Asia Sentinel spot on “Thaksin’s score card”

Asia Sentinel : Daniel Ten Kate

External conditions boosted the billionaire’s image as a poverty fighter, but his populist legacy will live on – the poor demand it.

After the military coup in Bangkok last September 19, an admirer of deposed premier Thaksin Shinawatra released a 212-page comic book portraying the exiled billionaire politician as an action hero who would one day return to Thailand to rescue the rural masses from poverty. Although the book reportedly only sold a handful of copies, Thaksin remains something of a caricature. Nearly everyone has strong feelings about him. To many Thais, he is either the most corrupt prime minister in Thailand’s history or a champion of the poor masses who have been long ignored by previous governments.

In the first case, it is clear that Thaksin had enormous conflicts of interest when he sought political power as one of the country’s foremost tycoons. After transferring assets to his maid and driver, among others, he would have been banned from politics for five years for concealing assets had it not been for a suspect 8-7 acquittal from the Constitutional Court in 2001.

It remains to be seen if prosecutors can now uncover any of his lawyers’ mistakes to prove corruption allegations, or if he can get a fair trial in Thailand. But after a year of hearing the coup leaders capitalize on anger over Thaksin’s policies and his family’s sale of Shin Corp to Singapore-run Temasek Holdings, the debate over where Thailand goes next is just beginning. Much of the squabbling over the past year about the virtues of so-called Thaksinomics vs. Sufficiency Economy — a philosophy conceived by King Bhumibol Adulyadej that The Economist dubbed “new-age waffle” — is more about one’s views towards Thaksin or the monarchy rather than actual policy.

The interim government has further confused things. Although badmouthing Thaksin’s free-spending populism and praising sufficiency, ministers have kept but renamed several of Thaksin’s key policy planks, including a 30-baht universal health scheme, a village loan fund and cheap loans from state-owned banks.

Meanwhile, the military-appointed technocrats’ bumbled moves to impose capital controls and revise foreign ownership rules have soured the investment climate. An election now seems likely for November or December, but it is unclear if that will bring stability because voters still don’t know who will be allowed to run for office or even what the new constitution will say.

Since Thaksin’s now-banned Thai Rak Thai party found much of its support among the rural poor, political parties are now forced to address a previously ignored constituency. Undoubtedly poor voters liked Thai Rak Thai. After winning about 19 million votes in 2005, the party still won 16 million in the boycotted April 2006 election — more than twice as much as its closest rival won in 2005. Although Thaksin’s personal motives may be questionable, his bundles of campaign promises   cheap health care, village loans, a three-year debt suspension for small farmers, and other giveaways   struck a chord.  

Moreover, poverty under Thaksin declined. From 2000 to 2004, the poverty rate dropped nearly by half to 11.3 percent from 21.3 percent, according to the World Bank. But, as development economists know, a drop in poverty alone does not mean that Thaksin’s brand of populism had anything to do with it.

Decades of poverty reduction

Poverty in Thailand has fallen rapidly for the past 30 years due to exceptional economic growth rates. From 1977 to 1996, the economy grew an average of 7.6 percent per year, and per capita income rose from about 17,500 baht to 75,103 baht in 1996, according to research by prominent Thai economist Medhi Krongkaew.  

Indeed, at previous points in the past 30 years, poverty fell even faster than it did under Thaksin. From 1990 to 1994, an uncertain period that featured a coup and a bloody military crackdown on pro-democracy protesters, the poverty rate dropped from 33.7 percent to 19 percent, according to the latest official poverty figures developed by UNDP and the Thailand Development Research Institute (TDRI), a think-tank.

But the drop in poverty prior to the 1997 financial crisis did not mean the central government cared much about rural folk, however.

“This reduction in poverty [prior to 1997] in Thailand did not come about as a result of any specific, well-targeted poverty reduction policies or measures,” wrote Medhi in a 2002 paper. “It could be safely concluded that poverty reduction in Thailand came as a result of overall economic growth.”

When the government floated the baht in 1997, triggering a regional economic crisis, poverty levels naturally increased. According to TDRI, the poverty rate jumped from 14.8 percent in 1996 up to 21 percent in 2000.

So prior to Thai Rak Thai’s first election win in 2001, the poverty rate already appeared to have peaked from the financial crisis, and the economy was showing signs of recovery. The public, though, was tired of the Democrat Party’s sluggishness and the business community liked the new premier’s bold ideas and decisiveness, setting the stage for him to implement a host of populist policies that reshaped the Thai political landscape.

