• Kan Yuenyong

Investvine: Thoughts on Thailand

Updated: Jul 22, 2019

Part I

Kan Yuenyong is co-founder and director of Thailand-based think tank Siam Intelligence Unit. In the following question and answer session he shares his views on the current political and economic situation in Thailand, which seems to have become more critical over the past months.

Question: It appears that the political crisis in Thailand is heatening up, with the newly formed “People’s Army” threatening to overthrow the  government. What could be the scenario?

Answer: Although it looks dangerous, at this moment I don’t think they will have enough momentum to make any impact on the government. They are from the same group of protesters of last year, of General Boonlert Kaewprasit or Seh Ai. Actually, the anti-Thaksin movement comprises of many factions including some progressive middle class, Democrat Party supporters, the Yellow Shirt people and some conservative groups. But, Seh Ai is a kind of conservative movement, which I think cannot influence many people in the country, especially in Bangkok.

The relationship between the army and the government is quite good so far. It’s not because of the civilian supremacy rule, but because the government tries to protect the army from the legal problems of the 2010 Red Shirt crackdown. And Prayuth Chan-ocha seems to secure his Commander-in-Chief position.

The White Mask movement is much more interesting and much more progressive. They are a kind of anonymous collective group from the internet, but, unfortunately, they will be eclipsed by the conservatives. And if the White Masks let that happen, they will lose control and momentum. Internal conflict between the "progressive" Red Shirts and the pro-Thaksin Red Shirts is much more concerning.

However, the most important mile stone will be (1) a verdict of the International Court of Justice on the Praviharn dispute and (2) an across-the-board amnesty bill. If the verdict is acceptable for the Thai perception, and for Cambodia’s perception, and if the government exercises a public hearing on the amnesty process or attains some sort of major consensus, they will pass the crisis. We need to monitor the two issues very closely.

Question: Thailand seems to face slower growth in the second half of 2013. What are the main hampering factors in your view?

Answer: I think it’s mainly from the baht appreciation, thus the export sector is shrinking. Thailand will lose its competitiveness in pricing compared to other countries. I don’t think the Bank of Thailand and the Monetary Policy Committee’s inflation-targeted policy is a good idea in the current global financial situation. The quantitative easing policy by the US, UK and Japan in order to sustain their own economies will hurt other Asian nations through the appreciation of their currencies. Fed chairman Ben Bernanke’s announcement of a slowdown of the next round of quantitative easing made the US dollar unwind, shrunk down Asia’s wealth and depreciated Asian currencies.

Actually, the export-driven economic model that the Asian countries currently use is not sustainable. This model is linked to the problem of public debt and deficit in the US. Quantitative easing will make more and more problems in terms of long-term global inflation and global financial instability. This needs to get fixed very soon, or else we will face a catastrophe.

If we look at Asian countries long-term (except Japan), we see steady growth after the 1997 financial crisis. And Asian countries have excessive savings, which they use for US treasury bills – but I doubt this brings long- term stability.

In the long-term, the US will also lose their overall competitiveness. The IT sector alone can not support the whole country. This will make a problem for the US middle class and their capacity to pay tax. And it will corrode the federal tax revenue. See the below chart:

So far, the GDP forecast for Thailand is quite steady. It is comparable to Malaysia’s post-1997 financial crisis economy in terms of steady growth at 4 to 6 per cent annually.

Long-term investments into the planned water management projects of around $11 billion and infrastructure projects at a value of up to $65 billion will boost Thailand’s internal economy as well. A gradual transition from an export-led growth economy to domestic consumption-led growth will make the country more resilient to global volatility.

Question: The rice pledging scheme is one of the biggest unresolved problems of the Shinawatra government. How could the issue be finally tackled?

Answer: This is the problem of a lost brain war on the economic front with the government’s opposition, led by the Thailand Development Research Institute (TDRI.) The TDRI supported the price guarantee policy scheme that was used by the Abhisit Vejjajiva administration of the Democrat Party. And Thai journalists do not understand that both policies are subsidies. And that subsidies are a form of market distortion which leads to a misallocation of resources and a reduction of social welfare. If the TDRI is serious about the problem of subsidies, they need to reject both. But they are quite biased. The legitimacy of the policy, therefore, is needed to be judged at the ballots.

So far, some people go on pointing out the government’s policy as populist which will ruin the Thai economy. Actually, every government will follow the ruling Pheu Thai party’s policies which are agricultural subsidy and logistic reforms, like all governments after Thaksin have had to follow his policies, such as the 30 baht universal health care and the global village fund. Thus, it is needed to be controlled through financial discipline, which would keep public debt in the range of 50 to 60 per cent of GDP. And the government needs to maintain a balanced budget in the future, not a never-ending deficit.

