From Political Reform and Economic Crisis to Coup D'etat

From Political Reform and Economic Crisis to Coup d’etat: The Twists and Turns of Thai Political Economy, 1997-2006

Abstract

This paper argues that the 1997 Asian Financial Crisis (AFC) strongly shaped Thai politics in various ways, particularly in terms of its “agent” and “agenda.” First, certain big business groups who survived the economic crisis subsequently came to dominate electoral politics, taking advantage of the new Constitution (1997) and its related election law. Second, economic recovery became the dominant issue in the public agenda, taking priority over political reform. The pre-existing bureaucratic administration was seen as too sluggish and incapable of dealing with economic difficulties. This paved the way for the political ascendancy of Thaksin Shinawatra, a telecom tycoon-turned-politician and policy entrepreneur, who became highly popular with his entrepreneurial image and populist policies. Over all, the AFC shifted Thai political economy in favor of business dominance. However, the new pluto-populist regime of Thaksin overreached itself politically, alienated and antagonized the middle class and other elite groups, reignited separatist insurgency in the Malay Muslim-majority South of the country, faced a continuing mass protest movement and widespread opposition, and was recently overthrown by the military in a coup d’etat. While political reform (particularly the 1997 Constitution) was a necessary condition, the AFC constituted the sufficient condition for the said political development and eventual crisis.

When the Thai military successfully launched a bloodless coup d’etat in September 2006, it looked as though Thailand was set in a time machine back to the Cold War days when the country was ruled by authoritarian regimes [you can cut this phrase if you want]. International observers were stunned at the broad-based support to the military coup by Bangkokians who gave flowers and food to soldiers on duty. Before then, anti-government demonstrations were rampant since September 2005 under personal leadership of Sondhi Limthongkul, the owner of the Manager Media Group. Thousands of people, mostly the middle classes, gathered regularly in protest against Thaksin Shinawatra, the telecom-tycoon turned Prime Minister, and his Thai

Rak Thai [this may be italicized depending on Asian Survey’s formatting] Party (TRT). It was

1 The author wants to thank Kasian Tejapira for his valuable comments and suggestions. A great deal of information was drawn from several works by Pasuk Phongpaichit and Chris Baker. Thaksin’s concentration of power that led to mass protest on several charges, ranging from corruption, conflict of interests, abuse of power, violation of human rights, suppression of press freedom, to lèse majesté . In response, pro-government crowds, mostly from the countryside, assembled in Bangkok and sometimes advanced to physically pressure media that carried anti- government stances, namely the Nation Group.The anti-government and the pro-government groups were on the course to collide at some point. The coup, in effect, yielded a halt to the prolonged political crisis that had plagued the country for more than a year, albeit temporarily.

Such an anachronistic coup d’etat in the new millennium is puzzling and thus requires further examination. While many critics blame the political reform of the 1990s, out of which emerged the 1997 Constitution, as the cause of the political crisis that set the pre-conditions for the military coup, this article takes a more comprehensive view, highlighting the impact of the

1997 Financial Crisis on the Thai political economy and the subsequent political crisis. In particular, the 1997 Constitution tends to be viewed as the vehicle for Thaksin to consolidate and centralize his power through election rules that favor a strong executive. I will argue that while political reform (particularly the 1997 Constitution) was a necessary condition, the Asian

Financial Crisis (AFC) constituted the sufficient condition for the political crisis and the subsequent coup d’etat.

Divided into four parts, the article starts with a brief summary of Thai political history.

The second section discusses political reform during the 1990s and its outcomes, namely the

1997 Constitution, which sets a new direction for Thai politics. The third part deals with the impacts of the new Constitution in combination with the Financial Crisis, culminating in new political economy whereby certain big business groups came to dominate politics. The final

2 section discusses the role of this new group of political leaders in setting up a new national agenda focusing on economic growth at the expense of democracy and political reform.

I A Brief Thai Political History

Since becoming constitutional monarchy in 1932, Thai politics had been on a bumpy road toward democracy with cycles of corruption and coup d’etat. For almost six decades, the country had been ruled by military-led governments, as demonstrated in the dominance of the three General-turned-Prime Ministers—Pibul, Sarit, and Thanom. The military gave bureaucrats an almost free hand to manage the country, particularly on macro-economic policies. Meanwhile, the military-led governments allowed small groups of allied politicians to participate in the cabinet and governance. Of course, the military’s control of the national administration related to specific benefits, including lucrative public enterprises and ownership of TV/radio stations.

