Thaksinomics Takes The Bang Out Of Bangkok

george · July 11, 2005

Thaksinomics Takes the Bang Out of Bangkok: William Pesek Jr.

BANGKOK: -- Eight years ago last week, a currency devaluation here in Thailand touched off Asia's worse financial crisis in decades. The turmoil devastated living standards and investor confidence.

Ancient history? Until four weeks ago it certainly seemed that way, as Southeast Asia's second-biggest economy enjoyed the consumer-led recovery it's longed for since 1997. Now, a steady drumbeat of dismal reports has raised big questions about Thailand's post crisis revival.

Citigroup Inc. last week became the latest foreign bank to advise investors to trim holdings of Thai stocks. And Thailand's currency, the baht, fell to a two-year low versus the dollar. The week ended with Prime Minister Thaksin Shinawatra holding emergency meetings to get a grip on things.

Is Thailand on the brink of another 1997-like crisis? No, though it's hard to miss the sudden return of gloom to an economy that just weeks ago was the pride of the region. It's also impossible to ignore a death-rattle of sorts pervading Thailand -- not of the economy, but of ``Thaksinomics,'' the name given to Thaksin's strategies for growth.

Living Standards

To understand why, just look at what's happening as inflation hits a six-year high. It's not just that consumer prices are growing at a rate higher than what the central bank charges for overnight loans. It's that the cost of oil, food and medical care is rising beyond the reach of Thailand's lowest earners.

No one thought Thai living standards had approached those of the U.S., Japan or even Singapore since the crisis. But recent events show that households here are closer to the edge than Thaksin's sunny economic pronouncements suggest.

``I find myself asking my fares to pay a bit extra to help me out,'' says Bangkok taxi driver Pridiyathorn Ninubon, 48. ``Two months ago, my family felt it was doing well, financially. Now, we are a bit worried.''

It's hardly a unique view here these days. To be sure, Thailand is in much better economic shape than it was in 1997. Foreign debt levels were reduced, banks strengthened, currency reserves increased, transparency improved and many state-run companies were privatized. While more needs to be done, Thailand has done considerable heavy lifting.

Pump Priming

Yet consumers' vulnerability to higher oil prices exposes what ``Thaksinomics'' really is: old-fashioned, debt-financed pump priming dressed up as something new and revolutionary. The success of Thaksin's strategy to raise Thai incomes and make the economy less reliant on exports is belied by how quickly millions of his people have fallen on hard times.

All this can be seen in how Thaksin is seeking to spend his way out of the country's first contraction in four years -- mega- projects. The government plans to spend 1.7 trillion baht ($24.5 billion) building infrastructure to boost job growth. That may do more to raise the nation's debt load than boost growth in the long run.

Again, Thailand's economy isn't about to fall into crisis. What's less certain is its ability to continue growing fast enough to please investors. Given recent events, there's a risk the Thai market could trade at 12 times this year's estimated earnings instead of its current multiple of 9.7. ``This,'' says Markus Rosgen, an Asia-Pacific equity strategist at Citigroup, ``makes it an expensive market in our eyes.''

Two days earlier, ABN Amro Holding NV reduced its weighting on Thailand to ``neutral'' from ``overweight,'' citing high oil prices. Similar concerns are weakening the currency -- not what you want when your economy is fighting rising inflation.

`CEO Style'

To stabilize things, Thaksin needs to act fast to convince investors not to flee. His ``CEO style'' of running this nation of 65 million has served it well at times. Yet recent corruption scandals involving members of his Thai Rak Thai party have eroded its popularity and may turn some investors against the economy.

Risks abound, including slowing global growth. Thailand also has a current-account deficit for the first time since 1997, something that's raising eyebrows among foreign investors.

The central bank governor now says higher interest rates will be needed, and he's absolutely right. Yet that will cause some turbulence in the short run in an economy that's relying more and more on consumer demand. Thaksin can't be happy about all this.

Still, some longtime observers think concerns about Thailand's outlook are much ado about nothing.

`It's the Media'

``It's really the media that's creating this idea that Thailand is in trouble again,'' Claudia Zeisberger, program director of the Asia Pacific Institute of Finance, said at a July 7 panel discussion hosted by Bloomberg. ``Let's remember that this is a maturing economy that now can handle these problems.''

Proof of that may come as the central bank raises rates further. Far from panicking, bankers like Subhak Siwaraksa, president of TMB Bank Pcl, think the trend will be a chance for Thailand to show the world it can stand its ground.

``We're well prepared to handle it, I think,'' he says.

It's a reminder that while Thailand's underlying economy isn't about to crumble, it's not doing as well as investors had hoped. That's hardly good news for Thaksin's political future or the nation's debt outlook.

William Pesek Jr. is a columnist for Bloomberg News. The opinions expressed are his own.

--Bloomberg.com 2005-07-11