Thaksinomics dead in Japanese waters
November 23, 2001
Thaksinomics has proved to be shortlived indeed. On Tuesday, Prime Minister Thaksin Shinawatra told a Japanese audience in Tokyo that he would still embrace the East Asian Economic Model, of which Japan is the driving force. By saying so publicly, Thaksin made a Uturn in his core economic thinking.
Whether he knew it or not, he effectively killed Thaksinomics with his own hand.
In the East Asian Economic Model, Japan is the economic leader which gradually transfers technology and production bases to other Asian countries in a “flying geese” pattern as they move up the valueadded chain. South Korea, Taiwan, Hong Kong and Singapore – all newly industrialised countries – were the first group of countries to have benefited from this model. Then Thailand, Malaysia, Indonesia and the Philippines followed suit as the second group.
Until the Japan trip, the prime minister had conveniently repudiated the East Asian Economic Model. He blamed this exportoriented setup for causing the Thai and Asian crisis of 19971998.
In his speeches to the Fortune Global Forum in Hong Kong and to the Joint Foreign Chambers of Commerce in Bangkok several months ago, Thaksin made it clear that Thailand had turned its back on the East Asian Economic Model.
He was proud to become the first leader in Asia to repudiate this model and replace it with Thaksinomics. In Thaksinomics, Thailand would be following a “dualtrack” policy. In the first track, which deals with foreign investment and globalisation, Thaksin would treat it as business as usual. But he would focus more energy toward strengthening the second track through a buildup of an entrepreneurial class in Thailand. He would spend Bt200 billion of government money to create an entrepreneurial class from scratch.
His aim was to revolutionalise economic management by replacing exports with domestic consumption as the engine of economic growth. Thaksin never uttered the important phrase “market reform”, which was badly needed in Thailand after the economic crisis. The Communist Chinese are now talking about market reform as a mantra. They are now more Catholic than the Pope.
In his political campaign rhetoric, Thaksin and his Thai Rak Thai Party poured cold water on foreign investment, liberalisation and free trade. They believed that Thailand would never be able to cope with an exportoriented policy again because to export successfully, the country would need to import capital, machinery and raw materi?als. Along the way, if there should be a hiccup, then Thailand would be thrown back into a crisis like the 19971998 catastrophe.
So Thaksin and his economic team treated the farang as a bunch of people who were trying to buy up cheap assets and take advantage of Thailand. This also sent Japanese investors and businessmen scurrying for explanations. The answers they got were always ambiguous.
The result was that foreign companies delayed their investments in Thailand. In the first nine months of this year, foreign direct investment fell by 52 per cent – not because of the global economic slowdown or because of the September 11 attacks on America but because of the Thaksin government’s inconsistency in its economic policy, which scared away foreign investors.
Now foreign investors are even more important to Thailand during this critical time when domestic investment remains weak and bank lending is contracting. Government spending alone cannot pull the economy out of the quagmire.
Now it appears that Thaksin has started to develop an appeal for foreign investment.
In his Tokyo speech, Thaksin softened his attack on the East Asian Economic Model. “As my government took office, it was apparent that the East Asian Economic Model, which had served Thailand so well in the past, had not addressed many of the country’s fundamental problems, par?ticularly the basic inequalities in the economic structure,” he said.
“The government, therefore, deemed it essential to close this socioeconomic gap in order to create a stable social platform for investment. Such a platform (homegrown industries or small and mediumscale enterprises) should also gener?ate greater internal economic activities, which will inevitably create greater income for the people as well as the government.”
Then Thaksin went on to reverse his earlier remark, as if trying to please the ears of his Japanese hosts, about the East Asian Economic Model. “While this new track of Thai economic policy is geared toward improving the grassroots level, we are not looking to abandon the East Asian Economic Model; rather, we are seeking to improve and build on it,” he said.
“Indeed, the East Asian Model and its focus on foreign direct investment remains very necessary to Thailand’s continued development. For the right and desirable kind of foreign direct investment brings with it not just capital, but technical knowhow and markets, which are essential to helping us go through the transition from a singu?lar resource and capitalbased economy to one in which competitiveness and productivity are the primary drivers.
“Despite misconceptions in some quarters, the Thai investment policy continues to be based on liberalisation and free trade. It has never been otherwise.”
With this policy turnabout, Thaksinomics, which was the textbook of the Thaksin government for eight months, should be declared dead in the water.