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Thailand’s populism has come close to its limit

Thai populism has come close to its limit. While previous governments successively implemented populist policies, they were all unable to find a new source of state revenue other than borrowing. New and existing policies will add up to a massive fiscal burden and aggravate inflationary pressure.

Since the 2006 coup, which ousted Thaksin Shinawatra, there have been two general elections in Thailand. 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.

 

Populist election poster
The Pheu Thai Party had pledged in its election campaign to raise the national minimum wage to Bt300 per day and to ensure that college graduates have a minimum starting salary of Bt15,000 per month

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.

Thaksin was able to carry out these policies because the economy had recovered from the Asian financial crisis of 1997. The former government, led by the Democrat Party, had already implemented the necessary measures to stabilise the country’s international reserves and had reformed the banking system. Thaksin was able to use the reserves accumulated by the Chuan government to repay Thailand’s debt to the IMF ahead of schedule and claimed credit for this feat for himself.

In late 2004 and 2005, Thailand’s economic growth decelerated as a result of rising inflation and oil prices. Its economy was plagued by consumer debt and trade deficits as a result of Thaksin’s populist policies. Corruption and allegations of disrespecting the monarchy were widespread. The sale of Thaksin’s family-owned business — ShinCorp — which involved avoiding income tax, ignited an outcry, particularly from the middle class who bore the majority of the tax burden. The Bangkok middle class protested, sowing the seeds for the coup in September 2006. Interestingly, the urban population did not show any resistance to the military intervention.

The King’s sufficiency economy philosophy was actively promoted by the interim government to counterbalance populism and consumerism. At the same time, the 2007 Constitution was drafted to reinstall fiscal discipline and close several loopholes in the 1997 Constitution that were exploited by Thaksin, particularly the roles of the independent institutions. However, widespread addiction to populist economic policies, rising discontent with the military — brought about in part by pro-Thaksin activists — and bureaucratic lethargy under the senile Surayud government all combined to ensure victory for the pro-Thaksin Palang Prachachon Party in December 2007. The election demonstrated the entrenchment of populism in Thai society. It made it clear that all parties, including the Democrat Party, had to resort to populist policies to win votes.

In 2008 the Samak government introduced several new measures to tackle rising inflation and living costs including free service on third class buses and trains, free water and electricity, and tax free diesel, the burden of which would be partly financed by future budgets. These policies were undeniably populist and continued under the subsequent Somchai and Abhisit governments.

Massive spending under the Abhisit government was populist in disguise but was somewhat timely and justified as the world was slipping into financial crisis. Prime Minister Abhisit differentiated his policies and claimed they were derived from the concept of social welfare. In an attempt to equalize wealth distribution and retune Thais toward self-dependency, the government pushed land tax reform and the formation of central welfare funds.

Political campaigns in the recent election this year showed that major political parties were determined to direct Thailand toward different levels of populism. The triumph of Yingluck Shinawatra (a surrogate for her brother Thaksin) and her Pheu Thai Party shows that most Thais are enthusiastically awaiting the return of extreme populism.

But Thai populism has come close to its limit. While previous governments successively implemented populist policies, they were all unable to find a new source of state revenue other than borrowing. New and existing policies will add up to a massive fiscal burden and aggravate inflationary pressure. The Central Bank reacted to the Pheu Thai win by increasing the interest rate to 3.25 per cent. The state oil fund will soon be depleted due to the ongoing diesel subsidy. Other sources of funding like state-owned banks and the internal reserves of state entities are also near exhaustion.

Issues over rationale, necessity, possible negative impacts on the country’s fiscal status and competitiveness arise in relation to a number of populist policies such as the ‘One Student, One Tablet’ computer policy. Perhaps the promise of increasing the minimum daily wage to 300 Baht for workers, and 15,000 Baht per year for bachelor degree holders, will be the last straw before the decline of populism. Such policies clearly prove that populism has overstretched by shifting the fiscal burden from the state to the private sector. This will spur discontent and criticism from business entrepreneurs. Many scholars and business figures warn that the implementation of populist policies will undermine the country’s investment attractiveness and competitiveness. In the worst case, they may lead to national bankruptcy.

Whether the new government will be able to deliver on its promises is questionable and any failures could shake its popularity. They will likely distort campaign promises to dilute negative impacts. At some point, Thailand will need to practice fiscal discipline, harmonise fiscal and monetary policy, and understand the role of populism in making the nation vulnerable economically and socio-politically.

Author: Pisit Leeahtam, Chiang Mai University

Pisit Leeahtam is Dean of the Faculty of Economics at Chiang Mai University, and was formerly Deputy Minister of Finance in Thailand.

  1. Thai Populism: A dead end route
  2. An election will not fix Thailand’s woes
  3. Rising cost of living in Thailand and political implications

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Thailand’s economy vulnerable to populist politics

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