Growth or Happiness?
Thailand’s coup could derail a tiger economy.
When tanks rolled into Thailand’s sprawling capital on Sept. 19, countless Bangkok dwellers celebrated the ouster of a leader many urbanites had come to despise. But what they perhaps didn’t realize is that the coup d’état that toppled Prime Minister Thaksin Shinawatra also delayed the arrival of rumbling vehicles of another sort: hundreds of light-rail carriages.
Indeed, a massive planned expansion of Bangkok’s rudimentary public-transit system is just one of the projects that could be sidetracked during military rule. “We’re not [expecting] big moves in infrastructure,” says Yiping Huang, a regional analyst at Citibank in Hong Kong. “The lack of a working government or Parliament makes it unlikely that we’ll see an expansion of fiscal policies.”
The investment-led boom many analysts had anticipated in Thailand next year is temporarily on hold. Initial optimism that Thaksin’s departure might presage a return to economic normalcy looks premature in light of the mixed messages emanating from the country’s new leaders. In one of his first pronouncements as junta-appointed interim prime minister, Surayud Chulanont told reporters last week: ‘‘I will not focus that much on the GDP number but rather on the indicators of the people’s happiness." Pushing through a new constitution and paving the way for democratic elections next year rightly top his to-do list. But his comments nonetheless heightened concerns of renewed protectionism and fresh initiatives to attain the self-sufficiency espoused by Thailand’s revered King Bhumibol Adulyadej, who at the depths of the 1997-98 Asian financial crisis famously told his subjects: “It is not important to be an economic tiger.”
Thaksin, in contrast, was all about making Thailand roar. With initiatives that the self-aggrandizing tycoon-turned-politician branded “Thaksinomics,” his government pumped billions into Thailand’s rural sector to seed village-level industry. That spurred a consumption-driven recovery and made the country one of the region’s top performers since he took power in 2001. Back in January he opened what was to have been a dramatic second act: Thailand Mega-Projects.
Much like Taiwan’s much-ballyhooed Six-Year National Development Plan, Thaksin envisioned sweeping modernizations. His blueprint included container terminals for both coasts, railway upgrades linking Thailand to southern China, a national irrigation project for the key agricultural sector and a tenfold expansion of Bangkok’s 43km mass-transit system. It even proposed an E-World Buddhism Gateway, a study center conceived “to incorporate Thainess into Thailand’s economy and social development,” according to an official summary of the project. One feature above all others mesmerized foreign analysts and investors alike: the $46 billion sticker price.
China’s ongoing boom illustrates how fixed-asset investment can be a powerful growth driver. Until Thailand’s political crisis erupted, many economists were forecasting a similar scenario there, suggesting that its economy could grow by as much as 6 percent in 2007, as cranes and backhoes kicked into gear. Even before last month’s coup the Asian Development Bank had lowered its projection for 2007 from 5.5 to 4 percent due to political instability, and last week its chief economist, Ifzal Ali, called Surayud’s comments “unnerving.” Citibank’s Huang has revised his growth forecast for next year a full point downward to 3.9 percent, fearing that “no proactive economic activities” would occur before fresh elections set for October 2007 are held. And in a sign of queasiness, GE Capital last week postponed for three months its planned $600 million investment in the Bank of Ayudhya, Thailand’s sixth largest lender.
Much rides on the composition of a caretaker cabinet to be filled this week. According to Thai media reports, Bank of Thailand Gov. Pridiyathorn Devakula, chief economic adviser to the junta, is tipped to become either vice prime minister or Finance minister. Last week he worked hard to downplay Surayud’s suggestion that economic growth isn’t a top priority, and to signal that a radical policy shift isn’t in the cards. “There is no indication that the government will throw away everything Thaksin did,” says Nicholas Kwan, head of regional economic research for Standard Chartered Bank in Hong Kong. “But there will be quite a number of new faces [in the cabinet], probably with different ideas or no ideas”–all now subject to the whims of the king and his military men, who may not take care to stoke a national economy that so recently was the envy of Southeast Asia.
Copyright 2006 Newsweek: not for distribution outside of Newsweek Inc.
