Thaksin: Hero of Financial Crisis? or Populous Madness?



I have never seen anything like it in my life!

At a press conference, attended by the IMF head, during the Thai financial crisis, Thai journalist were practically, yelling obscenity at the IMF chief. Equally astonishing, Suthichai Yoon, chief editor of the Nation Group, a media group in Thailand, calls Thaksin‘s populous policies, quote: “Wet Dreams.”

(Up-Dated) Suthep said, he and Prayuth, have been working together, to destabilize Thailand, for the setting up of a coup, for a Thailand under a Dictatorship. So now, Thaksin had been kicked out by a coup, followed by his sister, Yingluck, also kicked out by a coup.

  • Wikipedia on the Financial Crisis:

The Asian financial crisis was a period of financial crisis that gripped much of Asia beginning in July 1997, and raised fears of a worldwide economic meltdown due to financial contagion.

The crisis started in Thailand with the financial collapse of the Thai baht after the Thai government was forced to float the baht (due to lack of foreign currency to support its fixed exchange rate), cutting its peg to the U.S. dollar, after exhaustive efforts to support it in the face of a severe financial overextension that was in part real estate driven. At the time, Thailand had acquired a burden of foreign debt that made the country effectively bankrupt even before the collapse of its currency. [1] As the crisis spread, most of Southeast Asia and Japan saw slumping currencies,[2] devalued stock markets and other asset prices, and a precipitous rise in private debt.[3]

IndonesiaSouth Korea and Thailand were the countries most affected by the crisis. Hong KongMalaysiaLaos and thePhilippines were also hurt by the slump. ChinaTaiwanSingaporeBrunei and Vietnam were less affected, although all suffered from a loss of demand and confidence throughout the region.

Taking a page from his southern neighbor, Prime Minister Mahathir Mohamed of Malaysia, Mr. Thaksin has cut his own economic path, casting away many cherished market-oriented nostrums while pursuing a classic fiscal-stimulus strategy to stimulate domestic spending until the United States export engine could pick back up. Now, Thailand’s economy is accelerating, unemployment is falling and ”Thaksinomics” appears to be a success.

”You have to credit him,” said Supavud Saicheua, an economist at Merrill Lynch in Bangkok. ”He’s willing to take risks and I think his bet is paying off.”

Compared with the Thailand that went hat in hand to the I.M.F. in 1997, Mr. Thaksin’s Thailand is a nation transformed: its foreign debt has dropped by two-thirds, the economy is expected to grow 6 percent this year and the stock market in his country has soared 69 percent this year.

But Thaksinomics has little room for free-market theories, economists say.

  • Blame Game:

When Thaksin entered politics, the Financial Crisis was still a very controversial subject in the minds of the Thai people. Most of the blame of the cause of the crisis, went to the Thai Central Bank’s defense of the baht, that depleted Thailand’s foreign exchange reserve. But many, went back to deeper root of the cause, and faulted politics, particularly, Thailand’s Elite Establishment’s Democrat Party, for liberalization Thailand’s finances, without proper supervision.

Here, it is Thailand’s BIBF banking facility, that flooded Thailand with short-term money. That short-term loan, according to factual record, exploded when Tarrin, a Democrat Party MP, was Thailand’s Finance Minister.

  • ReoCities Research says:

The Onset of ASEAN Crisis:

A rapid buildup of short-term external debt in early 1990s into weak financial systems of the ASEAN countries. The reasons were East Asia’s successful track record, which attracted foreign credits, and partial financial market liberalization in East Asia, which opened new channels for foreign capital to enter into the Asian economies. The inflows led to appreciating real exchange rates, a rapid expansion of bank lending, and especially to increasing vulnerability to a reversal in capital flows. When capital inflows waned in late 1996 and early 1997, a financial panic erupted following a series of missteps by the Asian governments, market participants, the International Monetary Fund (IMF), and the international community. The result was a much deeper crisis than was either necessary or inevitable.

Diagnosis of the Crisis:

An understanding of the factors responsible for the crisis is important in the light of an attempt to evaluate the recovery of the region and effectiveness of the reforms.

Financial Reforms in ASEAN in 1990s

At least in part, the Asian financial crisis has its roots in attempts at financial reforms in East Asia in the early 1990s that were aimed at upgrading financial institutions, but in fact left the economies exposed to the instabilities of the international financial markets. In Indonesia, for example, a series of financial deregulation packages led to a tremendous expansion in the banking sector, with the number of private banks (including foreign and joint venture banks) nearly tripling from 74 in 1988 to 206 six years later. The centerpiece of Thailand’s effort to compete with Singapore and Hong Kong as a regional financial center was the introduction of the now notorious Bangkok International Banking Facility (BIBF) in 1992. The BIBF allowed for very rapid growth in the number of financial institutions that could borrow and lend in foreign currencies, both on and offshore. In Korea, financial market reforms in the mid-1990s similarly opened the door towards greatly expanded banking activity, and increased access of domestic banks to short-term international loans

Lack of Regulatory Mechanism in the financial sector

The rapid expansion in financial services was not matched by careful regulation and supervision. Regulatory reforms tended to be partial and incomplete. Moreover, the huge expansion in banking activity would have made supervision much more difficult. State-owned banks in Indonesia and Korea were allowed to break many prudential regulations on a regular basis without penalty. Many banks were owned by politically well connected individuals who used the banks to heavily finance the operations of affiliated companies. In Indonesia, for example, almost all the major corporations also had their own banks, and the division between the two is often blurred.

