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The new cabinet of Thai Prime Minister Yingluck Shinawatra has taken shape, dominated by members of her party, coalition partners and a few outsiders. Getting anywhere with her economic platform will require the gift of persuasion. PT campaigned on a pledge to raise the minimum wage to the equivalent of $10 a day and to double salaries for new civil servants.
The 35-member cabinet is expected to soon try implementing populist economic and social policies that helped propel Prime Minister Yingluck Shinawatra to victory last month.
Thitinan Pongsudhirak, a political scientist at Chulalongkorn University, said he had hoped for more experienced professionals in the cabinet.
“It falls below the initial expectations. Initial expectations were that they would appoint more outsiders, professionals, policy professionals, but they have ended up with just a few on the economic portfolios, the finance minister, the commerce minister, who doubles as the deputy prime minister,”
he said. “Beyond that selections were based on party factions and quotas.”
Thailand’s populist addiction
Both these elections — in 2007 and 2011 — saw successor parties allied with Thaksin win more seats than any other party, all while Thaksin himself was in exile. These successive victories highlight the influence of populist economic policies in Thai politics, a trend Thaksin set in place at the time of his first election in 2001.
To understand the role of politics in steering Thailand towards populism, a historical examination of the Thai political, social and economic context is necessary. After success in the telecommunications industry Thaksin set up his own political party, Thai Rak Thai. He launched ‘Thaksinomics’, which focused on boosting the purchasing power of the general public. Among other initiatives, Thaksinomics included a four-year debt moratorium for farmers, a 30 baht universal healthcare program, and a one million baht per village funding program.
Some policies fostering the development of rural SMEs, such as the One Tumbon One Product program, were admirable in their own right. However, Thaksinomic policies primary objective was to increase the money circulating in the hands of Thailand’s rural people. This thus made his policies popular in the countryside where people had previously never received such financial assistance from the central government. In the past, support had been sporadic and heavily controlled by bureaucrats, with large amounts of funding lost due to corruption. This would encourage them to support Thaksin — a convenient effect when you consider that the rural poor make up the majority of Thailand’s voters.
It should be noted that Thaksinomics has not advocated personal saving or supported long term investment. Nor was Thaksin endorsed for good governance or avoiding conflicts of interests.
Implementing the new economic program will require persuasion
Getting anywhere with her economic platform will require the gift of persuasion. PT campaigned on a pledge to raise the minimum wage to the equivalent of $10 a day and to double salaries for new civil servants. Business groups complain that such an increase—a 50% raise, on average—is impractical and would trigger lay-offs. As a sweetener, corporate taxes are to be cut from 30% to 23%. But tax cuts benefit mainly large companies, which tend to pay higher wages, not the small, family-owned firms with thinner margins.
Increased wages and the near doubling of rice subsidies, as well as infrastructure projects, will add to inflationary pressures. The Bank of Thailand has already warned that its 3.25% policy rate is too low, and most investors have priced in further rises by year-end. A recession in America could upset these calculations. But with public debt at 42% and over $200 billion in foreign reserves, Thailand can afford further stimulus. Whether this extra spending leads to real economic growth or a new distribution of wealth is another matter.