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Protests threaten to derail economic powerhouse Thailand


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BANGKOK — The Globe and Mail


Few countries can match the drama that has marked the wars for political supremacy in Thailand’s recent history. Since 1992, the country has seen 10 prime ministers. Elected leaders have been turfed by courts for electoral fraud and by the military for failing to maintain a grasp on street protests. One prime minister was kicked out because he was getting paid to host a TV cooking show while in office. Since 1932, Thailand has experienced 18 coups.


Along the way have come a litany of national black marks, including government-sanctioned extra-judicial killing, frequent mobs in the streets, the closing of Bangkok’s two airports for eight days in 2008, and the shooting on demonstrators by the military in 2010. The latest round of unrest, now more than two months old, has reduced Prime Minister Yingluck Shinawatra to caretaker status after she was pressured into dissolving parliament in December, ahead of elections that may or may not take place in early February. Starting Monday, anti-government protesters vow to block major intersections to shut down Bangkok.

Yet Thailand also appeared – until recently – an unstoppable powerhouse.

For decades, Western investors have been lured here by a cheap and talented work force – in 2012 alone, nearly $12.5-billion in foreign capital flowed into Thailand’s bond and stock markets – and it is among the world’s most-visited countries. Toyota in Thailand brags that the skill of its workers, the quality of their product and the efficiency of its operations are comparable to Japan. Thailand makes more pickup trucks than any other country, leads the world in output of canned tuna production and is a major producer of global staples such as rice and sugar, as well as premium plastics and rubber products – including condoms. Thai workers make vast amounts of cameras and hard drives, ecocars and automotive parts, jewellery and ceramic tile.

All of which prompts an obvious question: Why can’t Thailand get its bearings?

The question matters both inside Thailand, where the instability is exacting a growing economic toll, and outside, among the array of foreign interests with an increasingly deep stake in a country among the first generation of south-east Asian “tigers.”

In recent months, the demonstrators once again marshalling in the streets have sent money scurrying away. Tourist visits are down some 15 per cent. In November alone, foreign investors withdrew $3.7-billion from Thailand; in December, the country’s stock market marked a record 11 consecutive days of declines, a reminder that trouble in Thailand has much broader ramifications. At the same time, voices inside the country are warning that without some sort of change, Thailand is at risk of losing out to its economically ascendant neighbours.

But looking for fixes means diving into a mess decades in the making.

One aspect is a Thai institution so sacred as to be beyond criticism. Thailand’s monarchy is among the vestiges of a place that prides itself on being the only south-east Asian country without a history of colonization. The current king has reigned since 1946. And while Thailand is a constitutional monarchy, the Palace wields influence through what academics call a “network monarchy” whose sway has grown in the past half-century.

Federico Ferrara, in his book Thailand Unhinged, describes a “precipitous rise in royal power and prestige” that has “tilted the balance of power in favour of the palace” and its coterie of advisers, judges and military commanders.

Elected officials, as a result, have been unable to “place the military under civilian control, take charge of the machinery of government, and set national policy,” he wrote.

Thailand’s king remains tremendously popular in a country festooned with his portraits, but under him the monarchy has “had at best a mixed record supporting democracy, and hasn’t allowed a fully democratic political system to emerge,” said David Streckfuss, an American researcher based in Cambodia.

Further complicating matters, a new force has emerged in the past 10 years, and with it additional problems. Historically, Thai politics was dominated by individual personalities. In 2001, Thaksin Shinawatra, the controversial Thai billionaire now living in exile, became prime minister in part by campaigning on a broad populist platform. He appealed to those outside cities who make up a large share of the population, helping amplify a schism between the country’s urban wealthy – which developed into a movement traditionally called the Yellow Shirts – and rural poor Red Shirts.

“This is a politically intractable situation – red-shirts have the votes, yellow-shirts have Bangkok and the elite – piled on top of economic policy failure. It is a downward spiral,” said Joe Studwell, who has written extensively on the problems facing south-east Asian countries.

