In 1995 The Economist projected that by 2020 Thailand would be the world’s eighth-largest economy. Its forecast, which now looks a tad, shall we say, optimistic, followed a 10-year run in which Thailand muscled out even China as the world’s fastest-growing economy, expanding at a blistering 8.4 per cent a year. Those were the days.
The decade after the Asian financial crisis, which began with the devaluation of the baht and ended with the 2006 coup that ousted Thaksin Shinawatra, the former prime minister, has not been so kind. Although the country bounced back from the 1997 devaluation, when it carelessly misplaced 15 per cent of gross domestic product in 18 months, the economy never recovered its former vigour. It has bumbled along at a respectable, but less than socially transformative, 4-5 per cent a year. This year its economy is likely to shrink by some 5 per cent. In that, admittedly, it is not alone.
Yet it is fair to ask why Thailand has failed to fulfil its potential. Once mentioned, at least by the excitable, in the same breath as high-tech Taiwan, it is now more likely to be grouped with the high-maintenance Philippines. Far from closing in on the world’s eighth-biggest economy – a slot currently occupied by Spain, with an output nearly six times that of Thailand – it languishes in 33rd place. In per capita terms it plods in at an even more pedestrian 78th, with an income of $3,851, far below Taiwan’s $17,000 although above the likes of Indonesia at about $2,000.
Adding to its woes – or arguably helping to explain them – Thailand is stuck in a seemingly intractable political crisis. Long a country of coup and counter-coup, for years it nevertheless managed to maintain something approaching political stability. Now it is caught in a trap in which a previously disenfranchised rural poor wants a say in a political system still dominated by the Bangkok elite not yet prepared to allow the “barbarians” through the gate. The stand-off has undermined the already shaky confidence of foreign and domestic investors.
This month, Thailand showcased its political chaos for flummoxed regional leaders attending the Association of South-east Asian Nations summit. The gathering was cancelled and the likes of Wen Jiabao, China’s premier, had to be evacuated after the conference facilities were stormed by a brightly coloured mob of Mr Thaksin’s supporters. In subsequent clashes on the streets of Bangkok at least two people were killed. A car carrying Abhisit Vejjajiva, the third prime minister since democracy nominally returned in 2007, came under attack after he declared a state of emergency. There are, Mr Abhisit said with admirable understatement in a Financial Times interview last week, “some major challenges we have to face up to”.
One of the reasons Thailand has failed to flourish as once predicted is that its growth was built on weaker foundations than supposed. What was in the 1950s an economy based on US patronage, and exports of rice and tapioca, developed into one fuelled by Japanese capital looking for a home after the revaluation of the yen in the mid-1980s. Japanese companies poured in money, building an industrial base, especially in car manufacturing, that remains central to whatever economic success the country still enjoys.
In the 1980s and early 1990s, local entrepreneurs clambered aboard, funded by a powerful local banking system and oiled by age-old connections. The political situation was always chaotic; there have been 18 coup attempts since the end of absolute monarchy in 1932, 11 of them successful. But for much of the time, according to Supavud Saicheua, an economist at Phatra Securities, the country maintained an uneasy equilibrium between monarchy, military, aristocracy and bureaucracy.
Thailand produced few truly world-class companies. It remained, by and large, a rentier economy, funded by foreign capital and driven by foreign expertise. At the time, of course, that was all the rage. In 1991, the World Bank and the International Monetary Fund held their annual meetings in Thailand, a testimony to its openness and liberal reform. That went to Thailand’s head. In 1993 it went the whole hog, liberalising its capital account and setting in train the disastrous over-borrowing in foreign currency that ended with the 1997 crash.
The crisis led to what Pasuk Phongpaichit and Chris Baker call in their book Thailand’s Boom and Bust a “decapitation of Thailand’s [foreign-currency indebted] capitalist class”. The country has never recovered from the mass beheading. Today, bank lending to business languishes at two-thirds of 1990s levels. The economy has become more dependent on foreign demand, a liability in a world of frightened consumers. Trade accounts for 150 per cent of GDP, against 80 per cent before 1997.
The destruction of Thailand’s entrepreneurial class helped pave the way for Mr Thaksin, one of the few capitalist survivors of the crisis. He converted his wealth, which came courtesy of a telephone monopoly, into political capital, riding into office with the votes of a newly empowered rural poor.
Mr Thaksin’s election and subsequent conduct proved too much for a Bangkok elite that had not previously seen fit to share power. Its displeasure was finally vented in the coup of 2006, an attempt to roll the country back to a prelapsarian land of smiles. But there is no going back. Unfortunately, it is not yet clear how Thailand can move forward either.
http://www.ft.com/cms/s/0/ebf80c58-34ed-11de-940a-00144feabdc0.html?nclick_check=1
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