(Up-Dated) Several of Thaksin populous policy have gained global acceptance, for exampler the universal health case was lauded by the UN as a potential model for the globe to follow and a recent largest and most comptehensive study on micro finance (Thaksin’s village fund) found that micro finance benefited the poor.



I have never met Thaksin, but I have met one of Thaksin close friends, Pansak.

The first time I met Pansak Vinyarat, Thaksin’s top policy and strategy adviser, was at Asia Times, a newspaper. I was a journalist covering the Thai Central Bank there and he was the chief editor. We shared a common interest, music, particularly electronics components related to playing music.

  • Pansak is a staunch Nationalist, proud of the Thai history and his Eastern heritage. But he was also open and curious, of the unusual things in life.

I am half Thai American, dual culture; East and West, together as one. And with my love of quality music, Pansak and I often sit in his office, and discussed all sort of issues.

That was befor Pansak went working for Thaksin, and a few years, before Thaksin entered politics in a major way.

After Thaksin and Pansak joined force, and “Thaksinomics” came around, I was still a journalist, and went to interview Pansak often. But always, it was mostly, to listen to the latest thinking from Pansak. It was little used to question Pansak, as his thinking is mostly on philosophical grounds and theory based. So there was no concrete position or action to pin on him.

What he told me about “Thaksinomics” was enlightening, surprising and shocking to me.

  • When Thaksin first entered politics in a big way, you would never know it, looking at what he did.

The introduction, Thailand got, that Thaksin was coming to Thai politics, was a small book. The book, was a sampling of Thailand’s globally successful Small to Medium Size Enterprises (SMEs). The fact is, before that book, in the book store, there was never a book on Thailand’s SMEs, period. That was the first book on Thai SMEs, written by Thais about Thai SMEs, that ever hit the book store.

The book, says it in bold print, that it was published by Thaksin’s Thai Rak Thai Party. That book, was published as Thailand was still in a Financial Crisis, and Thailand was under the IMF control, and at a time, Thaksin has decided to enter Thai politics in a big way, and his political machine, was being built up.

That book on Thailand’s SMEs sparked most Thai politicians, as the way out of IMF control, and back to a prosper Thailand again. In fact, several Thai political parties, with an already built up political machine, “Stole” the SMEs concept from Thaksin, still emerging political machine, and made it a “Corner Stone” of their party platform.

  • But if you think that is what Pansak says about “Thaksinnomics” you are wrong.

According to Pansak, SMEs, is just a small part of Thaksinomics. In fact, many Thai political analyses have written that the reason Thaksin has a reputation of being the champion of Thai SMEs, is because they are a critical “Political Base” for Thaksin, who came from Chieng Mai, and the area’s heavy investments in SMEs arts and crafts.

But SMEs was important, nevertheless, said Pansak. And Pansak says that is because SMEs produces goods that are mainly “High Touch” meaning products with attributes that touch the mind and the senses. Pansak also said, most research and development, and also innovation, comes from SMEs.

  • “Look at the component right there in front of us, it is the best and build by an SME in the USA. That SME was started by a former USA Federal Reserve banker. That type of thinking is what Thailand needs to emerge into a global leader,” says Pansak, as he uses an electric shaver, to shave himself, one morning when I visited him, very happy at what he just pointed out.


The Demand for Thaksinomics:

After so many years of sour economy, from the impact of the Financial Crisis, and under the IMF, the Thai people wanted results from their politician.

Literally speaking, the Thai people demanded that Thaksin helped Thailand. While the grass-roots heard of the populous policies and support Thaksin because of that, to the many middle-classes that supported Thaksin, before the political crisis that alienated them away, Thaksin reputation as a cutting-edge self made billionaire was popular. Many was hoping Thaksin can get Thailand to prosper again.

And after Thaksin won the election, by a landslide, and began to manage Thailand’s economy, the Thai economy stubbornly refused to shake-off the stagnation.

Thaksin responded by saying be patience, saying, quote: “The money was coming.” And on TV, state banks began a massive advertising campaign, saying exactly what Thaksin did, that, quote” “The money was coming.”

It sounds like a classic stimulus of pumping money into the economy.

However, Pansak said, Thaksinomics, is about, quote: “Supply and Demand.”

He said most observer of Thaksinomics get lost with the “Populous” characterization, of massive spending. According to Pansak, most people sees Thaksin as swept to power in 2001 on a populist platform promising to make life easier for the average Thai as the rest of the world was sliding into recession.

