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Thatcher's style is solution to woes

 

ALTHOUGH the momentum of privatisation will soon be gathering pace, the government of Prime Minister Chuan Leekpai has yet to launch a critical campaign to win the hearts and minds of the Thai people over to the task of transferring government assets, including staff and management, to private hands as part of the structural adjustments.

Without tough political leadership it will be impossible to undertake a successful privatisation of 59 state enterprises in five key sectors, covering telecom, energy, water, transport and others.

''A campaign to win the hearts and minds of the public is absolutely essential if the country is to move ahead successfully to implement privatisation,'' said Simon Leary, who is handling privatisation services in Thailand for PricewaterhouseCoopers, ''but I understand that the process is still in its early stages.''

From the outset the Chuan government, which came to power in November 1997, was preoccupied with bringing the macro-economic framework under control. It was not until September last year that the Cabinet approved a masterplan for privatisation.

Chuan has so far adopted a hands-off policy in the economic management, delegating most of the power to two of his economic tsars, Dr Supachai Panitchpakdi, the deputy prime minister and commerce minister, who heads the privatisation committee, and Tarrin Nimmanahaeminda, the finance minister, who looks after macro-economic policy and the financial system.

But a more hands-on style of leadership is necessary if Chuan, who is more comfortable manoeuvring politics than managing the economy, hopes to go down in history as a reformist. Thailand's economic crisis, it is now recognised, is no ordinary crisis, involving not only the shaky banking sector and the unsustainable build-up of external debts but also structural problems or economic efficiency as a whole.

''The prime minister should exercise greater political leadership, particularly by forcing real banking reform. He should be ruling like Margaret Thatcher. Her handling of privatisation is now recognised as laying the foundation for the UK's recovery,'' said David Kadarauch, managing director of ABN Amro Asia Securities Plc.

Thatcher, the ''Iron Lady'' who ruled Britain for 12 long years starting in 1979, realised from the outset that there was not much hope of success in privatisation owing to the deep-running recession in the 1970s. For this reason the manifesto of the Conservative Party was cautious in its privatisation policy, promising: ''To sell back to private ownership the recently nationalised aerospace and ship-building concerns, giving their employees the opportunity to purchase shares'' and selling ''shares in the National Freight Corporation to the general public''.

With the recession, it was not easy for Thatcher to win broad-based public support for privatisation, but she had already formed a strong belief in the laissez-faire philosophy, by which government should leave the conduct of most, if not all, of the businesses and services to the private sector. This hallmark would later be recognised as Thatcherism.

Here was her belief in privatisation: ''Privatisation, no less than the tax structure, was fundamental to improving Britain's economic performance. But for me it was also far more than that: it was one of the central means of reversing the corrosive and corrupting effects of socialism,'' she wrote in her memoirs The Downing Street Years.

''Ownership by the state is just that, ownership by an impersonal legal entity: it amounts to control by politicians and civil servants, and it is a misnomer to describe nationalisation, as the Labour Party did, as 'public ownership'. But through privatisation, particularly the kind of privatisation which leads to the widest possible share ownership by members of the public, the state's power is reduced and the power of the people enhanced.''

Despite the initial enthusiasm, it was not until 1984 that Thatcher was successful in privatising British Gas and British Telecom and in 1988 and 1989 the water service. Her handling of the labour unions was decisive. ''Interestingly, at the height of the privatisation programme with opposition from the unions and the public, some five million people went to buy shares. The same survey asked whether they supported privatisation. Their answer was that they didn't. But the fact that they bought the shares of the privatised companies reflected that they had confidence in their future,'' said Leary.

It took eight to 10 years before the fruit of privatisation was really borne. In the case of British Telecom, about 40 per cent of its workforce was laid off in the privatisation process, but 10 years later it had taken on more than 10 times as many new workers. Utility prices in the UK started to come down by 20 to 40 per cent with better quality and services, although the price of water rose in the medium term after privatisation, though it would become more cost-effective later on.

Before privatisation only 4 per cent of the British owned shares, compared to 25 per cent in the post-privatisation period, which reflected the increased wealth of the British.

Given the present Thai economic woes, it is all the more necessary to accelerate privatisation to help improve economic efficiency. The latest figures showed that in 1996 Thai state enterprises' combined assets amounted to Bt3.38 trillion. In that same year their combined investment totalled Bt342.5 billion, or about 8.2 per cent of gross domestic product.

The key to Thailand's long-term recovery and wealth lies in how deep it is willing to go in undertaking economic reform, and by turning over the state enterprises to private hands, which will apply new discipline to their management, the overall economic benefits will eventually fall to the Thais.

However, Chuan has been ambiguous with his message, failing to capture the mood of the public or to show the leadership the way. With financial damage in the financial system running to the tune of 35 per cent of GDP, the government will be coming under increasing pressure to tackle the economic problems so that it has an uninterrupted flow of revenue to pay the bills.

The three sectors in the economy, the government bureaucracy, the state enterprises and the financial and corporate sector, all need more radical reform to help the country emerge from the deep-seated recession. Yet the progress appears to be slow.

With the growing instability of the government and talks about a new election possibly early next year, there is little time left for Chuan to institute privatisation, a setback which will be a setback for the country as a whole.

By Thanong Khanthong

 

 

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