During the Vietnam War, it was the military that dealt directly with the American Embassy on aid as well as conducted Thai foreign policy. Throughout the reign of Sarit and subsequently

Thanom, the military had been relatively unified in support for the regime (Ukrist).

It was the student-led people uprising in 1973 that gave a temporary halt to authoritarian regimes, paving the way for the entrance of the middle class to politics. It revealed some cracks in the military as an institution that contributed to the downfall of the Thanom government. This period should be understood in the context of emerging new political, economic, and social forces since the 1960s, particularly the groups of students, city businessmen, local notables, labor and farmers. However, the hard-won liberal politics was proven to be short-lived, as the military came back with vengeance in 1976 when hundreds of unarmed protesters were killed at

Thammasat University by rightist forces backed up by security officers. As a result, approximately 3,000 students, workers, and activists fled to join communist guerillas in the

3 jungle (Kasian 2006). A year later in 1977, a more far-sighted military carried out another coup to install a more moderate government. In any case, the 1973 uprising is seen by most scholars as significant watershed in Thai politics (Prizzia 1985, Likhit 1985, Anek 1992, Pasuk and

Sungsidh 1992).

During the 1980s, a new political arrangement was made in the model of power sharing between the military and civilian politicians of middle class origins. Politicians here were mostly referred to ex-bureaucrats / military elites and local notables, many of whom were construction contractors. Not willing to challenge the military, elected politicians invited

General Prem Tinsuranonda, the ex-Commander in Chief of the army, to take the Prime Minister post. General Prem then took office for consecutive eight years (1980-1988), filling key posts with his close associates. Such posts included positions in the ministries of defense, finance, foreign affairs and interior ministries.

Apart from these four key ministries, elected politicians were allowed to take control of other ministries. Yet, corruption was somewhat kept in check by General Prem who was not reluctant to dissolve the parliament to punish corrupt politicians as well as to solve political scandals and deadlocks. Several reasons accounted for the political compromise between the military and politicians. First, the Constitution at that time allowed non-elected persons to take any executive post, including the Prime Minister. Second, the military by that time became fragmented and lacked the confidence to rule the country on its own in the same fashion as previous pre-1973 military regimes (Ukrist). The fractures in military elite were demonstrated by the fact that there were two failed coups launched by young-turk officers against General

Prem who proved to be too solid in his command of the government to be overthrown. Third, the growth of new political, economic, and social forces, generated by the rise of the middle

4 class and civilian politicians, was too significant to ignore. In the wake of the burgeoning power of civilian politicians, provincial notables came to dominate electoral politics in rural areas.

Even so, the military could still claim legitimacy for its heavy involvement in politics by citing security imperatives, in terms of the communist insurgency and sore relations with neighboring countries in the context of the Cold War.

As the Cold War was fading out in the late 1980s, such traditional security threats came to subside, rendering the military less important. As a consequence, Thai politics became liberalized, when General Prem called it quits, declining to accept the post of Prime Minister in

1988. Prime Minister Chartichai Choonhavan then became Thailand’s first elected prime minister of the post-1973 period. His very first policy, “turning the battlefields (in neighboring countries) into a market,” challanged a military that was hinged to a confrontational stance toward Indo-china neighbors. By emphasizing economic development and trade, the huge defense budget came to be seen as luxurious and thus unnecessary. The military had come under scrutiny regarding opaque and secretive budgets, which were then substantially cut to the distress of the military elites. Eventually, the growing dissatisfaction among the military’s top brass was consummated in the 1991 coup d’etat, which was well received by a public that had become disillusioned with a civilian cabinet rampant with corruption.

It was the 1991 coup and the subsequent “Black May” incident of 1992 that made political reform urgent and indispensable for Thailand. The 1992 bloodshed incident resulted from efforts by the military junta to retain their power by nominating a coup leader, General

Suchinda Kraprayoon, to the post of Prime Minister. Although sucessful, his premiership was short-lived, faced with mass protests that ended in a military crackdown with hundreds of lives lost. Suchinda subsequently resigned from office. The military’s disastrous political endeavor

5 made critics write off the likelihood of future coup d’etats and the military’s involvement in the national politics (cf. Surin 2003). As is evident, coup d’etats remain the reality for Thai politics even in the new millennium, as demonstrated in September 2006.