Pansak said for those that better understood Thaksinomics, says Thaksin is on an economic policy called “Dual Track.” Dual Track, according Thaksin, is talking up Thailand to investors abroad in getting the confidence for investments into Thailand, and internally, focused on self-reliance such as SMEs and grass-roots stimulus.

Pansak says, basically, Thaksinomics, is a very effective way to increase “Demand and Supply” in the economy, to get the economy running again. Pansak said with investments in the real sector of the economy, supply increases, and with the stimulus, demand increases. Then Pansak said grass-roots SMEs acts as a “Catalyst.”


Freedom from IMF:

On August 1, 2003, Thaksin went on national television to declare Thailand’s independence from the International Monetary Fund and its free-market gospel after Thailand made the last payment on the $3.4 billion the fund lent it during the Asian financial crisis of 1997 and 1998.

The last payment, was made by Thaksin two years before the scheduled, last payment. Many Thais attributed Thaksin’s inspired Thai economic growth, as the reason Thailand was free from the IMF.

”Today we paid off the last batch of I.M.F. loans, lifting the commitment to the I.M.F. from our shoulders,” Thaksin told the nation.

Most around the globe, like the New York Times, reported Thaksin’s IMF debt pay off, along the follow line:

  • ……..Mr. Thaksin wagered that generous government spending sweetened with low interest rates would keep the economy busy churning out new homes and cars for Thai consumers long enough for the United States economy to recover and revive the country’s crucial export engine. It did, and more — the extra dollars from selling to the United States enabled Thailand to pay back the I.M.F. ahead of time. And to make certain Thailand continues to ride the export tide, Mr. Thaksin has held on to one important attribute of the Thailand that the I.M.F. bailed out: its exchange rate. The Thai baht, which traded at about 25 to the dollar before the crisis, now trades at around 40……..

Some like Focus Web took a highly critical position:

  • “Thaksin regime has its roots in the populist nationalism that swept the country after the Asian financial crisis of 1997-98. The Thai Rak Thai (Thais Love Thais) Party utilized this nationalism, particularly anti-IMF populism, to secure electoral victory in 2001 and installed Thaksin as Prime Minister. Indeed, amid nationalist rhetoric concerning Thailand’s “colonization”, Thaksin’s continuing attacks on the IMF reinforced his popularity and consolidated support from large segments of the Thai Left. In a televised address to the nation on 31 July 2003, Thaksin announced that the final installment of Thailand’s debt to the IMF – incurred at the time of the Asian economic crisis – had been paid.  Describing the damage done to Thailand by IMF policies imposed through loan conditionality, Thaksin congratulated Thai citizens on this “victory” for the people and declared that: “We shall never go back to the days of the IMF again as long as I am in office,” reported Focus Web.

In detail, the “Raw Look” of Thaksinomics is a moratorium on $1.6 billion in debt owed by the country’s farmers, lent $23,000 to each of Thailand’s 70,000 villages and introduced record-setting budgets that built up debt, with on and off-budget measures, like new housing, pension payments and medical benefits. Then the investments focus was also as intense, with countless global road shows of Thailand’s potentials, such as building Thailand into a medical hub, and direct government investments in R&D centers, such as Naon Tech and Aerospace.


Thaksinomics Myth:

While Thaksin proudly says Thailand is free from the IMF, New York Times, however, says, quote:  “Economists say Thaksinomics is hardly groundbreaking.”

  • “Classical economics knows that governments can alleviate a downturn by opening the purse strings. Now, they say, Mr. Thaksin is getting credit for a cyclical upturn, as some say Bill Clinton did when he presided over a recovering American economy…………With the economy weak, Mr. Thaksin first raised, then began lowering interest rates in late 2001. Within a year, low rates, easier consumer credit and fiscal spending had turned Thailand into Asia’s star economy. Booming consumer demand for cars and homes led to an explosion of personal finance,” says New York Times.

A Lucky Thaksin?

As Thaksin went spending, economist warn then that Thaksin’s stimulus policies can only delay the eventual need for the kind of corporate and financial-sector restructuring the I.M.F. was promoting in 1997-98. And with that risk, as companies hold back on investing in new factories, Thailand risks become less productive and losing jobs to the then, fast emerging,China.

And rather than push forward on liberalizing the Thai economy, economist points out that  Thaksin often appears to be moving backward, economists say, like in privatization program that suffered from long delays and rolling back some of the legal changes made at IMF demand.

“Thaksin has been lucky,” some economists say. The United States economy was on the mend has come to the rescue to keep Thai exports rolling out.

  • I often asked Pansak this question, if Thaksin is just lucky with his “Thaksinomics?” The question & the answer, seems humorous to me!

Pansak, always laugh to that question and always says, quote: “In the long-term, everyone is dead. There is no point to be a pessimist and not an optimist.”

But for me, I think there is more to the answer Pansak gave me, and I think it is related to economic management skill.

