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Not quite the favourite son of the Democrats

 

MARCH 21, 1999 -- IT has been an enduring love-hate relationship between Dr Supachai Panitchpakdi and the Democrat Party, and the latest flare-up of his policy conflict with Tarrin Nimmanahaeminda proves yet again that Supachai is far from being a favourite son of Thailand's Grand Old Party.

In the end, Supachai has been left alone among the Democrat jesters and indecisive leadership, famous for their ability to take over power rather than govern.

When Supachai joined the Democrat Party in the mid 1980s he left behind a brilliant career at the Bank of Thailand. A scholarship student and graduate of Erasmus University in The Netherlands, Supachai initially brought some excitement to a party eager to attract promising professionals and academics into its embrace but still conscious of the prerogatives of the Southerners. Supachai was never considered a member of the top brass in the party hierarchy.

At the Thai central bank Supachai had been a rising star in the Economics Research Department by virtue of his exceptional eloquence and scholarship. He not only was well versed in matters of macro-economics but could also discuss political affairs astutely. During the governorship of Nukul Prachuabmoh Supachai's training not only endowed him with excellent scholarship but also entrenched in him a strong belief in social justice and welfare for the less privileged. He went on to bolster the reputation of the central bank as the country's institutional stronghold at a time when Thailand was going through a very difficult social and political change.

Nukul gave him all the backing, allowing him to enlighten the public with his unrestrained, mostly critical comments on public as well as political policies.

When the Thai finance companies were falling in a domino effect leading to the formation of the April 4 Lifeboat Scheme in 1984, Supachai was assigned to tackle these failed firms in the Department of Financial Institutions Development and Examination. He was not very successful there, giving his critics some ammunition to claim that he was better at philosophising than at managing. When Nukul refused to go along with an order by Sommai Hoontrakul, the then finance minister, to devalue the baht that same year, he was sacked.

Kamchorn Sathirakul succeeded Nukul. He did not find it necessary to transfer Supachai back to the Economics Research Department. Frustrated, Supachai, who had already formed some political ambitions, decided to quit for good. A brief stint at the Thai Military Bank was not one of his happiest episodes, for Supachai's mind was set on the political arena. He was brought over to the Democrat camp by Marut Bunnag and Bhichai Rattakul, eventually rising to become a deputy finance minister in the Chatichai government.

A volatile political change led him to test his popularity in a Bangkok election. He failed in the March 22, 1992, poll, receiving very little support from the party. Bhichai's dwindling power in the Democrat Party further diminished Supachai's role. He went back to the Thai Military Bank to become its president. Again, his concentration was on politics, not on the banking business.

Chuan's relationship with Tarrin was more specially cordial. During the political crisis of May 1992, Tarrin, then chairman of the Thai Bankers' Association, mobilised domestic support from a broad spectrum of the private sector to apply pressure on the Suchinda government to resign. Tarrin also took part in a fund-raising campaign for the Democrats. When Chuan took power in the 1992 election, he naturally turned to the Harvard and Standford graduate and a famous banker to become his finance minister. It was a period of national reconciliation for the country, which escaped the blood-soaked domestic uprising unscathed.

Supachai left the Thai Military Bank to join the Democrats again, this time as deputy prime minister. He was named head of the economic team, but his appointment was nominal. Tarrin had worked out a special arrangement with the prime minister: he would only report directly to Chuan, who agreed to this term readily. Supachai was a minister without portfolio, an awkward position like that of Al Gore, the US vice president.

Thus began the honeymoon period for Thailand. Chuan, Supachai and Tarrin went on to win broad support at home and abroad for their attempt to further modernise and internationalise the Thai economy. It was during this period that the bubbles in the Thai economy began to gain further momentum, reaching new heights with the liberalisation of the banking industry through the establishment of the Bangkok International Banking Facility scheme. Supachai was a bit of an outsider in this difficult triangular relationship. The charismatic Tarrin was emboldened, while Supachai had to be satisfied with his second-fiddle part.

The honeymoon ended with the Phuket land scandal. The pull-out of the Palang Dharma Party during a no-confidence debate led to the collapse of the Chuan government, plunging the country into political uncertainties and disasters, first with the Banharn government and then with the Chavalit government. The economic bubbles burst in 1996, spreading the financial crisis on into 1997.

Thailand was in deep crisis after it floated the baht in July 1997. The baht was in free fall. Banks and finance companies were falling like poleaxed oxen. The current-account deficit of 8 per cent of GDP was not sustainable. Foreign-exchange reserves had been depleted by the gruelling baht defence. External debts reached more than US$90 billion. The country risked defaulting on its external debt obligations. There was a complete lack of confidence in the economy. A bail-out from the International Monetary Fund was inevitable.