To pay for the costly programs, Thaksin told ministers to cut other spending to maintain financial discipline. Increased growth also boosted tax revenues by 10 percent in 2002 from the previous year.

From a macroeconomic standpoint, the results were immediate. GDP growth more than doubled to 5.4 percent in 2002 from 2.1 percent in 2001, and increased to 7.1 percent in 2003. Meanwhile, public debt dropped to 50.6 percent of GDP from about 57 percent the prior two years, and the general government balance showed a surplus in 2003 for the first time since 1997.

Oil prices end the populist party

So did Thaksin’s dual-track policy directly boost GDP growth? Certainly, although again he got some help from external conditions. In 2002, the global economy recovered from the post-September 11 recession, real interest rates were low and crop prices rose.

“Due to increases in world prices, prices of major crops, including rice, rubber, tapioca, palm, and oilseeds, rose and nominal farm incomes rose in both 2001 and 2002,” the World Bank said in its October 2003 Thailand Economic Monitor. “The relative price of agricultural products to manufactures also increased. With low inflation, higher real farm incomes lifted household consumption and reduced poverty.”

Thailand’s exports also outpaced regional economies as the country sold more electronics, cars and auto parts to the Western world. Thaksin started giving incentives for auto companies to base in Thailand, and sought to boost exports further through trade deals and new markets.

Meanwhile, on the home front, Thai Rak Thai’s pump-priming put money into the countryside. Consumer confidence hit a record high in July 2003 as private consumption jumped to 6.3 percent on increased sales of cars, electrical appliances, mobile phones, and telecommunication services.

Times were good. But they didn’t last.

The favorable external environment took a turn for the worse late in 2003 when oil prices began to spike. In January 2004, Thaksin put a cap on the diesel price, believing that subsidies would act as a quick fix. But oil kept rising and rising, eventually doubling 2003 price levels. By the time the government floated oil prices in 2005, it had racked up more than US$2 billion in debt.

Since Thailand’s economy is the most oil-dependent in Asia, growth naturally suffered. After peaking in 2003, GDP growth dropped to 6.3 percent in 2005 and 4.5 percent the next year. Meanwhile, private consumption slowed with the increase in oil prices, inflation and household debt. Although farm prices had jumped 9.6 percent in 2003 and 19.5 percent in 2004, crop production had lowed and the outlook for 2005 was grim.

Also in 2004, the first real data showing increased debt levels emerged. A socioeconomic survey said that about a third of household loans were spent on consumption, and the poorest households saw debt increase by 22 percent since 2002—“partly a result of government programs aimed at increasing access to finance, particularly of grassroots households,” the World Bank said.

In 2006, a private investment boom to boost capacity was supposed to drive economic growth, but political uncertainty dampened the outlook from when Thaksin called an early election in February 2006 until today.

Poor implementation

Although the demonization of Thaksin has muddied the policy debate in Thailand, many of his policies had basic anti-poverty components found throughout the world. Microcredit, debt relief, and cheap health care have lifted millions out of poverty around the globe.

“Everything that we have done has been simply to help the poor, to help communities survive and prosper,” Somkid Jatusripitak, a key member of Thaksin’s economic team wrote last week in a Bangkok Post supplement marking the anniversary of the 1997 financial crisis.

“Should such policies be readily dismissed as wasteful political ploys?” he went on. “To me, they represent genuine efforts to alleviate poverty and ensure sustainable prosperity.” I agree, however, that whether a policy is good or bad depends much on implementation. But I believe that the basic philosophies have remained correct. The ideas weren’t wrong.”

Indeed, the problem most academics had with the programs was the implementation. Instead of leading to increased efficiency and sustainable growth, much of the money was spent on consumer goods that ended up boosting household debt.

“We have to give credit to Thaksin’s policy because it inserted a lot of money into low-income farmers and workers, which reduced poverty,” said Somchai Jitsuchon, research director at TDRI who now serves as an advisor to the Finance Ministry. “But it was just temporary. The money just went from hand to hand without increasing the potential for production or income earning.”

Thaksin certainly spent a lot of cash on anti-poverty programs, boosting total expenditure to 2.3 percent of GDP in 2002 from a mere 0.74 percent in 1999, according to a 2005 World Bank study on the Northeast. But most of that money never made its way to the poor. The study found that nearly 90 percent of beneficiaries of both the debt moratorium and the revolving village fund were non-poor households.

