Rescuing Thailand: look inward or outward?

September 15, 2000

Last week Kosit Panpiemras, the executive chairman of Bangkok Bank, identified the dilemma facing Thailand: Should we step back and adopt a more inward-looking mode to prepare ourselves for the worst, or should we continue to embrace the free-wheeling capitalism which comes with globalisation?

      "We have to accept the reality that we are a poor and developing country," said Kosit. "This is the first important point upon which we need to reckon. The second reality is that we have completely lost our ability to become a leader of free-wheeling capitalism."

      There is no problem with his first observation. Thailand is still a poor country with about 30 to 40 million of its 65 million population working in the agricultural sector. Farm output accounts for only 14 per cent of total gross domestic product. This implies that the majority of the Thai people are having a tough time maintaining a decent standard of living.

      Kosit's second observation is more controversial. He did not make clear the degree to which Thailand should withdraw itself from the globalisation process, manifested in the new standards, rules, regulations and technologies of the more advanced countries. He emphasised, however, that if we did not protect ourselves well enough but continued to join global capitalism in its pure form, we would get hurt again.

      Increasingly, this inward looking mode of thinking has been gaining ground against the fearsome forces of globalisation. A year after the financial crisis in 1997, Virabongsa Ramangkura, the polemical macroeconomist, repeatedly called for the top policymakers to turn their backs on global rules and regulations and to do things the "Thai way" to get Thailand out of its financial mess.

      Virabongsa has suggested that the authorities relax banking standards: both in the capital adequacy ratio and in income recognition in the case of missed repayments. He would like to see the capital adequacy ratio brought down from 8.5 per cent to 4 per cent and the banks' income recognition be extended from three months to 12 months in case of its borrowers' missed repayments. Earlier, he also urged the banking authorities to pursue a weak baht policy to boost exports.

      "We should forget the foreigners and focus on looking at ourselves," he said. "How are we going to survive in the future? How can we help out the banks or the corporations? It's no use pursuing international standards when it is impossible for Thai banks or companies to do so. The economy won't recover fully in eight to 10 years during this down cycle. The question is how we are going to live through it."

      Recently, a group of academics and activists, led by Dr Seksan Prasertkul, also called for the political parties to spell out clearly in their economic platforms whether they would like to lead the country down the road of the "Washington Consensus" or the "Bangkok Consensus". To this group, it is an either/or decision, a leap of faith of the country into a course of its own or of other people's designs.

 The Washington Consensus was crafted by US policymakers who are urging countries around the world to join globalisation, to use the dollar in their international reserves, to embrace unfettered free trade and the free flow of capital. The Bangkok Consensus banks on "a sufficient economy", a restoration of the political, economic and social rights of working Thais, and a focus on community and rural development. It would refrain from using exports or the financial sector to forge Thailand's economic development.

      Dr Prasarn Trairatvorakul, the secretary-general of the Securities and Exchange Commission, has not featured prominently in this debate over the nation's direction, but he cautions that any move toward the extremes is undesirable for Thailand.

      "We know that globalisation can be very brutal, but it can be very beneficial," he said. "We have to try to strike a balance. At the same time, we cannot close down our country to the outside world. If we fully open up our country, they'll come in and take it all. If we resist opening up our country, we'll be going nowhere. It is a difficult and very complicated question."

      Amaret Sila-orn, the chairman of the Stock Exchange of Thailand, blames the present mess in Thailand on a lack of will to cope with change. He would like to see the Thai people stand up to face the challenges that come with globalisation. The inward looking mode will only leave Thailand behind in the catch-up game for a higher standard of living. "For how many years have we been paddling in the pond, which is leading us nowhere?" he asked. "We have to improve ourselves and embrace change, otherwise we'll miss the bus."

      Finance Minister Tarrin Nimmanahaeminda has been acutely criticised as a child of the Washington Consensus. But it is true that he has been working very hard to put Thailand back on the international map. The structural reforms under his guidance over the past three years are aimed at laying down the groundwork for Thailand to become a stronger nation, with internationally accepted rules and regulations and standards.

      "I am doing everything to restore confidence in this country," Tarrin said. "Without confidence, we cannot recover fully from the economic crisis. If you don't like it this way, just tell me another way."

By Thanong Khanthong