Under Thaksin’s economic management, Thailand’s foreign debts were dwindling and money from exports and investors pouring in. And while the battle to keep the baht from rising, and hurting exports and slow investments, was getting more difficult, the central bank did a capable job, and Thailand’s foreign reserves grew to nearly $40 billion.

  • Other economist, pointing to USA and Eurozone current economic stimulus, which is slow to work growth back into those economies, say there is more than “Luck” in Thaksinomics.

“At the recent World Economic Forum, the consensus on the economy is a period of go-stop, which is vastly better than no go,” says the Russian Thai Embassy economist to Thai Intel.

He says, with Thaksin, the decision, during the Thai economic crisis, was, quote: “Go and Go.”

“Very few believed Thaksin would be able to solve Thailand’s economic crisis. Most economist said it would take Thailand 10 years to recover. Thaksin came in and in a very commanding style, said he will solve the problem,” said the economist.

The Russian economist says, Thaksin did something few could, and that was, quote: “Restore confidence in Thailand.”


The CEO & Thailand Inc.

That commanding style got Thaksin into problems.

One of the strongest criticism of Thaksin, centers on Thaksin being the CEO of Thailand Inc. And here, Thaksin being a CEO, is responsible for Thaksin’s “Strong Leadership Style.”

That Thaksin’s “Strong Leadership Style” has lead Thaksin, to be compared to “Dictators” and often, characterizing him, as being anti-democracy.

Focus Web says:

  • One of the most significant neoliberal transformations under the Thaksin regime was the establishment of the corporate Chief Executive Officer (CEO) model of governance as the basis for running the country. As a former CEO of his own telecommunications conglomerate, Shin Corporation, Thaksin has aggressively promoted himself not as prime minister of a country, but as CEO (chief executive officer) of Thailand Inc. A crucial element of this strategic reorientation of state institutions under the CEO model is the reconstitution of provincial governments, with the establishment of “CEO governors” in thirty provinces. This was widely seen as a consolidation of Thaksin’s own power, bypassing key segments of the state bureaucracy. As Weerayut Chokchaimadon has argued, Thailand has become “just another company” and since “Thaksin didn’t run Shin Corp as a democracy, “neither will he run the country democratically.”


While criticisms such as those expounded by Weerayut expose the authoritarian ambitions of Thaksin and point to the political and ethical shortcomings of the CEO governor model, there is a tendency to neglect the transformative effect of CEO-ization on the state and the particular interests it serves.

The CEO-ization of the state is a form of flexible decentralization that consolidates central control over the provinces through a harmonized local state management system. At the same time it enforces competition between the provinces for new injections of capital.

This model is explicitly based on the corporate strategies of the agribusiness conglomerate Charoen Pokphand (CP), which uses intra-firm trade and competition to increase productivity, maximize profits and maintain flexible centralized control. This application of CP’s corporate structure to the state coincides with the relocation of capital within Thailand and the financialization of agriculture, intensifying the compulsion for provinces to compete against each other. As economist Pasuk Phongpaichit has argued, a key aspect of the CEO model promoted by Thaksin is “broadening and deepening the extent of the domestic capitalist economy.” In this context, Pasuk cites Thaksin’s own assertion that: “Capitalism needs capital, without which there is no capitalism. We need to push capital into the rural areas.”

For corporations like CP, this expansion into rural areas is facilitated by the use of its own CEO governance structures by state regulatory authorities and enables the implementation of its export-oriented agri-food strategy. This is based on CP’s nationalistic vision of Thailand as the “Kitchen of the World” — now entrenched as one of the most important economic policies of the Thai state.

The dominance of CP in rural Thailand is increasingly matched by its urban presence, as the owner of mega supermarkets Lotus. CP divested its controlling share in Lotus to Tesco to sort out cash flow problems following the financial crisis] and 7-Eleven convenience stores, and its global power. Although its name is relatively unknown, CP is the largest supplier of animal feed in the world and the fifth largest agri-food corporation, operating over 300 companies in 20 countries. Ranked among Forbes annual list of dollar billionaires, the CEO of CP, Dhanin Chearavanont, exercises extensive political influence in securing the corporation’s overseas interests.

As a major investor in animal feed, agrochemicals, food processing, motorcycles, seeds and supermarkets in China, Dhanin maintains close ties with the political leadership in Beijing. Similar ties are maintained with the Bush family, including the hiring of former President Bush Sr. as a consultant, and the creation of joint venture businesses with Neil Bush, the brother of the George W. Bush. (18) CP also made political donations to both the Republican and Democratic parties in the US to encourage support for China’s WTO accession. (19) At the time of the 2000 presidential elections in the US, the Executive Vice President of CP, Sarasin Viraphol, was quoted in the Beijing People’s Daily as stating that Thailand’s interests would be better served by a Bush administration, especially by its stance on free trade and China.