“Many of these programs have low levels of coverage and high leakages of benefits to the non-poor as they cover large populations,” the study said. “Improved targeting by defining better criteria for allocating resources will be essential to reduce the population of poor people.”

Many critics of Thaksin’s policies feared they were creating a culture of dependency in which people would come to rely on cheap money from the state. If the villagers couldn’t pay back the loans, they would just caravan to Bangkok and sit in front of Parliament until they got what they wished.

“Grassroots borrowers now appear to expect that the government will always come in and write off their debt if they cannot service it themselves,” current Finance Minister Chalongphob Sussakarn and academic Pakorn Vichyanond wrote this year in the Asian Economic Policy Review.

“Cases of mobs demanding debt forgiveness (and getting it) are becoming regular events.” Thaksin’s policies were also seen as fiscally irresponsible since many of the programs were funded off-budget through state-owned banks. The IMF and credit agencies warned for years that these could disguise the state’s real liabilities, and the military-installed government claimed it would need to pay 54.6 billion baht in debt from the Thaksin era during this fiscal year, according to the Bangkok Post.  

While the populist programs may have proved an inefficient use of state funds, the current government’s finances are also under scrutiny. Of the reported 54.6 billion baht in populist debts incurred this fiscal year, 18 billion went to cover a rice-price intervention scheme by the Bank for Agriculture and Agricultural Co-operatives (BAAC); 7.7 billion went to pay for the 30-baht universal healthcare scheme; 7.1 billion to boost rubber prices; 8.8 billion for salary hikes to teachers; and another 13 billion for the village fund.

By comparison, the military has upped its 2008 budget to 143 billion baht from 86 billion before the coup—a 57 billion baht increase. Moreover, fears of secret off-budget allocations have increased recently after the outgoing president of the state-run Telephone Organization of Thailand, which is chaired by assistant coup leader General Saprang Kalayanamitr, revealed an off-the-books 800 million baht purchase.

“That screams slush fund,” according to one diplomat who closely follows security affairs. Interestingly, the state-run banks that took the losses for Thaksin’s programs, BAAC for price subsidies and Government Savings Bank (GSB) for village loans, have both remained profitable. After the coup, the GSB told the military government it wanted to keep funding the village fund and other Thaksin-era microcredit schemes.  

Although the off-budget expenditures during the Thaksin era posed a threat to the country’s fiscal position if the debt turned bad, the country’s finances improved over the past few years. Thailand’s foreign reserves are now equal to the amount of foreign debt. International credit ratings agencies, while expressing concern about the programs, also reaffirmed that Thailand’s fiscal position was strong.

“The recent rapid increase in off-budget expenditures, especially in the form of credit extended by state-owned financial institutions, poses some risk to the government finance, as some of such credit could be soured in the future,” Japan Credit Ratings (JCR) said in January 2004 when it upgraded the outlook on government debt. “However, given the relatively limited scale of such spending, JCR thinks that potential government liabilities that could be incurred will remain within a manageable level.”

Time to look forward

 The evidence on Thaksin’s economic management is mixed. His external policies helped boost exports, the main driver of economic growth, which helped reduce poverty. But his domestic stimulus measures were inefficient at targeting the poor and ultimately unsustainable.

By concurrently offering cheap loans and debt forgiveness, Thaksin was hardly instilling principles of sound economic management while creating a dependent rural population that could be counted on to keep Thai Rak Thai in power.

Indeed, early on in Thaksin’s tenure economists warned about the problem. “The development policies of the [Thaksin government] have taken into account various measures to increase social welfare of the Thai people,” Medhi wrote in 2002. “However, many of these policies measures are inefficient and wasteful as they distort the working mechanisms of the market.”

So far, the main opposition Democrat Party—the only one with concrete policies now that Thai Rak Thai was dissolved and new parties are still banned—has laid out a liberal economic agenda. It would scrap the current government’s moves to redefine foreign ownership and restrict privatization, while at the same time trying to make Thai Rak Thai’s health care plan and microcredit schemes sustainable.

In addition, it hopes to improve Thailand’s long-term competitiveness. “We need to agree first on what kind of end result…is required and move toward overhauling the system to make it happen. We remain stuck in process tinkering, rather than being specifically goal-oriented,” Korn Chatikavanij, secretary-general to the Democrat Party and former head of JP Morgan’s Thailand operations, wrote in an opinion piece distributed to local newspapers this week.