Chuan became a comeback kid in November 1997 as a saviour of the nation after Chavalit was dismissed in disgrace for fear he should push the country deeper into the abyss of crisis if he insisted on running the country. On the first day of his return to power, Chuan deliberately placed Supachai on his right and Tarrin on his left in front of national TV. Supachai would again be head of the economic team, and Tarrin would take over as finance minister. Their mandate was to restore confidence in the management of the Thai economy, clean up the mess in the financial system, undertake structural reforms and put Thailand back on track. The mood of the country rose; foreigners loved the team; the IMF was willing to work with Thailand again after threatening to withdraw its support during the Chavalit reign.

Chuan, Supachai and Tarrin's relationship would turn out to be a replay of the Chuan 1 government. As before, Chuan would try to rise above the conflict between his two economic lieutenants, who could not reconcile their differences on the management of the economy.

Supachai's main task was to jump-start exports, which had been denied liquidity. Tarrin was more preoccupied with restoring confidence and stabilising the baht. Interest rates were kept high to defend the baht. Supachai came out with repeated warnings about the high-interest-rate policy. He was more concerned about liquidity problems, which had been creating a debt overhang. If the situation continued, it would close the door on Thai exports and eventually hit the real sector of the economy. He believed that the baht could be sacrificed to a certain extent to give the real sector a chance of survival.

Tarrin's priority was to stabilise the baht, the foremost barometer in his mind. If the baht policy failed, all other measures would become meaningless. No policies had been designed to address the social consequences of the crisis, boost exports or tackle the manufacturing sector until August 1998 when Tarrin began to mount a radical policy shift, supported by the uptrend of the Japanese yen against the US dollar. Thailand was also experiencing a current-account surplus, most of which was used to settle foreign-currency swap contracts built up to the tune of $23 billion during 1996 and 1997 to defend the baht.

The country ended 1998 with expectations that the economy would have contracted by 8 per cent. Both the IMF and Tarrin came out with optimistic views that a recovery would get under way in 1999, with a slight growth rate of 1 per cent. The government was under pressure to bring the country back on the path to recovery. Since Tarrin was in charge of the Finance Ministry he called most of the shots. Supachai only listened from afar while making frequent foreign trips to speak on Thailand's behalf. Meanwhile his candidacy for the post of secretary-general of the World Trade Organisation preoccupied his agenda. He seemed, ironically, to muster broader support from the international community than he could expect at home, even from Democrat diehards.

In any event, with three months of 1999 passed without any sign of economic improvement, Supachai again could not conceal his frustration at the lack of progress. He wanted to see how the measures introduced by Tarrin so far had developed. There had not been any review or official assessment of the government's policy. It looked as if Tarrin alone knew what was going on. They could not work as a team.

Tarrin said he was prepared to listen to any suggestions as long as he was given the recommendations, Supachai that he had made all the recommendations but they had never been put into practice. The confrontation was brought into the open early this week when they would not go into the same meeting. Supachai preferred a meeting of the top officials of the Bank of Thailand, the National Economic and Social Development Board and key economic ministers which would allow the forum to debate the issues more critically and openly without the constraints of the wider body of the weekly Cabinet meetings, while Tarrin did not see the necessity for such meetings since he had been reporting all his measures to the Cabinet all along.

The issue boiled down to whether Tarrin was on the right track. He believed so, but Supachai questioned whether all the reform measures were actually producing results, from the banking-reform package, the liquidity policy and the baht policy to the fiscal disbursements. It looked as if the government machinery was about to grind to a halt while the country continued in crisis. Supachai preferred that the government should review the entire economic package, particularly the Aug 14 Banking Restructuring Programme and the foreign-exchange policy, which, he said, should be adjusted to boost exports. He proposed that the government partially nationalise the banks' debts so that the banks could be relieved of some of their non-performing-loan burden and recapitalisation. The government, he felt, should not erect conditions in its provision of the tier-1 capital support, otherwise the banking problem could never be solved. On the baht policy, the deputy premier would have liked the baht to become weaker for Thai goods to be able to compete in overseas markets.

Tarrin was not keen on making any radical policy adjustments at this time, believing that the measures needed more time to work their way through. He could not compromise on the nationalisation of the banks' debts for fear of inviting further harsh criticism that the government was bailing out the rich at the expense of the poor. The baht policy, he said, had been set taking into accpount the broad macro-economic conditions of the country, including inflation, balance of payments, the ability to service external debts and import capability. Supachai might want to boost exports to meet the target of 4 per cent this year, but the country as a whole had other interests to look after too.

Last Wednesday the two had a chance to exchange information and opinions. Again there was no breakthrough. The prime minister tried to mediate, but he did not want to embroil himself in the conflict. He did not leave a clear message as to whose policy he supported. By keeping quiet and rising above the conflicting situation, he appeared to signal that he was willing to stick to Tarrin.

Tarrin and Supachai parted on the understanding that they would continue to differ. Supachai would go ahead and try to meet his policy objective of boosting exports, while Tarrin would concentrate on tackling the banking system, debt restructuring and fiscal stimulus to bring the country back on the road to recovery.

The two tigers just could not live in the same cave, as they put it, citing a popular Thai saying.

BY VATCHARA CHAROONSANTIKUL and THANONG KHANTHONG

 

 

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