Can Thai Rak Thai reverse economic policy?

August 18, 2000

CAN the Thai Rak Thai Party reverse the key economic policies implemented by the Democrats if it wins the next election? Kitti Limsakul, an adviser to Thai Rak Thai, believes so. He accuses the Democrats of mishandling the management of the economy, which has led to the sluggish recovery. If elected to form the next government, "we'll reverse all the key economic policies of the Democrats," says Kitti, who is also an economics professor at Chulalongkorn University.

It is easy to shadow box and punch the sandbag. But once in the ring, you're facing a moving opponent, who can hurt you. The analogy is that any new government coming into office will at once be confronted with myriad problems, so that it becomes a sitting target, fully exposed to the public eye and susceptible to political attacks. The government is not operating out of thin air; it functions within political institutions and bureaucratic procedures. It has to observe international obligations and practices.

It is doubtful that Thai Rak Thai can undo the legacies of financial and economic reforms put in place by the Democrats. Prime Minister Chuan Leekpai appeared to ridicule the Thai Rak Thai Party in his speech to the Annual Economic Review Forum on Wednesday. "What the present government has been doing in the past two years is something unavoidable, whoever is in charge," he said. "Any change in policy by the next government would be considered a backward move."

Only a man of Dr Virabongsa Ramangkura's stature or a man of Ekamol Khiriwat's temperament has the intellectual might to challenge the economic orthodoxy of the International Monetary Fund. But it does not necessarily follow that their unorthodoxy can be prescribed and implemented under the present political and cultural conditions. Then how can we be sure who gets the right fix?

The four institutions behind Thailand's economic policy management are the National Economic and Social Development Board, the Budget Bureau, the Fiscal Policy Office and the Bank of Thailand. All of these institutions are conservative; they might err or be inefficient, but they have the data. More importantly, they are there, existing as part of the government apparatus to serve the Cabinet, the super-body of the executive branch.

For this reason, it is rather convenient to criticise from the outside that the government has mismanaged the Thai economy or that it has led Thailand on a wrong track. But once you're part of the government apparatus, you're constrained by the bureaucratic rules and the prevailing policy wisdom of the day. For better or for worse, the Democrats, aided by the four financial institutions, have led the country through the tumultuous course of stabilisation, reform and recovery. It is far from perfect, but along the way the policies have been adjusted to suit the market conditions.

Last week, Dr Ammar Siamwalla, the respected economist, raised his doubts yet again about the mountain of debt load in the country. "Before we heard that the debtors made a default. Now it has reached a point that the creditors are defaulting too," he said.

Thailand's foremost problem lies in the banking sector and the indebtedness of its corporate sector. That is why the economic recovery remains in doubt because the banks have not yet been fixed. Ammar sympathised with Finance Minister Tarrin Nimmanahaeminda over his cause to salvage the banking system, though he personally believed that the finance minister could have taken over the entire banking system and then set forth to separate the banks into the good and the bad.

Still, it is difficult to say which would have been the most cost-effective way to tackle the banking system in the middle of the crisis. For sure, Tarrin could have cleaned up the banking system in one swoop. But did political conditions allow him to do so with a free hand? When he told a banking analyst from Goldman Sachs that the Bangkok Bank was the biggest threat to the banking system in 1999, he came under a hail of political attack.

So instead of producing a sweeping banking reform, Tarrin has come up with a market-oriented approach and a mixture of bank closures, mergers and government-sponsored recapitalisation schemes.

The Thai Rak Thai Party would like to nationalise the bad debts in the banking system, but it might be too late. The only challenge for Thailand ahead is to accelerate corporate debt restructuring and banking recapitalisation and to improve the competitiveness of the entire corporate sector. These measures are micro, hamstrung by Thailand's weak institutions.

Whoever comes into office will face exactly the same problems.

BY THANONG KHANTHONG