The Old Regimes

The early post-World War Two system of Thai politics has been well explained by Fred

Riggs (1966) in his “bureaucratic polity” model, which described the key role played by the bureaucrat elite in managing the country. Riggs argues that the 1932 overthrow of the absolute monarchy was not a popular uprising, but an uprising of the bureaucracy for the bureaucracy. As the military is also a part of the bureaucracy, it is no wonder that the military-backed governments gave bureaucrats considerable autonomy. In particular, the Ministry of Finance and the Bank of Thailand had almost free reign to develop macro-economic policy. Of course, the military reserved some turf for distributive politics among their own elites and well-connected businessmen. For example, top brass always sat on the boards of state-own enterprises, while most TV and radio stations had been under control of the military. These had yielded substantial benefits to the military through kickbacks and commissions. Some politicians also became part of these military networks.

For businessmen, it was beneficial to secure good relations with some of the military elite for the sake of their businesses, both legal and illegal. This was especially true for those who sought concessions from the government. Importantly, banking conglomerates, most of which were of ethnic Chinese origin, came to develop close relations with the military (Pasuk and

Baker 2003). The bureaucrat power seemed to reach the zenith, particularly in terms of its autonomy, during and immediately after the Sarit years in the 1960s. Since then the bureaucracy

6 has had to increasingly share power with politicians, particularly since the 1980s (Pasuk and

Baker 2004, Ockey 2004).

Following the student-led uprising in the 1970s and especially over the course of the

1980s, Thai politics began to reveal some significant transformations. As mentioned above, several groups came to either share or compromise with bureaucratic power, particularly groups of professional politicians, provincial notables, and the middle class. Prizzia (1985) emphasizes the growth of civil society during this period that first emerged under student leadership. Anek

(1992) detects some change toward a more corporatist model, in which business associations came to play an important role in policy making through the mechanisms of joint business- government committees. Pasuk and Sungsidh (1993), meanwhile, stress the roles of the middle class in general. Kasian (cf. 2006) sees the growth of politicians dubbed as “electrocrats” who take elections as their business. In Kasian’s words, “The electrocrats were elected politicians who usually had a provincial entrepreneur-cum-local mafia-boss backgrounds, and were hence largely ignorant of national and macroeconomic matters; they were mainly interested in short- term personal or factional gains” (Kasian 2006, p. 13). The tension between provincial politicians and the middle class has been the key driving force in Thai politics. These politicians had to placate the middle class by tailoring their own images and by bringing in academics and technocrats to the cabinet. Over all, this genre of scholars was inclined to declare the death of the bureaucratic polity.

Nonetheless, during the Prem era, technocrats were given considerable autonomy, not only in the area of macro-economic policy but also in industrial strategy. Specifically, the

National Economic and Social Development Board (NESDB) and the Board of Investment (BOI) were instrumental in shifting the nation from the import substitution industrialization into an

7 export-oriented strategy during the 1980s. The BOI, in particular, devised several incentive schemes to attract export-oriented investment. Notably, both agencies were under the Office of the Prime Minister, and not the Ministry of Industry.

Ockey (2004) has critically engaged the bureaucratic polity model. He inquires as to why, if the bureaucratic polity is really dead, did Thaksin announce in the 2000s a reform for the bureaucracy that was proclaimed to be so strong that it prevented the country from rapid development. The bottom line is that though losing much of their power to politicians in particular, bureaucrats remained quite powerful. Thus, it is too soon to declare the death of bureaucratic power. Accordingly, Thai politics should be understood in terms of complex interactions, by and large, among politicians, bureaucrats, wealthy businessmen, and provincial notables.2

Regarding political funding, wealthy businessmen from banks and concession-related businesses (e.g. construction) had been major financiers for political parties. These businessmen preferred working from behind, rather than running for election. There was a structural barrier in terms of election rules, in which a candidate needed to run and canvass votes in a particular electoral district. Mostly Bangkok-based, these leading businessmen were in a disadvantageous position, compared to provincial politicians who were close to their constituencies through patronage webs in local areas. Yet, wealthy businessmen still possessed leverage in terms of financial contributions resulting in preferential deals from the government through the party or the politicians they supported. In exchange, commissions and kickbacks were offered to politicians, particularly to faction bosses.

