York Times, “With the economic in crisis everybody wants Thaksin to come back.”

Corruption allegations dogged a $42-billion government-spending plan implemented by Prime Minister Abhisit Vejjajiva to bring Thailand out of recession. Reuters reported: “Questions were raised over procurement projects involving security forces, while abuse-of-power complaints against police and provincial officials remain a staple of local media reports. Months into Abhisit's $42-billion three-year government stimulus programme, two government ministers resigned in scandals linked to abuse of the funds. Allegations ranged from irregularities in the procurement of hospital equipment and school supplies to rigged bidding process on construction projects. Official Bhumjai Thai leader Chavarat Chanvirakul oversees the Interior Ministry where he has been accused of auctioning off provincial governor posts to the highest bidder. He's also accused of orchestrating construction deals to benefit his family and helping to manipulate district chief examinations in northeastern Thailand to help allies. He has denied all allegations, calling them politically motivated.” [Source: Ambika Ahuja, Reuters, September 28, 2010]

Many the of the economic ideas and policies of the Abhisit government—promoting a free economy, supporting foreign trade and improving infrastructure—were not all that different from those of the Thaksin government. Abhisit’s stimulus package included cash pay outs of $55 a head to Thailand’s poor. Thaksin criticized the plan for handing out cash rather than putting money into the country’s infrastructure. Ironically when Thaksin was prime minister he was notorious for giving hand outs to low-income people.

Economy in the Early 2010

s

The economy in Thailand did surprisingly well in 2010 despite violent protests in April and May that left 91 dead and 1,900 injured. In second quarter of 2010, when the protests occurred, growth was 9.2 percent. A surge in exports, led by a strong demand for Thai-made cars, more than made up for a decline in the tourism sector. Growth in the first quarter of 2010 was a remarkable 12 percent.

After the bloody anti-government rallies, which brought Bangkok to a standstill for two months, the government tried to convince the international business community that Thailand was a safe and prosperous place to do business. Among the efforts to this end was the designation of a group of export customers as “Thailand’s Best Friends.” The $2.2 million Commerce Ministry campaign invited 150 top importers from 43 countries and treated them to relaxation time at an exclusive spa in the beach resort town of Hua Hin, speedy lines at the airport and dinner with Prime Minister Abhisit Vejjajiva.

Growth was 6.7 percent in the third quarter of 2010 and 3.8 percent in the forth quarter. For the whole of 2010, the Thai economy grew 7.8 percent.

Growth in 2011 was only 0.1 percent, one of the lowest in world that year. Lower than expected growth was attributed to disruptions caused by earthquake and tsunami in Japan in March 2011, massive flooding in Thailand in the fall of 2011 and a fall off of exports due to the economic crisis in Europe and declining global demand. Prime Minister Abhisit Vejjajiva promised wage increases and capped food and diesel costs ahead of the July 2011 election. See Floods, History

Real Estate Boom in the 2010s

By the 2010s, Bangkok was again shadowed by cranes and choked with construction dust. Janesara Fugal of Agence France-Presse wrote: “An ever-increasing number of pristine new apartment blocks jostle for space in desirable areas, vying for custom as billboards written in idiosyncratic English promise swanky lifestyles. It is a far cry from a decade ago, when the city was littered with the skeletal remains of abandoned tower blocks, casualties of the 1997 Asian financial crisis that devastated the region. [Source: Janesara Fugal, Agence France-Presse, July 31, 2011^]

“The Bank of Thailand has described 2010 as the “golden year for real estate businesses,” with strong demand for homes – driven by low interest rates and increased consumer confidence – causing a flurry of new buildings. This resulted in a 13.6 percent increase in registrations of new homes in Bangkok to the highest level since the 1997 crisis, according to the bank’s 2010 annual report. The bank said it would be “vigilant” for signs of a bubble – which it defined as a “sharp” increase in asset prices combined with strong growth in home loans. A bubble could then burst if demand drops off and there is a glut of available properties. ^

“Central bankers did not detect a bubble building, but raised concern over risk-taking in the sector. As demand slowed after the June 2010 expiry of stimulus measures – such as two-year interest-free home loans for first-time buyers – developers increasingly resorted to high-risk strategies in their fight to fill properties. Homebuyers with “insufficient purchasing power or subprime customers” were persuaded to buy, the bank said, while lenders also boosted the number of loans at 90 percent or more of the property value. ^

To help “maintain economic stability,” the bank responded by making some high loan-to-value lending more expensive for financial institutions. Property research group Agency for Real Estate Affairs (AREA) said it had detected a build-up in oversupply and warned that the level would become unsustainable. Its figures show there were more than 135,000 unsold property units in Bangkok and its suburbs as of July 2011, including projects under construction. Another 100,000 units are expected to come in to the market in 2012.