The reorganization of the state through CP’s CEO model also illustrates the privatization of the functions of the state. In his book “The Asian CEO”, Korsak Chairasmisak, Vice Chairman and Chairman of the Executive Board of Directors of CP and CEO of 7-Eleven, points out that CP’s 7-Eleven chain convenience stores were the main outlet for public distribution in Bangkok of the draft constitution of 1997. Faced with the legal requirement that the draft constitution be made available to the public within 45 days, it was determined that 7-Eleven stores, with two million customers a day, had greater access to the public than any state agency. It was of course in CP’s interests to ensure the smooth passage of the new constitution since it was no less than “a charter for Thailand’s modern capitalists.” This relationship to the state is set to continue, as the CEO-ization of the state brings government agencies even closer to the management and operational mode of 7-Eleven stores. For Korsak this forms that basis of the future of local, national and global governance:

“I myself have a vision of the contemporary world being led by 1,000 or so largest corporations spreading their branches all over the world. These corporations will have a lot of influence on socio-economic policy of many countries as well as on the life of ordinary people.”

In describing the political process of achieving this vision, Korsak suggests that CEO-ization is primarily concerned with the realignment and concentration of political and economic power. Describing elected politicians as having “symbolic meaning“ and using the case of Japan, Korsak states that:

“All that the Prime Minister can do is [to] persuade his country’s businessmen to increase investment. Whether or not an investment is made, and how much it will be, the final decision is with the CEO of the enterprise in question. The CEO is the one who has been given a mandate to ‘act’ for people from other societies. The CEO has been entrusted with the control and management of world productive resources, such as manpower, capital and technology. The CEO, as a result, comes to possess tremendous power to direct the trend of our world. ”


Thaksinomics: The Real Risk?

When I first went to work for Asia Times, it was during a time when Asia Times belonged to Sondhi Limthongkul, who later became the head of the fierce anti Thaksin, Yellow Shirts movement. In fact, Sondhi is very proud of Asia Time, and spent a great deal of time at the Asia Times editorial office, talking with journalist.

  • Sondhi and I had a conversation once, where he told me quote: “In Thailand, 90% of everything is network.”

Indeed, Sondhi believes in that, and he had a team of 4-5 full time journalists at Asia Time, working to trace people’s background and their net-work. Sondhi, literally, was mapping all critical relationships in Thailand.

Even back then, when I was at Asia Times, it was well known that Sondhi supported Thaksin and they were close friends. Indeed, it shocked me, to learn years later, that Sondhi, had turned into Thaksin’s biggest risk. The break between Thaksin and Sondhi, relates to favors being asked and refuses to help.

Indeed, what many say is right, that Thailand’s problems, relates mostly to problems between two friends.

  • Asia Times reports:

By Jephraim P Gundzik

Thai Prime Minister Thaksin Shinawatra was elected in 2001 on a strongly populist economic platform now widely referred to as Thaksinomics. Since that time, Thaksin’s populist policies have succeeded in producing rapid economic growth. The only factor that could derail Thailand’s economy is the remote risk of social instability.

Replicating the leftward political shift that has swept over Latin America in the past several years, Thaksin’s Thai Rak Thai (TRT) party won a landslide victory in Thailand’s 2001 general election. The electorate’s strong disaffection with former prime minister Chuan Leekpai’s pro-International Monetary Fund (IMF) economic policies was instrumental to Thaksin’s victory.

Thaksin capitalized on this disaffection by campaigning on a populist platform that included the reversal of several key IMF policies. The TRT pledged to improve rural living conditions through new subsidized loans and the creation of a debt moratorium for farmers. In addition, the party pledged to improve the nation’s health-care system.

Thaksin, reputably Thailand’s wealthiest man, also pledged major changes for his country’s business sector. Economic liberalization demanded by the IMF threatened many of Thailand’s wealthy elite in both the private and public sectors. Thaksin promised to create a debt-management company to remove bad assets from the country’s banks and eliminate significant amounts of private- and public-sector corporate debt.

Thaksin also hinted that he would oppose IMF-dictated bankruptcy legislation that would have closed many Thai companies. And he also alluded that he would reduce foreign investment in Thailand to protect domestic companies.

  • Populist shift goes global

Interesting parallels and differences exist between the populist shift in Thailand in 2001 and the populist shift in Brazil in 2002.

Brazilian President Luiz Inacio Lula da Silva’s campaign theme in Brazil was almost identical to Thaksin’s, producing a similar electoral outcome. Both Thaksin and Lula enjoyed strong popular support after their respective electoral victories. Unlike Lula, however, Thaksin has managed to fulfill many of his populist campaign promises.

Lula has taken the opposite track, embracing the previous government’s IMF-mandated economic policies. Whereas Thaksin continues to enjoy strong popular support, running around 65%, Lula’s personal popularity has declined. Support for Lula’s government also has plummeted.

Thaksin has consolidated his political position and now controls an overwhelming majority of parliamentary seats. Meanwhile, President Lula’s coalition government has begun to fracture. Economic developments have been equally divergent in Thailand and Brazil.