So far, in line with this financial discipline, the government has decided to cut down the rice buying price for the farmers in the next crop cycle, which I think is very good.

Actually, I think the government tries to manipulate the global rice price as well which we experienced during Thaksin Shinawatra’s term. But they failed with the attempt. Since, the price will be around $500 to $600 for many years to come. The Organization of Rice Exporting Countries (OREC)’s progress is not quite as fast as expected.

Many western media seem to attack the price manipulation, which I think is unfair. Many western countries practice subsidies for their agricultural sector, for renewable energy, etc. Even commodities such as aluminum have been manipulated by financial institutes in the US.

The improvement of Moody’s credit rating for the long-term LC bond ceiling from A1 to Aa2 (two steps) is a good sign for Thailand’s credibility.

Question: The gap between the rural population and those living in urban areas in Thailand is widening in terms of income, access to education and job opportunities. Isn’t this a dangerous development that the government should rapidly address?

Answer: The provincial GDP in Thailand is different from top to bottom. But according to income distribution statistics – we normally use Gini Index, the lower the number the better income distribution -, Japan’s Gini index is 38.1 while it is 40.0 for Thailand.

It surprises me that Thailand has a better income distribution compared to countries such as Malaysia (46.2) and the US (45). And that the unemployment rate is very low – 0.8 per cent in May 2013, according to the National Statistic Office.

So my view has changed. It seems that Thailand is now facing the problem of a political conflict between the two major middle classes, the lower middle class and the upper middle class. This seems to be a result of long-term economic development in "Tiger Asia". And I think countries such as Malaysia and Singapore are also facing the same problem. The government needs to make an inclusive development for these two different classes. The upper middle class must leave internal economic room to the lower middle class, and they need to compete on the global stage instead. This is really a major problem of how they can build up their capacity to compete on the global level.

Question: New reports show that corruption is growing instead of being reduced in Thailand. Why is this problem getting out of hand and why are anti-graft controls failing?

Answer: I’m not sure. We need to wait and see the Corruption Perceptions Index (CPI) from Transparency International instead. It does not mean that I don’t trust the Thai rating. But it seems we have too much polarized politics in the country, and that can bend the perception of the people. Please notice that the Bangkok governor election poll made a significant error in the last election.

Thailand’s 2012 CPI score is 3.4 – 4.0. I think it will remain in this range. Please see our compilation of the comparative CPI here (in Thai.)

However, currently, there is critique on comparing the CPI because there is a different definition of corruption according to law in different countries. And the CPI is just a perception, although Transparency International tried to explain that this happens because it can not make a direct measurement, see this example.

I think the latest Global Corruption Barometer (GCB) is quite good. It shows the direct experience of bribery. Thailand’s GCB stands at 18 per cent, which is better than Taiwan’s (36 per cent), South Africa’s (47 per cent), the Ukraine’s (37 per cent), Indonesia’s (36 per cent) and Greece’s (22 per cent). However, we need to catch up to countries such as Japan (1 per cent), Malaysia (3 per cent) and South Korea (3 per cent). However, the GCB has nothing to do with factual problem such as rents and conflict of interest issues that relate to political and economic problems. We need different analytic tools to get a precise picture.

From: Investvine:

Part II

Kan Yuenyong is co-founder and director of Thailand-based think tank Siam Intelligence Unit. He contributes regularly to Investvine on a question-and-answer basis. In the following session he shares his views on the current political and economic situation in Thailand.

Question: The political tensions in Thailand seem to have eased – fears of major unrests were ungrounded and the attendance of latest anti- government protest in early August was low. Has Thailand come to terms?

Answer: I wish, but unfortunately, like people say, it will not end until it ends. The problem of the anti-government or anti-Thaksin movement is that they are too divided. There are now at least 3 groups of them, (1) The People’s Army which maintains its base at Lumpini Park in Bangkok, (2) The Democrat Party (DP)’s supporters and (3) The Yellow Shirts or People’s Alliance for Democracy (PAD)’s supporters. Now they just wait and see.

The People’s Army is too weak, they can mobilise only 800 – 1,000 people. The DP and PAD have been fighting each other since the Abhisit government. But, recently, there were some reports that PAD and DP have been talking and are sending moral support to the People’s Army.

I think PAD and DP try to negotiate how to organize themselves to fight against the government. PAD’s Sondhi Limthongkul asked all DP’s MPs to resign from their position and initiate a mass protest on the street. With this strategy, they believe that both PAD and DP can draw more than 100,000 protesters to the streets. But so far, DP’s Suthep Thueksuban rejected this offer. DP has decided to "paralyze" the legislation problem, by making a protest, veto, long debate, etc. in the parliament for all bills that are being inquired at the moment. This includes (1) the constitution amendment bill (by canceling the appointed senator and approving only an elected senator), (2) the amnesty bill, (3) the water management project bill and (4) the 2-trillion-baht infrastructure reform project bill.