Regarding political structure, cabinets tended to be short-lived due to the nature of unstable multi-party coalition governments, which had been the norm in Thai politics. On

2 Ockey (2004).

8 average, governments lasted only 18 months.3 The Prime Minister tended to be held hostage by support of coalition parties and even MPs in his own party, as they might choose to renege or vote against the Prime Minister in a non-confidence votes. In other words, the executive was weak vis-à-vis the legislature. Accordingly, the government underwent multiple cabinet reshuffles so as to mollify the instability caused by various parties and faction leaders and, thus, to maintain working coalitions. The short-lived nature of coalitions made it hard for the governments to implement long term policies.

In brief, since the 1980s parliamentary politicians (with the support of big business financiers) increasingly challenged the power of bureaucrats. Unstable coalition governments, corruption, and the military intervention were apparently an established cycle of Thai politics.

With the violence of May 1992, political reform came to be seen as inevitable and indispensable to break this vicious cycle for the survival of the nation in a more competitive world.

II Political Reform and the New Constitution (1997)

The process of political reform was inaugurated following the Black May incident, starting with the appointment of Dr. Prawase Wasi, a senior intellectual, as the chair of the

Democracy Development Committee (DDC) in 1994. The DDC recommended rewriting the

Constitution to address the shortcomings of the old political system. In 1995, the Constitution

Drafting Assembly (CDA) was formed with a sizable number of academicians and experts who held an ideal view of politics. After soliciting opinions from the public and civil society in many parts of the country, the new Constitution was promulgated in 1997 at the height of the Financial

Crisis. Though the Chavalit government, which was dominated by provincial politicians,

3 Chambers (2003), cited in Hicken (2006), p. 10.

9 apparently opposed the Constitution, the momentum in favor of reform compelled the parliament to adopt it.

There are two areas of reform that unintentionally allowed the Taksin’s concentration of power, namely, the strenthening of the executive vis-à-vis legislature and the creation of independent watchdog organizations. Though well-intentioned, new rules under the 1997

Constitution inadvertently yielded negative impacts on Thai politics, resulting in democratic authoritarianism.4

Having been weary of unstable coalition governments that tended to be held hostage by party members, the constitution drafters wanted to ensure greater stability and longevity for governments, which in particular would contribute to policy continuity. Several rules were introduced to discipline faction leaders and backbenchers and to strengthen political parties.

First, the significant 90-day rule was adopted to require a candidate for the lower house to be a member of the same party for at least 90 days prior to the date of registration for an election.

In effect, any MPs who resigned from their party would be disqualified from running again if the

Prime Minister dissolved parliament and called for a snap election within 45 days, according to the new electoral law. In other words, the prime minister had an instrument to keep agitating

MPs at bay.

Second, the new electoral law revamped the election system from multi-seat districts to a combination of single-seat districts and proportional representatives, or the so-called party list system. Importantly, there was a high incentive to pick cabinet members from the party list only.

If a single-seat MP were appointed a minister, he or she would lose his or her MP status and, thus, a by-election would be required. Accordingly, party-list MPs were in an advantageous position at the expense of MPs from direct constituencies. Significantly, when cabinet members

4 Thitinan (2003).

10 were dislodged from their posts, they would lose even their MP status. All of these contributed to the consolidation and concentration of power in the hands of the prime minister. The future of minister positions was at mercy of the prime minister. In fact, as most MPs received considerable salaries from their parties to subsidize the maintenance of their constituencies, they were even further under control of the party leader, namely Thaksin himself.

Third, the new rules regarding no-confidence debates made it harder for the opposition to censure executives. To launch a no-confidence censure vote against the Prime Minister would require 200 members or two-fifths of the 500 House MPs. A censure motion against a cabinet minister would require 100 members or one-fifth of the House. Throughout more than five years of his days in office, Thaksin never faced a single no-confidence motion, thanks to the small number of MPs in the opposition. In fact, he rarely attended the parliament sessions, arguing that he should concentrate on managing the country, rather than being involved in endless and useless debates in the house. The three rules elaborated above unintentionally strengthened the

Prime Minister to an unprecedented degree.