As is typical of countries following IMF-dictated policies, economic growth has remained weak in Brazil. In contrast, Thailand, which has eschewed IMF-policies under the Thaksin government, has seen sharply accelerated economic growth. Real gross domestic product (GDP) expanded by 5.4% in 2002. Economic growth accelerated to 6.8% last year and should top 7% this year.

  • Economic crisis ahead?

Ironically, the renewed strength of Thailand’s economy has led many analysts to speculate that the country is heading for another economic crisis. However, the risk of a repeat of the 1997 Asian financial crisis is low. Both credit and investment are shadows of what they were in the mid-1990s. More important, the banking system’s huge net foreign-liability position has reversed.

Strong growth of consumer credit in Thailand over the past two years has unduly raised alarms. Credit-card debt grew by almost 80% in 2002 and 30% in 2003. The growth of credit-card issuance was similar over the same period. However, at the end of last year, credit-card debt remained less than 2% of total bank credit outstanding.

Ongoing problems with non-performing loans has contained total bank credit growth since the economic crisis. The government’s assumption of private-sector debt through its bank-bailout plan has dramatically reduced the stock of private-sector credit. Bank credit to the private sector has declined from 133% of GDP in 1996 to 86% of GDP at the end of last year.

One of the most negative consequences of the IMF’s economic policies in Thailand was the collapse of private-sector investment. Though private-sector investment grew strongly last year and is expected to accelerate further this year, this growth is hardly indicative of economic overheating.

Private-sector investment accounted for 32% of expenditure-based GDP in 1996. Last year, private-sector investment accounted for only 15% of GDP.

It will take many years for the stock of credit to regain its pre-crisis level given the problems private sector banks continue to face with distressed assets. Overall credit growth will be restrained by these distressed assets for several years. It will also take several years of rapid growth before private-sector investment regains its pre-crisis level.

Yet, another economic crisis driven by over-extended consumers and unproductive investment is improbable over the next several years. An economic crisis sparked by the sudden withdrawal of external liquidity, as occurred in 1997, is impossible.

  • Ensuring the strength of economic growth

Thailand’s economic crisis in 1997 was ignited by the refusal of Thailand’s foreign creditors to roll over short-term loans to the country’s banks. In 1996, the banking system’s net foreign liabilities approached US$50 billion (2.065 trillion baht) ­ twice the amount of the Bank of Thailand’s foreign-exchange reserves.

At the end of last year, Thailand’s banking system had net foreign assets of almost $7 billion. As implied by the reversal in banks’ net foreign-liability position, private-sector external debt in Thailand declined from $92 billion in 1996 to only $35 billion at the end of 2003. Public-sector external debt has also dropped from its peak of $36 billion in 1999 to only $17 billion last year.

Thailand is in a much better credit situation now than it was in 1996 when foreign banks were tripping over themselves to lend money to the country. This should allow the country’s private-sector enterprises to access external credit in order to finance future investment, ensuring that economic growth remains strong.

With all eyes on credit and investment, scant attention is being paid to political and social developments that could, if unchecked, eventually slow economic growth and resurrect problems in the banking sector.

Thaksin’s commanding political position is breeding policy arrogance that resembles autocracy. This is raising serious concerns, both internationally and at home, about the Thaksin government’s commitment to democracy.

Thailand has a strong history of popular revolt against autocratic rulers. The prime minister would be well served to keep this in mind during his next term.


Thaksinomics & Geopolitics

Today, many in Asia say Asian countries rely on China as the guarantor or a prosperity and USA as the guarantor of national security. How did that saying came into being?

  • Even before Thaksinomics came around, there were talks in Bangkok, of the shortfall of the Washington Consensus, development model. The model, pushed by USA, wants trade and economic policy liberalization, to spur resource and manufacturing for an integrated global economy. Many economist says, the model, does not work fully to developing countries benefit, but benefitted developed countries more. Then the Washington Consensus Model, is faulted for a variety of social problem, from rich and poor gap, to resource and environment degradation.

Competing, with the Washington Consensus Model, was the so called, Beijing Consensus Model, of a centrally planned and control captalist system.

For Thailand, Thaksin is closer to China than the Western World. In fact, Thaksin, during his governing of Thailand, before the political crisis, had a reputation, of developing into another iconic Asia leader, along the line of many great Asian leader. Thailand, in fact, was tauted as being the leader of ASEAN, during Thaksin’s time.

Thaksin’s position towards the Washington controlled, IMF, was of concern to diplomats, who overall, were seeing the emergence of China and the decline of the Western World. To put it bluntly, the IMF was impacting Thailand foreign relations policy, where Thailand,  is a focus of both USA and China.

