How Asia lost an economic role model


Barron's Asia

As economists scour the globe for lost-decade candidates, Thailand is making it too easy for them.

The latest band of generals to grab power in Bangkok is proving less operational than the government they tossed aside in May 2014, and that’s saying a lot. Prayuth Chan-o-cha is giving a bad name to coup leaders, who normally take over to restore order and get things done. But to truly appreciate why Thailand’s next 10 years will be a dud, we need to explore where things went so wrong over the last 10.

In 2006, Thailand was the scene of another spectacular coup — that one to topple Prime Minister Thaksin Shinawatra. Efforts by the billionaire-turned-politician to pull a Silvio Berlusconi on Thailand rubbed many the wrong way. Like the former Italian leader, Thaksin harnessed business connections to win Thailand’s top job and, once there, looked after the family business too blatantly for comfort. At the time, many investors rejoiced in Thaksin’s ouster, figuring it would cleanse Bangkok and restore trust in its institutions.

Thaksin returned to the fray this week, telling The Wall Street Journal that this junta’s pledges to purge the system a decade on are a “charade.” My first thought while reading his words: Pot. Kettle. Black. But when you’re right, you’re right. Thaksin is absolutely correct that the Gen. Prayuth’s plan to allow for an unelected prime minister even after a possible 2017 election is unworkable. Thaksin’s comments serve as a bookend of sorts for how little the junta has achieved in 642 days at the helm — or, for that matter, Thailand since Thaksin was toppled.

Roughly eight years after he fled to avoid prison on corruption charges, Thaksin remains a larger-than-life figure in Thai politics. As Wall Street Journal reporter James Hookway points out in the write-up of the Thaksin interview, the junta won’t take too kindly to his opinions. Yet the junta asked for it. First, by adopting many elements of the Thaksinomics model Prayuth & Co. pledged to replace, including populist cash lavished on rural communities to win loyalty. Second, by focusing more on public relations than structural reform.

The first mistake was compounded in August, when Prayuth hired Thaksin-era Finance Minister Somkid Jatusripitak to spearhead upgrades. Along with falling back on some of Thaksinomics’ old ways, Somkid has talked more in generalities than specifics about plans to create an “entrepreneurial society” as a means of generating better-paying jobs.

That gets directly at the second problem: too many slogans, too little action on modernizing the economy. The junta’s steps to clamp down on the media and restrict political activities have worked at cross-purposes with hopes for a more innovative and competitive nation.

The same goes for the focus on short-term stimulus over long-term planning. True, growth ended 2015 at a respectable 2.8 percent pace, but it reflected a spending jolt by the military government that won’t be sustained in the quarters ahead. The most important data point: exports fell about 6 percent in 2015, as Thailand sent the fewest goods overseas since 2010.

The key is raising Thailand’s competitive game. The junta has been slow to encourage more long-term investment with greater infrastructure spending or regulatory tweaks. Policies to improve human capital — education, training, productivity-enhancing initiatives — to keep pace with regional neighbors are lacking. As Indonesia, the Philippines and Vietnam woo multinational companies bailing on China, Thailand is at a distinct disadvantage.

Then there’s the election problem. There’s every reason to fear that even if a reasonably credible contest is held in late 2017, junta leaders could try to maintain power. The European Union has called the junta’s constitution a “fake.” Who would think of making big investments in Thailand before then? “It’s a charade to show the world that Thailand is returning to democracy,” Thaksin said Feb. 21. “But in reality it would be like Myanmar before its political reforms. There would be a prime minister, but the real power would be in some politburo above him and the economy would suffer. No other government would want to touch Thailand.”

What happens in Thailand matters because of the role-model status it once enjoyed. Officials in Hanoi, Naypyidaw and Vientiane long looked to Thai government institutions, markets and banks as aspirational exemplars. In the early 2000s, regional peers like Gloria Arroyo of Philippines studied the applicability of Thaksonomics in their underachieving economines. That was then, of course, and now Philippine President Benigno Aquino is showing Thailand how to transform a corporate and political system.

Indonesia also is on the ascent as President Joko Widido regains his reformism mojo. Earlier this month, he unveiled the most ambitious liberalization of investment rules in a decade. Let events in Manila and Jakarta be a lesson to Prayuth’s Thailand: ridding your nation of bad leaders past requires bold and forward-looking policy changes, not spin.

The irony is that Prayuth probably thinks a weakening economy will underline support for his government, when the opposite is true. His failure to get under the hood of an economic system that was sputtering 10 years ago under Thaksin is undermining Thailand’s future.

Prayuth can’t increase confidence in the economy unless he displays some himself. As Thaksin put it, “if you have a real intention to move the country forward, if you intend to return dignity to the Thai people, then please come to talk” with the dueling factions battling over Thailand’s future. Again, this is the proverbial pot calling the kettle black. But when Thailand’s most controversial former prime minister is right, he’s right. And if Thaksin can see that from exile overseas, why can’t the junta on the ground in Bangkok?

William Pesek, executive editor of Barron’s Asia, is based in Tokyo and writes on Asian economics, markets and politics. www.barronsasia.com