Yingluck Shinawatra’s Economic Policies

On the economic policies of Prime Minister Yingluck Shinawatra, who came to power in August 2011, Bruce Gale wrote in The Straits Times: “In order to maintain strong support among rural voters, her government implemented several populist policies, some of which are contributing to the growing fiscal deficit. According to the World Bank, a controversial rice-buyback scheme alone was responsible for a 115 billion baht (US$3.86 billion) loss from the 2011-12 bumper harvest. The government says it is aiming for a balanced budget by 2017. The maximum level of public debt is officially estimated at 49.9 per cent of GDP. But critics give much higher debt projections. "No one in this government is concerned with fiscal discipline," former finance minister Pridiyathorn Devakula told an economic forum in Bangkok. The rising cost of living and lower prices of agricultural produce are also causing concern. [Source: Bruce Gale, The Straits Times, February 6, 2013]

William Pesek of Bloomberg wrote: Yingluck Shinawatra’s “government has subsidized rice prices, provided handouts to car buyers and favored megaprojects that will enrich the politically connected more than the masses. All this comes at the expense of long-term competitiveness and prosperity: Thailand should instead be investing in its future, especially education, if it wants to break out of the “middle-income trap” that befalls many developing nations. Yingluck’s priorities bear troubling similarities to those her exiled brother, Thaksin Shinawatra, championed from 2001 to 2006. His vaunted “Thaksinomics” never amounted to more than a Tammany Hall-like doling out of cash in return for rural votes.[Source: William Pesek, Bloomberg, July 11, 2013 ////]

“In January, Yingluck unveiled a plan to lift Thai living standards. She proposed spending about $72 billion over 10 years on transportation, energy and telecommunications projects. Yingluck’s government is pushing an $8.6 billion port-and-industrial-zone project in neighboring Myanmar. Last week in Turkey, she called for a “New Silk Road” rail project to link Europe and Asia. Forgotten in this ambitious building boom, though, is any investment in social infrastructure.It’s even more important to invest billions of dollars in education and in training to improve the quality of the labor force and raise productivity so that Thailand can keep up in the world’s most dynamic region. The country lags not just at the tertiary level, but also at the primary and secondary phases of the education process. Like several other countries in the region, Thailand’s focus on rote learning gives short shrift to creative and critical thinking and English proficiency. ////

“There is little sign that inadequate investment in human capital and the need for reform of the education system is recognized by the current government,” says economist Peter Warr at the Australian National University in Canberra. He’s done extensive research on Thailand’s economic growing pains. Building a more entrepreneurial workforce requires big investments and political will, both of which are in short supply. Corruption, among other things, skews incentives. Massive road, bridge and power-grid projects are dripping with opportunities for politicians and business people to line their pockets. “There are few if any kickbacks available from investment in education,” Warr says. “Physical infrastructure is another matter.” ////

“Thaksin’s policy of cash handouts to rural areas was the economic equivalent of a sugar high. It did nothing to strengthen government institutions, build a credible legal system or invest in human capital. The five prime ministers who led Thailand between Thaksin’s ouster and his sister’s victory in July 2011 spent all their time avoiding another coup. Now that Thailand is stable, it’s time to invest in the future. Pouring more money into people rather than rice farms and construction companies would be a good start. ////

Yingluck’s Rice Pledging Scheme

In 2011, the government of Prime Minister Yingluck Shinawatra introduced the controversial Government Rice Pledging Policy in which rice farmers are promised a higher than market-price for their rice crop to increase their income. Under the scheme, Thai farmers are given up to $500 for every ton of rice they produce. The rice is deposited in warehouses run by government procurement agencies, who are in charge of selling the rice or storing it.

