Monday, February 1, 2016

Thailand looking shaky

Thailand is struggling. The economy has stagnated and its political system is going backwards. This May marks two years since the coup — Thailand’s second in less than a decade — with the military government still in control. Thailand is also languishing in a middle income trap.

It’s not easy becoming a rich country or a democracy. Singapore and Brunei are the only high income countries in Southeast Asia (and they are not large countries). The only Southeast Asian country to make the successful transition to democracy so far is Indonesia. Myanmar has started down that path.

Things were looking up for Thailand before the Asian financial crisis in 1997. High rates of economic growth and the transition to democracy had the country on the right trajectory. It appeared Thailand was right behind its Northeast Asian neighbours Japan, Taiwan and South Korea in getting rich, and on the way to consolidating democracy. But like many in Asia it was hit hard by the crisis of the late 1990s and seems now to have lost its way. The people of Thailand don’t currently enjoy the high incomes or political freedoms to which they aspire — and the future prospects are not good for either.

The export-led and manufacturing-led growth model that served Thailand well over the last two decades of the 20th century required political and macroeconomic stability, openness to trade and investment in the manufacturing sector and was assisted by policies that promoted exports and investment. That is a familiar story across East Asia and has helped many East Asian economies escape from low incomes, in a short time and reduce poverty rates.

For rapid growth by a low income country that imports and adopts technology from abroad, a strong government that pursues high growth strategies appears the critical element — political liberties, distributional issues and environmentally friendly growth seem commonly to be of secondary importance. As Thailand fell into political crisis in 2013, there were many in business and elsewhere that hankered for a return to political stability to get the economy back on track and implement reforms.

The junta-backed government showed initial promise. At the same time as trying to rebuild political institutions and getting the decks cleared for moving back to an elected government, the administration tried to kick-start the economy with a range of measures including much needed economic reforms and green-lighting foreign investment applications and infrastructure projects.

But 18 months later Thailand is looking at an estimated 2–3 per cent growth for the year and continuing uncertainty on the political front. A new draft constitution, Thailand’s 20th, released in late January is unlikely to change this, with elections to be pushed back further.

In this week’s lead essay, Thitinan Pongsudhirak explains that the pro-coup coalition is breaking down. The military government is losing support. Instead of bringing stability, the coalition that supported the coup now spells instability and political stagnation, says Thitinan.

‘The military government of Prime Minister Prayuth Chan-ocha is stuck between a rock and a hard place of its own creation’, argues Thitinan. ‘It feels compelled to stay in power until it believes that Thailand can function as a workable democracy’.

Thitinan explains that ‘the coup was staged on the pretext of cleaning up corruption and instituting reforms to remake the country into a disciplined democracy underpinned by traditional values and institutions’. But the problem for Thailand is that governance is much less likely to improve under an unaccountable government.

The longer it stays in power, the harder the military government will find it to keep its pro-coup coalition united. Already the Democrat Party — the opposition force that led the disruptions that brought down the Yingluck Shinawatra government — is showing signs of dissatisfaction with the regime it helped to spawn, as are the civil society groups and parts of the bureaucracy that supported the coup. The support of big business appears to be holding it all together for now but, according to Thitinan, it would be a game-changer if that starts to wane.

The longer the delay in getting back on track towards democracy, the more distant the prospect of breaking out of middle income towards high income will become. Democracy may not necessarily be a precondition for becoming high income, as neighbour Singapore shows, but among the club of rich countries there are none that do not have a liberal political system, that are not city-states or small countries with large resource endowments.

And Thai people have tasted democracy — a development which it is difficult undo.

With incomes at around US$5,800 per capita — a country right in the middle of league tables — Thailand has reached a stage of development that requires a different model of growth: one that does not rely on export-led manufacturing. Higher incomes require openness and innovation from a domestic base.

The constraint in Thailand is the political system and political gridlock. The military government brought a resolution to the political crisis in 2014; now the priority is to find a way towards a stable and pluralistic regime. Otherwise Thailand risks becoming stuck in the trap.

The East Asia Forum editors’ group is run out of the Crawford School of Public Policy in the College of Asia and the Pacific at The Australian National University.


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