Graft, meanwhile, has flourished. Thailand now ranks 102nd in the Transparency International corruption index, worse than the Philippines and Colombia. Businessmen, academics and anti-corruption campaigners offer a consistent estimate: for every 100 baht in capital spending by the Thai government today, some 20 to 30 lines pockets. It’s become so routine that polls show some two-thirds of Thais find corruption acceptable, so long as they see some benefit.


Now, as crowds again take to the streets, their raucous whistle-blowing has brought to the fore not just governance problems, but some of the consequences, particularly to an economy that hasn’t always been well-managed in the midst of the political fray. In his book How Asia Works, Mr. Studwell notes that at the close of the Second World War, Thailand and its neighbours shared roughly equal incomes. Today, South Korean workers earn, on average, nearly four times their Thai counterparts. For every acre of land, Thailand produces less than half the Asian average of rice; Chinese farmers harvest nearly three times as much garlic from an acre.

Even the success stories come laced with doubt. Thailand, for instance, builds so many cars that it’s been called the “Detroit of the East.” In 2012, it manufactured 2.45-million vehicles, up nearly a million in two years. But “there is now some shifting of emphasis” away from Thailand, said Pramon Sutivong, who is chairman of Toyota’s operations in Thailand. Some neighbours look increasingly attractive. “Indonesia is a big market and it has bigger potential than Thailand with its population.”

Thailand was once the world’s largest condom maker, after a government effort to draw more profit from its rubber. But it lost that title to Malaysia in 2010. Even its talent in building huge numbers of hard drives isn’t on terribly solid ground: in an age of smartphones and tablets, global hard drive revenues fell 12 per cent in 2013.

“We’ve lost our competitiveness, basically,” said Korn Chatikavanij, a former JP Morgan executive and finance minister in Thailand. “And we are paying the price for that.”

Indeed, Thailand now finds itself at an important juncture. Average annual incomes have now risen to about $5,800 (U.S.), which places it on the World Bank’s “upper middle income” scale.” Thailand is no longer cheap. Other south-east Asian countries have pushed into ever-higher incomes by doing more valuable things: less slapping together other countries’ designs, more dreaming up their own. But that’s not easy.

Thailand is “reaching a crucial phase of its economic development when it will need to make a painful transition to competing as a high value-added economy,” said Rajiv Biswas, Asia chief economist for IHS, the global research company.

Other countries have shown how. By pairing university and government efforts, for example, Singapore has built up an aerospace industry sophisticated enough that Rolls Royce now builds jet engines there.

But Thailand has not been an innovation haven. Even in areas where it has been a global superpower, research has been sparse. Once the world’s top rice exporter, Thailand has done little to solidify that position: in 2010, the national rice research budget stood at roughly $5.5-million. Last year, it was eclipsed as top exporter, in part thanks to a government rice subsidy that has seen roughly 20 million tonnes of rice left in storage, some of it rotting as it awaits a buyer willing to pay above market prices.

The rice problem illuminates a crucial issue for Thailand: just about every path forward relies heavily on government’s ability to design and deliver savvy planning. Tax policies, national strategies, training programs and other big long-term thinking can make change. But in Thailand, years of back-and-forth coups and elections have made it nearly impossible for anyone to think beyond the next protest rally.

Still, there is hope that Thailand can alter course, particularly among the Thai elites who support the current anti-government protests. They are optimistic protest leaders will install reforms to clean up the electoral process, tamp down graft and create more stable governance. “I strongly believe that this year or next year will be Thailand’s great correction, because I have never seen people who rise up like this,” said Voravan Tarapoom, managing director of Bangkok investment house BBL Asset Management Co., Ltd.

A rich table has, after all, been laid for Thailand. The country sits at the heart of a region that remains fertile ground for growth. It stands to become not just a maker of condoms and cars, but a trading crossroads: “Just like Japan did. That’s the future of Thailand,” said Pridiyathorn Devakula, who served as governor of the Bank of Thailand from 2001 to 2006

That notion, though, comes with a caveat: it’s only likely if Thailand can sort out the messy governance that has, for decades now, cast a shadow across its future.

“Thailand’s weak point is politics,” said Pridiyathorn Devakula, who served as governor of the Bank of Thailand from 2001 to 2006. “If we have political stability, we will be ahead of other ASEAN nations. But that’s a big ‘if.’”

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