According to Associated Press, “Thai governments have intervened in the rice market through a variety of means since the early 1960s to help farmers, but the current scheme has its roots in the populist policies of Yingluck's brother, former prime minister Thaksin Shinawatra, who won landslide victories in two elections before he was ousted in a 2006 coup. The scheme has been dogged by corruption and accusations the government has hidden its true cost. Previously, officials refused to reveal how much rice the government had stockpiled.

In October 2012, Xinhua reported: “Despite strong criticisms, Thailand's innovative rice pledging scheme is likely to continue at least for the time being as the Thai people, especially the farmers, continue to support the program. [Source: Surasak Tumcharoen, Xinhua, October 8, 2012^]

“Former agriculture minister Prapat Pothasuthon confirmed that the farmers would prefer to deposit their rice with the Public Warehouse Organization or the Marketing Organization for Farmers and receive as much as 15,000 baht (500 U.S. dollars) a ton rather than sell to the private traders who offer to buy at a lower price. Former Commerce Minister Wattana Muangsook explained that the government's rice program is not a monopolistic business because, he said, the private rice traders or millers could always compete by offering to buy at a higher price. "The rice pledging program is practically a market intervention measure whereby the farmers are assisted in dealing with the traders who usually buy their rice at a relatively low price," Wattana said. ^

Criticism of Yingluck’s Rice Buyback Scheme

The rice subsidies have been widely criticized for high costs and knocking the country from its spot as world's top rice exporter. Rice, Thailand's staple grain, is one of the country's main exports. India and Vietnam surpassed Thailand as the world's top rice exporters in 2012 as the Thai government stockpiled rice to avoid even bigger losses.

Generous subsidies for farmers have left Thailand with vast stockpiles of rice and a bill that it has a hard time paying off. Opposition leaders say the scheme is mired in corruption, costing the taxpayers and estimated at 200 billion baht ($6 billion) a year and fueling anger towards Yingluck.

William Pesek of Bloomberg wrote: “ Moody’s Investors Service says the subsidies damage Thailand’s credit rating. Granted, the program isn’t bankrupting Thailand. The country’s $346 billion economy can handle the $4.4 billion the government blew on rice purchases last year. [Source: William Pesek, Bloomberg, July 11, 2013]

In October 2012, Xinhua reported: “ The government's rice program, introduced in last year's electoral campaign of the ruling Puea Thai Party, has been openly criticized by some academics and members of the opposition Democrat Party. Members of the opposition have filed a complaint with the country's Constitutional Court seeking a definite ruling on whether or not the program has violated the Thai constitution. Whatever ruling the court would issue, it would certainly make an impact on the regular rice harvests later this year and early next year. [Source: Surasak Tumcharoen, Xinhua, October 8, 2012^]

“Though Minister Yingluck Shinawatra has not talked much about the rice program, she had earlier suggested that critics should go directly to the farmers and ask them if they have benefited or not from the program. The petitioners, including lecturers and students of the National Institute of Development Administration led by Adit Isarangkul na Ayudhya, dean of the Economic Development Faculty, charged that the pledging program is undermining the free market and turning the government into a monopolistic trader.The government has not only failed to uphold the free-trade principles but competed against the Thai private sector in the global rice markets, they said. ^

“Thai rice has become not very competitive against the rival rice from Vietnam and India since its costs have largely increased due to the government's rice pledging program, according to the academics. Democrat MP Ong-ard Klampaibul alleged that the $25 billion rice program was also prone to corruption and quoted a member of a House committee as saying that an estimated one million ton of rice bound for export has remained unaccounted for so far. Other academics, however, have aired solid support for the Yingluck government's rice program because, according to them, it was primarily designed help the country's more than 8 million rice farmers. Thammasat University's law lecturer Punthep Sirinupong said the government could pursue the "populist scheme" since it has been proven that it benefits the country's rice farmers. Thousands of rice farmers in central, northern and northeastern regions of the country have recently gathered peacefully in front of their provincial halls in support of the government's rice program. ^