But, so far, I don’t think the opposition’s tactic can stop the legislation process, instead they can just "poison" it. At the end of the day, the government will pass it with a superior vote. We need to see further how the DP and PAD can organize a big movement to topple the government. But at present, it’s hard to draw 100,000 people to street protests. It may happen, but will it last for months? And according to the public opinion, people have become bored with the protests from all sides. The government has started a reconciliation process, including the "reform assembly.”

Question: The government did, however, threaten to fine and/or punish some Facebook posters for “liking” anti-government paroles. This is certainly not the right way to deal with it?

Answer: Personally, I don’t agree with this approach. But from the government’s view, this is understandable. There is a information warfare on social media. For example, sometimes there are rumors that there will be a coup, or the arrest of a VIP, and people do believe it and spread it to their friends. The message hence is being spread further and further. By the way, this is not happening only with this government. The former government under Abhisit’s administration did the same during the Red Shirt protest.

Question: Nevertheless, the Thai economy has hit a road bump, it seems. Exports and investments are slowing down. What is happening?

Answer: It’s a "technical recession." It means that Thailand had two consecutive quarters of declining GDP, minus 1.7 per cent in the first quarter of 2013 and minus 0.3 per cent in the second quarter. But there was a growth of 5.4 per cent in the first quarter of 2013 year-on-year and 2.8 per cent in the second quarter year-on-year, so this is not a "real recession.”

The problem is Thailand had a very strong GDP growth in the fourth quarter of 2012 because of economic stimulation, especially through the first-car-buyer campaign. Personally, I don’t agree with this campaign. It has nothing to do with the traffic jam problem. But this campaign benefits middle-class people who have enough money to buy their first car even without a rebate campaign. But they can now save money through the tax rebate at around 100,000 baht. With this saved money they buy import products, for example iPhones, iPads, luxury goods, and the money will leak out of the Thai economy. The handout gift cheque campaign (around 2,000 baht) or something called "helicopter money" during Abhisit administration caused the same problem.

But stimulus campaigns that target the grassroot people should be different. Actually, programmes such as the rice-pledging scheme can be considered another kind of a stimulus campaign. When grassroot people get this money they will buy local products, and the money will circulate within the Thai economy. It helps generate other businesses and further money.

The first-car-buyer campaign locks the debtors from consuming other products too. They have to save money for repayment. Somebody said that this is another reason for the declining GDP in both the first and second quarter of 2013. But, another reason is shrinking exports to the US, Japan, EU and China, but except ASEAN. The pattern is very similar to the fourth quarter of 2008 and the first quarter of 2009. I guess this will impact not only Thailand.

But on the other hand, the weakening of the Thai baht helps the export sector. In contrast to the first and second quarter of 2013, I think the export sector in second half of 2013 will recover. And this will make the US reconsider the cancellation of their quantitative easing policy. They may launch a next round of quantitative easing and weaken their dollar to compete with their exports again. This is an unresolved trade issue. It’s already a currency war. But the point is that the quantitative easing policy will reach its limitations in the future, considering the response of the bond market.

This is another issue. And it will be, like I mentioned in my last article (see part I), a catastrophe. The advanced economies don’t know how to deal with this problem. They are trying to reduce public debt, which I think will be more of a problem. Just see Japans case.

Question: Tourism numbers in Thailand are constantly hitting new highs. Is the country’s exposure to this sector becoming too strong – seen from a macro-economic angle?

Answer: I think this is because of the better touristic conditions in Thailand. The country has a lot of tourism attractions together with a unique culture within Asia. Thailand also has a sound transportation infrastructure and good accommodation, as well as excellent airport facilities at both Suvarnabhumi Airport (for normal flights) and Don Mueang Airport (for budget flights). It’s normal for Thailand to get more and more passengers each year.

Suvarnabhumi passenger numbers grew from 47,910,904 in 2011 to 53,002,328 in 2012, and Don Mueang’s from 8,467,860 in 2011 to 9,541,552 in 2012. Budget carriers will boost the passenger numbers further. In the first half of 2013, passenger volume at Don Mueang skyrocketed by 572 per cent to 7.95 million.

I also heard that the Chinese’ movie "Lost in Thailand" was very successful to attract a lot of Chinese tourists. And that’s true, Chinese are among the highest tourism numbers in Thailand.

Question: The oil spill in Koh Samet was a major environmental disaster. Did authorities and the culprit, PTT Global Chemical, deal with it the right way in your opinion?

Answer: I have no information on this issue, I just read it in the newspapers. I don’t want to express an opinion on the issue as I do not have enough information on it. But personally, I feel that the damage is under control. However, this is a symptom of the Thai energy governance problem.

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