Whereas Thaksin’s schemes may have boosted the country’s rural poor, the country’s long-term competitiveness hasn’t improved much. Of course, it takes time to upgrade infrastructure, overhaul the education system, start the transition to a knowledge economy, boost crop yields, wean the economy off oil and increase farm productivity— but many critics believe the gimmicky programs took away from the focus on the larger picture.

Even so, the personal animosity many have for Thaksin should not dismiss his policies outright. Certainly his cheap health care and microcredit programs will not be abolished. Either way, no matter which party gets elected next, it would be a grave mistake to proceed with the military government’s policies of revenge. Now that Thaksin’s personality cult is appearing to wane, politicians can hopefully start looking forward to the next election and how Thailand will look in a decade, instead of continuing the military government’s attempts to roll back the clock a few decades.

8 Responses to “Asia Sentinel spot on “Thaksin’s score card””

  1. john gallear Says:

    has a retired uk national residing i thailand i like 1000s of expatt here are now calling on our mp,s to demand thaksin has to leave the uk for visa runs the same has we have are ordered to do so and how is it he is allowed to own property in the uk we cannot even own a brick here neither are we allowed to own land i want to know why this criminal is allowed to do everything in my mother country and he has made life very difficult for uk expats only wanting to retire here get rid of him before he starts his corrupt ways in the uk
    thank you john

  2. D. S. Says:

    So you are supporting the diabolic Gen. Sonthi B. and his cultists and you want Thaksin to brough to thailand only to be executed by this devil?

  3. rayn Says:

    To. John Gallear
    I am Thai, so! I know what I’m talking about,
    First of all,”What you see or heard are not necessery always true. Now more than a year, that the coup have an unlimited power tried to do every way to put Thaksin in jail,but what they found was no evidence whatsoever to support their blamed and to prove their right for taking away the people’s power. I do not expecting an angel to run my country. I just hope to have someone who think about the poor 80% of all the population,when the poor get a better life then we all can walk along together forward, in the history no body does like Thaksin. I am not telling you he is a perfect man, I do not think any human been are perfect including you and me too. I have no benefit from his government at all and I do not know him personally but one thing I can say for Thaksin is “he is the BEST” compare with what we have in Thailand.
    John! please do not afraid Thaksin would never done any thing like that to your country,even he is not a perfect man but he is a good man.
    The last but not least, we will bring him back home in very soon future, his old party bounded back strongly with the strong support from his poor people and we want him to be with us in our country, we can not let him go,cause he is so smart and has a good heart, we want him to be in the same land as ours.
    Thank you John.

  4. Toung Says:

    I agree with rayn and I support him to be a good minister again

  5. somchai Says:

    I am also Thai and do not believe anything Thaksin has done to be anything other than selfserving. And yes, I know and have worked with TRT.

    He wanted to control business. He needed to be elected. He needed poor people to vote for him. he gave them short term fixes none of which have built their long term capabilities. And so he is popular.

    The economy is a mess now because of his poor policies; airport that doesn’t work, 30b healthcare is bankrupt, high levels of household debt, bad telecoms infrastructure, etc. Every policy was aimed to skim money for himself and his friends. He sold off 96% of his company to Singapore. He paid no tax and concealed assets. Is this someone who is so smart with a good heart?

    As oil prices rose in 2004 – 2006, did he ever increase the starting price for a taxi fare in Bangkok?

    We need someone to care for the poor, not just to do some things like he did, but to genuinely help. Until that day, all Thai politicians – from Thaksin to Samak – will just help themselves and not anyone else.

  6. OMG The new P.M is an Englishman - Page 3 - Ajarn Forum - Living and Teaching In Thailand Says:

    […] of better informed commentators, Mr pac. Both good and bad. I’m guided by articles like this: Asia Sentinel spot on “Thaksin’s score card” Hello Hello KonThaiUK! __________________ "What are we doing in here, Chief? Huh? What’s us two guys doing in this […]

  7. OMG The new P.M is an Englishman - Page 5 - Ajarn Forum - Living and Teaching In Thailand Says:

    […] of better informed commentators, Mr pac. Both good and bad. I’m guided by articles like this: Asia Sentinel spot on Thaksins score card Hello Hello KonThaiUK! *cough* __________________ "What are we doing in here, Chief? Huh? What’s us two guys […]

  8. Donny Says:

    Wow! You really know the situations inside out even you’re not in Thailand!

    Great article!


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