Thai Growth Slumps to 2.9 Percent in 2013 Partly Due to Political Unrest

In December 2013, Justina Lee of Bloomberg wrote: “Thailand’s baht fell to a three-year low and stocks dropped on concern prolonged political unrest will damp investment and hurt the economy. At that time more than 1,000 anti-government protesters surrounded the Bangkok home of Prime Minister Yingluck Shinawatra. The Thai currency has lost 4.6 percent in the past two months as the main stock index dropped 9.1 percent. “Investors aren’t buying the Thai baht if this political situation continues,” said Kozo Hasegawa, a foreign-exchange trader at Sumitomo Mitsui Banking Corp. in Bangkok. Thailand’s SET Index (SET), already Southeast Asia’s worst-performing benchmark in 2013, lost 3 percent in the past two weeks. A one day drop in local stocks was led by financial companies including Bank of Ayudhya PCL, which slid 22 percent. Tourism stocks also extended declines. Thai Airways International Pcl slid 3.4 percent, closing at the lowest level since August 2009. [Source: Justina Lee, Bloomberg, December 23, 2013]

Growth in 2013 was 2.9 percent, far below the 6.5 percent in 2012 when Thailand was rebounding from devastating floods the preceding year. Part of the decline was linked to concerns about anti-government protests that began in November 2013. The protests have forced many ministries and state agencies to close, Gundy Cahyadi, an economist at DBS Bank in Singapore told Reuters: "The current downturn in the economy is due to the political situation. There is probably little that an interest rate cut can do to push for a rebound in this kind of environment,"“ [Source: Orathai Sriring, Reuters, February 17, 2014 >><<]

Reuters reported: “There has been a rash of downbeat data and surveys. In the final quarter of 2013, exports - which are pivotal in Thailand - fell 3.6 percent from the previous three months and 1 percent from a year before, central bank data showed. Factory output dropped more than expected in December, compared with a year earlier, and the decline was the ninth straight one. Consumer confidence sank to its lowest level in more than two years in January. Thanavath Ponvichai, an economics professor whose university conducts the survey said: "The economy has not reached its bottom yet. >><<

Malcolm Foster of Associated Press wrote: “Hotel occupancy rates in central Bangkok have plunged. Conventions have been canceled. Business deals have been postponed. Tourist bookings for coming months are way down. The latest spasm in Thailand's near decade of political upheaval is taking an economic toll as anti-government protesters barricade Bangkok's major intersections and confrontations between protesters and supporters of Prime Minister Yingluck Shinawatra periodically flare into deadly clashes.

Since a 2006 coup ousted Yingluck's brother Thaksin Shinawatra as prime minister, Thailand's economy has bounced back from several episodes of violent political conflict. However, the underlying failure to resolve deep divisions in Thai society has diminished its reputation as a reliable country for foreign business and raised the prospect of ever increasing instability. [Source: Malcolm Foster, Associated Press, January 29, 2014 ==]

"It's terrible. It's worse than ever. We can't see an end to it," said Virat Jaturaphutphitak, vice president of the Association of Thai Travel Agents. Reservations from European and North American travelers to Bangkok through April are down 70 percent. Bookings from Asia are down 30 percent. "If this situation continues, we will have to close many businesses." ==

Corporate leaders fret that foreign investors planning new factories and business ventures will turn to neighbors such as Malaysia, Vietnam and Singapore if the conflict drags on. "The perception from foreign clients is pretty bad. They don't want to come. Business stops and is put on hold," said Thinawat Bukhamana, a managing partner at law firm Baker & McKenzie Ltd. in Bangkok. He said some corporate financing deals his firm is involved in have been put off. Political stability is a factor in whether Toyota Motor Corp. invests further in Thailand, the automaker's Thailand chief Kyoichi Tanada said. ==

Image Sources:

Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, Lonely Planet Guides, Library of Congress, Tourist Authority of Thailand, Thailand Foreign Office, The Government Public Relations Department, CIA World Factbook, Compton’s Encyclopedia, The Guardian, National Geographic, Smithsonian magazine, The New Yorker, Time, Newsweek, Reuters, AP, AFP, Wall Street Journal, The Atlantic Monthly, The Economist, Global Viewpoint (Christian Science Monitor), Foreign Policy, Wikipedia, BBC, CNN, NBC News, Fox News and various books and other publications.

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© 2008 Jeffrey Hays

Last updated May 2014

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