Thailand’s Generals Can’t Restart the Economy
Enter Prayuth, looking nervous
Fifteen months in, a cabinet reshuffle looms. Won’t help
Most of Thailand’s economic news is continuing to dampen any remaining hope that the military junta, now in power for 15 months, would usher in an era of economic revival.
The kingdom is at best static while long-laggard neighbors Vietnam, Myanmar and the Philippines appear to be on the rise.
Indeed the perception at home and abroad is of a society which has stalled despite its combination of entrepreneurial spirit and ethnic cohesion.
This is not just reflected in the divide between red and yellow shirts, between richer and poorer, between rural and urban regions.
Sensing stagnation, coup leader and Prime Minister Prayuth Chan-ocha is expected to make major cabinet changes in September.
However, given the regime’s dependence on a mix of Democrat Party ministerial retreads such as Finance Minister Korn Chatikavanij, senior bureaucrats and conservative academics for most posts, it is hard to see changes of face making much difference to policies or implementation.
Beset by a just concluded drought, gross domestic product growth for the year looks unlikely to exceed 3 percent even though 2015 is supposed to be a year of recovery from last year’s politics-marred 0.7 percent.
Some excuses can of course be found in the international environment.
Prices of most commodities, including rice and rubber, are weak.
One of Thailand’s major tourist markets, Russia, is has seen the steep decline of its currency.
And western Europeans have also found the euro buying fewer baht than before. China’s slowdown is obvious to all concerned and Thailand, though still far ahead of its competitors, faces increased competition from other regional destinations.
Yet it is increasingly clear that Thailand’s problems are more than just cyclical or caused by political turmoil.
They reflect an inability to progress beyond the formula of agriculture/tourism/manufacturing hub that served the nation very well into the 1997 crisis and through the subsequent recovery.
More specialist agribusiness remains very competitive but Thailand’s bulk production of rice, rubber and tapioca is increasingly uncompetitive even at the meager (at least compared to metropolitan) incomes of the farmers.
Deposed Prime Minister Yingluck Shinawatra’s ill-starred rice subsidy scheme and subsequent less costly interventions by the Prayuth regime simply paper over the poor productivity of much of Thailand’s agriculture.
Thaksin never tackled this issue but he did try to reduce inequalities through government spending which in effect redistributed a little wealth from metropolitan Thailand to the rest.
In theory, there would now be twin efforts to improve productivity while accepting that much farming cannot be justified economically.
It is not as if Thailand cannot absorb labor released from farming in other areas.
The nation is already host to perhaps three million workers from Myanmar and Cambodia whose low-paid labor as domestic helpers and workers in fisheries and construction actually provides a subsidy for others – mostly the urban middle classes and corporate profits.
Perhaps the only solution is gradual rural depopulation as the old generation dies off. As it is, Thailand’s birth rate has been below replacement for almost 30 years so if there is to be economic growth at all it must come from productivity or increasing immigration.
The tourism industry has enjoyed successive booms from Europe, the Middle East, Russia and China, but now only the latter still has momentum, though Indian tourism is growing as well.
But more tourist numbers do not translate into higher productivity.
Indeed, there is some evidence that the high-yield sector is lagging the mass-market one – the opposite of what should happen if productivity is to rise.
Thailand is doing well in other, higher-income service industries such as medical and as an ASEAN hub for regional activities in finance, advertising and transport.
A few of its major companies are regional if not global players.
Nonetheless political instability and the poor image of the junta have held it back.
And its focus remains mainly on Bangkok which adds to economic imbalance.
The other leg of past growth was manufacturing, particularly the auto and electronics industries of the eastern seaboard and around Bangkok.
The former continues to attract some new investment, particularly by Japanese, for export, particularly to ASEAN.
But Thailand’s relative position is being eroded by the attraction of potentially bigger markets such as Indonesia and the increase in vehicle affordability in Vietnam.
Electronics, always reliant on foreign investment and markets, has stalled. Altogether manufacturing in 2015 may struggle to expand by more than 2 percent.