BANGKOK — Only a few months ago, governments of the West were warning their citizens not to visit Thailand. The heart of the capital was a no-go area with battle lines drawn and blood shed between security forces and protesters. Shops and hotels were shuttered, but that did not prevent one of Asia’s major shopping malls from being set ablaze in an orgy of looting that followed the government crackdown on the demonstration along with 90 deaths.
Today the country’s economic growth is going gangbusters as fast as China’s. Unemployment is a mere 1 percent, tourists have returned, exports are booming in spite of a rapidly appreciating currency, and Toyota has announced plans to make its new flagship Prius hybrid car in the country. Thailand is now looking at 8 percent growth this year in spite of the worst floods for decades.
In a recent interview, Finance Minister Korn Chatikavanij explained the vital role that the government can play in removing roadblocks to growth.
Korn said that early and aggressive government spending stimulus and fiscal measures helped lift the economy after the global financial crisis. As a fast-growing country, Thailand clearly got more bang for its buck than the slow-growing West, where increased government stimulus has led to potentially crippling government debts without having much effect on intractably high levels of unemployment.
Thanks to rapid economic growth, Thailand’s record government stimulus raised national debt by a mere 0.4 percent of gross domestic product, and the ratio of debt to GDP remains a manageable 43 percent. Moreover, higher tax receipts will probably bring the budget into balance.
The minister admits “positive surprise” that what amounted to an attempted revolution in April and May caused so little damage to the economy: “The political crisis paralyzed half of Bangkok for some of the time. In spite of the images that appeared on TV screens, it actually had zero impact on the manufacturing process, supply chain, logistics, nothing was impacted. Manufacturing and export data for April and May are testament to that.
“Obviously during the crisis there was a drastic impact on tourism. The interesting thing is how fast that has recovered, and we are now back to estimating a full-year number equal to the peak of a couple of years ago of 15 million visitors. Domestic demand picked up almost immediately after the crisis with a boost from pent-up demand. From an economic perspective, the country goes on.”
Korn says Thailand suffers from “some growing pains,” especially the strong baht, up by 11 percent against the dollar in the last few months and by 30 percent in five years. Concerns about flows of hot money into Thailand led him to impose a 15 percent withholding tax on interest and capital gains earned by foreign investors on Thai bonds.
Reflecting back on the twin crises — the global economic one and the domestic political upheaval — Korn insists that “the major driver for the economy is the private sector. Sometimes marginal (government) action can be very important in setting the right tone and pointing the ship in the right direction. Once it is in the right direction, the engine room, which is the private sector, will drive the ship forward.
“I like to think that we did that. We intervened in March and April 2009 with a very substantial short-term stimulus, which was unconventional in that it involved policies that were effective cash handouts to those in need with the sole aim of stimulating domestic demand to make up for the shortfall in export demand at the time, and it worked.”
The demonstrations highlighted other problems, notably growing gaps between rich and poor, between the Bangkok elite and poor rural areas. Resumption of rapid growth has allowed Korn to shift his attention “from putting out the macro-fires resulting from the global crisis to addressing local inefficiencies.
“The inefficiencies are at the structural level and at the microlevel. Inefficiency includes issues related to inequality, which plays into the central theme of the political crisis in April and May when inequality was used as an excuse by the protest leaders to galvanize people into joining their movement.”
The minister proudly points to refinancing schemes the government has introduced to defeat loan sharks. In addition, he says, “We have been driving laws both to protect individual debtors and push state-owned banks to come up with genuine micro-finance business plans. Issues that help address the unequal distribution of the gains that the country has made will be a major focus. This will lead to more stable growth and higher rates of growth in the long term.”
He stresses that Thailand needs to do more than business as usual: “It needs genuine reform in many sectors. It needs clear long-term planning and strategies in key areas, such as development of food industries, logistics and telecommunications.
“These challenges require relative stability and that will be the key to the next general election. Many of the policies aimed at the rural agricultural- based communities have already had a big impact, and our research indicates that the public appreciates that these policies have been put in place by this administration. I am looking forward to the next election.”
Thailand — one of the few major Asian countries without a territorial dispute with China — has gained from increasing ties to China. Korn notes that “Thailand was one of the last countries in terms of public opinion to view the emergence of the Chinese mainland as an opportunity rather than as a threat.
“Now there has been a substantial increase in trade and increased levels of investments into Thailand by Chinese companies. I was talking with one of the industrial estate companies recently, and he was saying that China Inc. has effectively drawn up a vast tranche of their land to create almost a Chinatown from an industrial perspective. Chinese consumers will be the major drivers of all our economies for many years to come.”
Kevin Rafferty, formerly in charge of the Financial Times’ coverage of Asia, is editor in chief of PlainWords Media.