Friday, June 17, 2011

Thailand Fears the Recurrence of Thaksinomics

Just when we thought we’d seen everything from Thaksin Shinawatra, the former Thai prime minister has managed to clone himself.

The genetic copy in question is Thaksin’s younger sister, Yingluck Shinawatra, who is running for his old job. If you think this sounds like the political version of a cheesy horror film, imagine how Thailand’s 68 million people feel. They’ve seen this one before and it doesn’t end well.

Officially, Thaksin, 61, was ousted in a September 2006 coup amid corruption allegations and has been on the run since. Unofficially, he is leader-in-exile, doing all he can to govern by proxy from far-off places like Dubai and Montenegro. His sister’s campaign is largely seen as a way for Thaksin to reassert himself in Thai politics. Investors should be wary.

Thaksin has long been Thailand’s answer to Silvio Berlusconi. Like the Italian prime minister, Thaksin was a media tycoon who leveraged his business success to become the dominant political leader. Thaksin, like Berlusconi, also was accused of using public office to advance his private business interests.

A born salesman, Thaksin brilliantly convinced Thailand’s rural poor that he championed their interests. His populist economic policies had more in common with Tammany Hall patronage than anything development economists would prescribe to raise living standards. All the while, Thaksin bowdlerized Thailand’s democracy and neutered its institutions, leaving the nation worse off.

Since his removal, Thailand has had five prime ministers and veered from one violent protest to another. At times, central Bangkok has resembled a war zone and the airports have closed. Foreign direct investment has suffered, as has gross domestic product. Thailand’s economy is growing at a pace of just 3 percent, less than half the rate of some of its regional rivals.

Prime Minister Abhisit Vejjajiva, in office since December 2008, is spending so much time trying to keep his job that he’s neglecting to do it. He needs to accelerate Thai growth and spread the benefits so that they’re not concentrated among the elite. That means attacking the rampant corruption that contributes so much to the widening gap between urban rich and rural poor.

However, cleaning things up has proven to be beyond the abilities of the Oxford-educated Abhisit. Thailand ranks 78th out of 178 countries in Transparency International’s corruption perceptions index, tied with Greece, Colombia and Lesotho.

So is Yingluck Shinawatra, 43, who has never run for office or held a government post, really a step in the right direction? Would she resist her brother’s influence and attack the powerful forces of cronyism holding the nation back?

The odds don’t favor it. Thaksin is the de facto leader of Yingluck’s Pheu Thai opposition party. A Yingluck victory next month would put Thaksin back in the driver’s seat, albeit indirectly, and that could mean a return to so-called Thaksinomics.

Such a result would be a setback for central bank Governor Prasarn Trairatvorakul, who is worried about the return of populist policies that might fan inflation. Election pledges include cutting value-added taxes, increasing minimum wages and providing zero-interest loans. Thai inflation is already accelerating because of rising food and oil prices.

No matter the electoral outcome, political tensions are mounting and the potential for military conflict is real. A Pheu Thai-run government might encounter resistance from the generals who ousted Thaksin to begin with. Of course, an election loss on July 3 for Thaksin’s surrogates might trigger mass protests by the so-called Red Shirt demonstrators loyal to the former prime minister. Neither scenario would be positive for Thailand’s economy in the weeks, and possibly months, ahead.

On June 7, the Goldman Sachs Group suggested investors cut Thai holdings on concern that the election would fuel turmoil. Instability now costs the country 1 to 2 percentage points of annual GDP growth, according to Credit Suisse estimates.

The long-term outlook is troubling as well. We’re now living in the age of what economist Stephen Green of Standard Chartered Bank calls “China years.” We’ve all heard of dog years, or the theory that for every year a human ages, a dog ages by seven.

China has accomplished in a few years what took decades in other countries. Thailand demonstrates the perils of failing to adapt to that pace of change. It’s falling further behind, becoming less competitive and slipping deeper into political dysfunction. It would be better to see Thailand moving in the direction of South Korea, with an economy that can hold its own against China. That won’t happen if Thaksinomics is reinstated.

By William Pesek Bloomberg columnist.

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