Japan Policy Research Institute (JPRI) Critique, Volume X, No. 6: September 2003:

  • Geopolitically, the consequences have been even more momentous.  Thailand was a long-standing U.S. ally for virtually the entire cold war period.  Along with much of the rest of the region, there is now a decided shift inward, which longer term will have momentous implications for the U.S. dollar reserve currency system.   Thailand has become a leading advocate of an Asian Monetary Fund and a regional bond market, as an alternative repository for the region’s surplus savings.  Antipathy for and suspicion of Western speculative capital and Western (IMF/Treasury) policy is on the rise, as Thaksin’s recent pronouncements make clear. China has become the new model.

Marshall Auerback at JPRI says Thailand wipes the IMF slate clean.

The Asian financial crisis has finally come full circle with the news that Thailand has repaid two years early its outstanding debts from a $17.2bn International Monetary Fund package.  There is a wonderful symmetry to this: When the Thai baht collapsed on July 2, 1997, no one could foresee that this would be the start of the greatest economic crisis since the Great Depression, one that would spread contagion all across the emerging world before impinging on the very center of world financial markets with the collapse of Long Term Capital Management.  In years hence, perhaps this final repayment by the Thai government to the IMF will be similarly regarded as an epochal event:  a symbolic shifting of the guard in Asia,  America’s former East Asian satellites moving away from the embrace of neo-liberal globalization under American tutelage toward a rapid new acceptance of China as the future dominant economic locus of the region and a concomitant reversion to Asian style capitalism.

For over 10 years, the baht had been successfully pegged around 25 to the U.S. dollar; in July, 1997 it rapidly fell by 25 per cent in the space of days.  Currency speculation spread across the region, hitting Korea, Malaysia, Indonesia, the Philippines, and even economic stalwarts like Singapore, which at the time had foreign exchange reserves equivalent to almost $30,000 per capita.

As Thailand’s final repayment to the IMF makes clear, the economic damage may be over, but the legacy of mistrust and bitterness lives on.  Standing in front of a giant Thai flag on national television, Prime Minister Thaksin Shinawatra vowed that Thailand would never again fall prey to world capitalism or require IMF help after proudly announcing the final repayment.

One can readily understand Thaksin’s skepticism in regard to the Fund.  The policies imposed by the IMF during this tumultuous time badly exacerbated the situation.  As former chief economist of the World Bank, Joseph Stiglitz, has noted:  Since the IMF was founded precisely to avert and deal with crises of this kind, the fact that it failed in so many ways led to a major rethinking of its role, with many people in the United States and abroad calling for an overhaul of many of the Fund’s policies and the institution itself.  Indeed, in retrospect, it became clear that the IMF policies not only exacerbated the downturns but were partially responsible for the onset: excessively rapid financial and capital market liberalization was probably the single most important cause of the crisis, though mistaken policies on the part of the countries themselves played a role as well. (Globalization and its Discontents,  W.W. Norton & Co., 2003).

Although the IMF has since acknowledged mistakes made during the crisis, the U.S. Treasury continues to treat traditional IMF orthodoxy as gospel.  The US also continues to display unremitting hostility to capital controls of any kind, even though they were shown to operate very effectively as a short term palliative during the 1997/98 crisis in China, India, and Malaysia.

The U.S. Congress has begun to hold hearings on the free trade agreements negotiated by the U.S. with Chile and Singapore. There is little overall political opposition to these bilateral agreements, but the hearings will focus on a matter of great importance: the inclusion of restrictions on the use of capital controls. Chile and Singapore, both models of sound economic policy management, resisted an obligation not to use capital controls under any circumstances. In the end, they were forced to compromise by an administration opposed to any imposition of capital controls, making one wonder whether the lessons of the 1997 crisis, in particular the role of destabilizing, speculative Western portfolio flows, were truly learned in the U.S.

The intention of the Bush administration to use these two agreements as ‘templates’ for other trade agreements, possibly including the Doha round, means that acceptance of the capital control provisions could engender a trade policy that causes far-reaching damage. Because developing countries have relatively small financial markets and do much of their borrowing in dollars or euros, they are vulnerable to rapid financial outflows if creditors suspect difficulties in repayment. As money is withdrawn, the country’s currency depreciates rapidly, which can lead to more investors pulling out in an effort to avoid losses. Meanwhile, import prices soar, spurring inflation. This vicious circle spells calamity for the country’s economy: capital flows can be, and have often been, perilous, as the events in 1997 clearly demonstrated to the Thais.

Additionally, the prohibition on capital controls in the context of all new trade agreements has the makings of a U.S. foreign policy debacle and risks reintroducing a renewed element of financial instability at a time when the world economy can ill-afford it. Imagine that a government imposes short-term capital controls in order to manage financial problems, as Malaysia did in 1998. Compensation will ensue, but only for American investors under the terms of the proposed new deals with Singapore and Chile. The citizens of the developing country will then see a rich U.S. corporation or individual being indemnified while everyone else in the country suffers from the crisis. One would be hard-pressed to think of a better prescription for continuing anti-American outrage.

