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Thai Rak Thai 'more activist'

December 4, 2000

THE Democrat Party of Chuan Leekpai and the Thai Rak Thai Party of Thaksin Shinawatra are divided by far more than just personality differences.

They also have divergent approaches to managing the country. Indeed, the two parties are facing off at opposite ends of the political spectrum.

At no time in Thai political history have economic ideologies come into play so conspicuously as in this general election campaign, in which the two dominant parties are fighting head-on for control of the next government.

Chuan is portraying the Democrats as a party of teamwork.

As he has done for the past three years, he will continue in this campaign to downplay his leadership role for the sake of solidarity.

This strategy has served well to protect his political image, as most of the blame for the country's economic woes has landed instead on the lap of Tarrin Nimmanahaeminda, the finance minister.

Thaksin sells himself as the CEO, seeking to run the country as Thailand Inc. Since he is the one who bankrolls the party, he has the ultimate say.

A close reading of the policies of the Democrats and the Thai Rak Thai shows that they differ entirely on almost every important issue. Let's begin with the banking sector.

Tarrin aims to build a world-class system for Thai banks, which he hopes to beef up by introducing international rules, standards and best practices.

He believes that a strong economy entails a need for a strong banking system, which is also the best pre-emptive buffer against another crisis.

But Tarrin has been sharply criticised from some quarters for his insistence on requiring Thai banks to conform to big-league standards when they are too weak to do so.

Moreover, the bearish market is also going against the Thai banks, depriving them of an opportunity to raise new capital.

Pansak Winyarat, the chief advisor to Thaksin, thinks of the banking system this way.

"Look at the Japanese banking system. Even though it's a mess, Japanese companies are churning out money.

"The Taiwanese banking system is equally poor, yet the Taiwanese companies are prospering," he said.

His argument implied that Thailand should focus on strengthening competitiveness in the real sector rather than wasting the country's resources on the banks.

Banthoon Lamsam, president of Thai Farmers Bank, appears to lean toward the Thai Rak Thai on this front.

Banthoon said he has run out of ideas because he has done everything to improve his bank, both in raising new capital and in meeting the tough provisioning requirements.

"Yet we cannot lend the money out," he said. "Fixing the banking system alone is not enough. The government must also take care of the real sector."

One by one, bankers, financiers and businessmen who used to be strong supporters of the Democrats, are closing ranks behind Thaksin and the Thai Rak Thai. This is not too complicated to explain.

Thaksin has vowed to set up a national asset management company (AMC) to buy the bad debts from the banking system in one fell swoop.

The bad debts then will be divided into different categories to make it more convenient to manage.

Then the government will decide the level of debt forgiveness to the corporate debtors, ensuring that all are equally treated.

Weak companies will be allowed to go bust, while the stronger ones will get new capital and move forward.

This measure is tempting to the bankers and corporate debtors, who are anxious for another chunk of public money to bail them out.

In pure economic terms, this policy has found support among some economists, who would like to see a quick fix.

Chatichai Parasuk of National Securities told Channel 3 that another Bt1 trillion might be needed to fix the banking system by buying out the bad debts outright. Otherwise, he said, the banks will never be able to stand on their own feet.

Moreover, since the corporates are saddled with massive debts, which are twice or three times their annual turnover, they need to get an appropriate level of debt forgiveness so that they have enough cash flow to continue their businesses.

"The market mechanism has broken down and somebody will have to fix it. And that somebody is the government," Chatichai said.

Tarrin and Pisit Lee-ahtam, the deputy finance minister, have voiced strong opposition to using further

public money to buy up the banks' bad debts.

After all, the government has almost exhausted its resources by pumping Bt1.2 to Bt1.3 trillion into the system to keep the banks afloat. They believe that privately owned AMCs are be an adequate means to tackle bad debts according to market forces.

The Democrats have warned that the Thai Rak Thai's spend-first-pay-later plan will destroy the fiscal discipline of government and might lead to a second crisis.

For all their differences, Supachai Panitchpakdi, the deputy prime minister, and Tarrin share the same conviction that the government should not pick the winners or losers among the industries. Market forces, they believe, should determine which companies should survive or which should go.

Telecom tycoon Thaksin has made it clear that he will be the one who picks the winners and losers by separating the sunrise industries from the sunset industries. Presumably, telecom companies will top the list of winners.

Ironically, in spite of his high business profile, Thaksin prefers government activism to a considerably greater degree than do the rival Democrats.

While the Democrats set out to reform the financial and economic system, hoping to reap benefits through a return of foreign investment and capital, the Thai Rak Thai aims to revamp the national economic and social development plan laid down by Thai bureaucrats over the past few decades.

The Thai Rak Thai has set its sights on tackling the long-term problems of the country, paying less attention to the immediate or short-term problems.

Its policy is to strengthen the rural sector by allocating Bt1 million in working capital for each of the nation's 77,000 villages. Each village will produce one product, linked to the modern sector in an integrated chain of production processes.

At the heart of the modern sector lies the small- and medium-sized enterprises, which will not rely, or will rely very little, on import content .

The farm sector and the modern sector will form the backbone of the economy. This policy of the Thai Rak Thai will shift the country away from an export-led economy into a domestic-oriented one.

For by relying on exports, Thailand would have to import massive quantities of raw materials or machinery equipment to support export production, possibly risking another account deficit, another devaluation to boost exports, and another financial disaster, the party believes.

"What the Thai Rak Thai suggests is a fundamental shift in philosophy of managing the country," Viroj Nualkhair, a capital market expert, said.

"We don't know whether it will work because it depends on implementation. But it sounds interesting. Unfortunately for the country, Thais have to face a change of government in the middle of the economic crisis," Viroj added.

"The public has lost patience with the model of the Democrats and want to try something new. I am not saying that the Democrat's method is wrong but it cannot be measured because it has not been allowed to run its full course."

Anusorn Tamjai of Citibank also believes that the Thai Rak Thai's idea looks appealing, yet he doubts that the party has the right kind of people to implement its ambitious reform programme.

At the same time the Democrats have good people who really know the job but appear to have run out of new ideas, he suggested.

BY THANONG KHANTHONG

 

 

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