absolutelyBangkok archive · Business & Economics
Originally published Oct. 2, 2008
“Thailand is lucky, lucky, lucky” — not thanks to the PAD, you’re about to learn. Like her or don’t like her for her political affiliations, Khun Vongthip’s strength is again the economy.
Why’s Thailand lucky? No surprise: Because the kingdom went through the meltdown Wall Street’s facing now some eleven years ago. And Thailand learned her lessons.
What could have meant a political lesson as well though remained a strictly financial thing. Surprise, Khun Vongthip still cheers for the political “Thai style” festival over at Govt House…
By Vongthip Chumpani*
Bye bye Samak:
Following his arduous, aggressive and unpleasant fights with the media and the PAD, PM Samak’s sudden departure from political scene came almost like an anti climax! On 9/9/08, the Supreme Court for Politicians found Samak guilty of conflict of interest and for giving forged evidence to the court. He was disqualified as a minister and had to immediately vacate his premiership.
His cabinet consequently ceased but was allowed to continue as acting cabinet until a new government is formed. Samak was again stunned when the majority of PPP MP’s failed to turn up in the House to vote him back as PM. Thereafter, all hell broke loose as coalition government MP’s scrambled to regroup to nominate a new PM candidate and to renegotiate their shares and spoils in the government.
From nominee to family cabinet
Even though Samak was supported for a while by the Gang of Four faction, phone calls from London had managed to sway the majority of the coalition government MP’s to vote for Thaksin’s brother-in-law, Somchai Wongsawat as Thailand’s 26th PM. The choice of Somchai, husband of Thaksin’s most politically powerful sister, Yaowapa, was a clear indication that Thaksin no longer trusts an outsider to look after his interests in Thailand.
A former judge before marrying into the Shinawatra family, Somchai, has a polite and gentle demeanor that somehow has managed to ease the political tension. Many seemed to be prepared to give him a chance. They were cheering him on to appoint a good and capable cabinet to run the country during this difficult time of political turmoil and economic crisis.
An ugly line-up
When the cabinet was announced, however, voters were moaning with disappointment. Somchai has certainly put the wrong men in the wrong jobs. We now have former police chiefs running Ministries of Foreign Affairs, Industry and Health. A young academic turned political strategist became Minister of Finance. Two new DPM’s joined the cabinet, a former PM and a former bank president. All in all it was the boss’ final choices, in line with the infamous political musical chairs.
Ministerial positions are farmed out on 12:1 MP’s ratio. Other political appointments e.g. secretaries and advisors to ministers are put on the bidding block. Most intelligent voters have become resigned to the fact that this administration will not last longer than 3-4 months and that a national election is just around the corner.
Political festival
Through out 9/08, the PAD continued their occupation of the Government House. They were vindicated and elated when their “new politics” concept was picked up by the public at large and by the academics in particular. People have become so fed up with the exiting ineffective parliamentary system. Voters were disgusted by the coalition government’s on-going selfish bickering and greedy maneuvering.
For 130 days now, the PAD has been attracting thousands of protestors who together have turned their daily demonstration into a combination of serious political lectures, soap-box tirades, political folk song and poem concerts, food stalls and souvenir shops that looked like a community fun-fair. Tourists and even some foreign ambassadors have been spotted walking around, enjoying the unique political protest, Thai style, at no better place than Government House itself!
Wall Street meltdown
In 9/08 Thai voters, who have been almost obsessed with domestic political development, were rudely awoken by the American Financial Tsunami and its after shocks. All hell broke lose world-wide, when out of the blue, American financial giants like Lehman Brothers, AIG, Morgan Stanley were declared insolvent. Almost overnight, 5 American investment banks disappeared in one form or another and the impacts on banks and non-banks in and outside the USA have been tremendous.
The collapse came also at the wrong time, only a few weeks before the national election on 4/11/08. The US Congress and Senate simply could not bring themselves to vote for the trillion dollar bail-out schemes that the Bush Administration and the Fed were rushing for their approval to prevent further meltdown, not only on the Wall Street but also on the Main Street! Meanwhile global stock and capital markets were held hostage to what went on at the Capitol Hill.
Thai economy still healthy
Overall the Thai economy is considered resilient and stable. This year the high oil and commodity prices have both positive and negative impacts on our economy. Being a predominantly agricultural exporter, Thailand enjoys the windfalls from the dramatic increases in the commodity and food prices.
As a net oil importer, however, we suffer from the high and volatile oil prices. As our country is standing on three legs i.e. agricultural, manufacturing and service sectors, when one is in trouble, the other two usually can make up for the shortfalls and keep our balance of payment favorable still. Let’s hope that this financial crisis and the impending world recession will not break all our three engines!
Thai banks’ exposure
The health of the banking industry reflects the health of the country. Our fortunes and misfortunes go hand in hand. It has been 11 years now since the Asian Financial Crisis in 1997. All these years, Thai bank operators and supervisors alike have learned to survive in the harsh and averse situations. Under the new Finance and Banking Act, banks in Thailand have been working under a more transparent, prudent, disciplined and yet resilient financial system.
Until recently, the ratio of deposit to loan of Thai banks has averaged 85%. Up to now, Thai banks have not been affected much by “liquidity crunch” or ‘credit crunch’. Unlike before the 97 Crisis, we now have ample liquidity at home and interest rates have remained reasonably low still. In the last few years, the net inflow of capital into Thailand has also been consistently positive, with most coming in for long term investment in FDI foreign direct investment rather than in the speculative stock markets.
The SET
The Thai stock market is relatively small, with a market capitalization of only $144 billion on 29/9/08. Foreign investors account for about 30% of the daily trading volume. So the swings in our stock market have not been as traumatic as in say Hong Kong, Singapore or Vietnam, during this period of instability.
From 2004 to 2007 foreign investors were the net buyers of Thai stocks at a magnitude of $ 12.5 billion. They turned net sellers of about $ 6.25 billion in 2007, and unloaded another $ 3.75 billion since the beginning of 2008. Foreign net stock holding has now dwindled to about $ 2.5 billion. Curious enough their selling has subsided somewhat during the crisis in September.
Thailand is lucky, lucky, lucky
By default, Thailand is in a comparatively good shape to weather this Mother of Financial Crisis. Since 2006, our worst ever political crisis has scared off foreign fund managers, stalled the push for higher economic growth, put huge mega project investment on hold, and most importantly shelved the privatization of our state enterprises.
If it were not for the “trouble-making PAD”, we would be now in deep government and private sector debts. We would also stand to lose our most precious national assets. Clearly PAD’s painful struggle to keep Thailand, conservative, prudent, has paid off at last, albeit in an unexpected way. Most of us have to agree that now is the time to start practicing HM’s sufficiency theory in earnest.
As one expat was heard saying “Thailand can do a lot of things wrong and somehow gets it right at the end while other countries can do a lot of things right and still get it wrong when it really counts. Let’s not push our luck too far this time around!
* Vongthip Chumpani is an advisor to and former president of Bangkok Bank and a former advisor to the Senate Foreign Relations Committee. All views and opinions expressed herein are entirely from her own personal observations.
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