It is worthwhile recapitulating why capital controls are particularly suited in the Asian context.   The Asian developmental state, of which Thailand has been a prominent example, is based on very high savings, mostly by households.  Households hold their savings in bank deposits, and banks have to lend.  With neither households nor government being significant net borrowers, the borrowers must be firms, so firms must sustain high debt-to-equity ratios.  But a high level of bank deposit/loan intermediation is vulnerable to shocks that perturb cash flows or funding sources.  The deeper the debt intermediation, the more likely that any shock will cause illiquidity, default and bankruptcy, which is clearly what occurred in 1997.  Therefore, contrary to IMF orthodoxy, banks and firms must cooperate to buffer systemic shocks, and the government must support them.

Asian industrial strategy identifies major world industries as priority targets.  Successful assault on these industries requires resource mobilization on a huge scale.  That is only possible through borrowing neither equity markets nor retained corporate earnings are feasible alternatives.  Large-scale lending by banks to deeply indebted firms both of which require state support allows the state to implement its industrial strategy.

Given Asia’s high debt-equity ratios, the IMF’s call-for high real interest rates to sustain the external value of the currency simply forced bankruptcies of highly indebted but profitable firms.  By contrast, the IMF thought that if the market believed there was enough money in the coffers, there would be no point in speculating against the currency, and thus ‘confidence’ would be quickly restored.  But, as Stiglitz notes, the bailout in reality served another function:  It enabled the countries to provide dollars to the firms that had borrowed from Western bankers to repay the loans.  It was thus, in part, a bailout to the international banks as much as it was a bailout to the country; the lenders did not have to face the full consequences of having made bad loans.  And in country after country in which the IMF money was used to sustain the exchange rate temporarily at an unsustainable level, there was another consequence: rich people inside the country took advantage of the opportunity to convert their money into dollars at the favorable exchange rate and whisk it abroad.

Opening the economy to mobile foreign capital also compounded the vulnerability of the financial structure for those less quick to capitalize on the IMF bailout in the manner described above by Stiglitz.  Although restructuring, combined with bankruptcy, can be used to extinguish existing debt, this is a very deflationary path to real debt reduction that has been a socially costly feature of all great depressions. If corporate debt is equal to 30 percent to 50 percent of GDP, as was the case in Thailand during the height of the crisis, debt reduction by way of bankruptcy has huge direct social costs.

There are also great contagion effects. The principal lenders are banks, which are always highly leveraged; extinguishing debt through bankruptcy destroys the domestic banking system. Fire sale liquidations depress prices of domestic assets far below their actual values, causing temporary insolvency for many firms that are sound on a long-run basis. These forced liquidations, urged upon the country’s major business elites by the IMF, antagonized many of them. Although there was certainly a strong element of self-interest in their opposition, many of these tycoons who did not or could not take advantage of the opportunity to convert their money into dollars at a favorable exchange rate legitimately pointed out that even profitable firms could suffer fatal liquidity crises as a result of the collapse of trade credits when bankruptcies are widespread.

Asians remain confident that their growth strategies work.  The Asian countries will keep intact the mechanisms that are critical to their effectiveness.  The Thai experience clearly illustrates this phenomenon.  Thailand was forced to accept an IMF bailout in August 1997, after exhausting its foreign exchange reserves in defense of its fixed exchange rate regime (a regime that had been praised by the IMF just six months earlier).  As a quid pro quo for receiving IMF funds, the latter imposed structural reforms and huge cuts in government spending (precisely the opposite set of policies now being implemented by the U.S. in order to forestall its own economic crisis).  GDP contracted by 10 per cent in 1998.

By 1999, the worst of the crisis was over, and the IMF’s influence diminished accordingly.   Then came the political blowback:  The pro-IMF administration of technocratic Prime Minister Chuan Leekpai was thrown out of office by 2001 and a newly formed protest party, the Thai Rak Thai led by billionaire businessman, Thaksin Shinawatra, swept to power.  His anti-IMF bent and proposed reflationary policies were heavily criticized as unrealistic and excessively populist at the time of his election.  But his call for a three-year moratorium on agricultural debts and his proposal to create a national asset management company to purchase large debts held by the country’s banks did arrest the prevailing deflation, which had been exacerbated by IMF policies that called for precisely the opposite policy mix.

MARSHALL AUERBACK, a British-based international portfolio strategist for David W. Tice & Associates, writes regularly for the Japan Policy Research Institute.


Thaksinomics: The Surprise!

Fast forward Thailand, from the days of the economic crisis and Thaksinomics around 2000, ten years later to 2012. A great deal of Thaksinomics has been forgotten.

  • However, the United Nation’s general secretary, on a trip to to Thailand in 2012, said, quote: “Thailand’s universal health care scheme is one model for the globe to follow.” The Thai health care scheme, UN secretary general was talking about, is one of Thaksin’s populous policy.

In fact, even before the United Nation mentioned it as a model for the globe, many countries globally, have sent representatives to Thailand, to study the model. Countless study and journalism article, in fact, has been written about Thaksin’s Universal Health Care scheme, as greatly benefiting the Thai people and could also benefit the globe.


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