Under the new Constitution, watchdog agencies were created supposedly for the creation of a better check-and-balance system. Among them, there are three significant bodies—the

Election Commission (EC), the National Counter-Corruption Commission (NCCC), and the

Constitution Court. The EC is now in charge of elections at all levels, replacing the Ministry of

Interior which, as a rule, favored the incumbent government parties. Not only overseeing elections, the five-member EC has an authority to annul election results and call new elections as well as to investigate and take action in cases of electoral fraud. Replacing the less independent

Counter-Corruption Committee, which used to be a bureaucratic agency prone to political influence, the nine-member NCCC investigates and prosecutes corruption petitions. The

11 Constitution Court rules on the constitutionality of actions or laws. All of these responsibilities are aimed at strengthening check-and-balance system.

It was the elected senate under this new constitution that finally selected the members of these independent watchdog agencies. Thus, the key to interfere with these agencies is to take control of the senate. That is exactly what happened during Thaksin’s administration. Ideally, senators were supposed to be nonpolitical, not being affiliated with any political party. But in reality, most of them were tied to politicians by kinship, marriage, businesses, and other relationships. In fact, many senators used to run for MP seats, so their political affiliation was strong. The control of the senate by the government was even more apparent when Suchon

Chalikrua, a low profile but pro-TRT senator, was elected as the speaker of the house in 2003.

In short, the new rules under the 1997 Constitution became an instrument for concentrating power in the hands of the executive. Most independent bodies established by the Constitution came to be partisan through the capture of the senate.

III The New Political Agents

What was new under Thaksin’s administration was a cabinet filled with many leading business figures. In the early Thaksin cabinet, such figures included Pitak Intrawitayanunt and

Wattana Muangsuk from the CP Group, Adisai Potharamik of the Jasmine Group, Pracha

Maleenon from a TV and entertainment conglomerate, and Suriya Juengrungruangkit from the largest local auto parts maker. Though businessmen came to play more roles in the parliament as electoral politics developed since the 1980s, the biggest business figures tended to shy away from direct involvement. The largest businesses were only indirectly involved behind the scenes by financing political parties and then sought benefits and preferential treatments from the

12 government through influencing the government parties and some individual politicians such as faction leaders.

The self-awakening of leading business elites into politics happened earlier around the

1992 Black May Incident when they came to realize the negative impacts of politics on their economic interests. Unstable politics not only dimmed the domestic business climate but also affected their international transactions in an increasing interdependent world. Early leading business figures who jumped into politics included Arkorn Huntrakul, a hotel tycoon, in the

Phalang Tham Party and Suriya in the Social Action Party. Thaksin himself also led the Phalang

Tham Party for a number of years during the 1990s.

However, it was the 1997 Financial Crisis that convinced leading businessmen not to remain on the sidelines. In their view, it would be outdated and harmful to leave the country in the hands of provincial politicians and bureaucrats, who were seen as incapable to deal with a globalized and competitive world. As noted by Dhanin Chearavanont, the head of the CP Group,

“This is an age of economic war. It’s crucial that we have a prime minister who understands business and the economy.”5 Chatri Sophonpanich from Bangkok Bank also shared a similar view. 6 More importantly, it became imperative for businesses relying on government concessions and protection to jump into politics directly. As the commitments to the WTO would compel Thailand to liberalize many business sectors (including telecoms), the future of many businesses depended on national political decisions. The IMF’s neoliberal reform programs threatened domestic capital. As Hewison puts it, the unprecedented threat to domestic business interests led leading business groups to enter politics directly to seek protection for their

5 Bangkok Post, 31 October 2000, cited in Baker (2005), p. 112. 6 Baker (2005), p. 112.

13 interests.7It was the party list system that enabled leading businessmen to enter politics more easily. These businessmen did not possess direct patronage webs to gain support from constituencies. Neither did they have time nor were willing to canvass for votes in a constituency district, which tended to be time consuming. The party list system made them national candidates, rather than just candidates from a local district. Accordingly, in the 2001 election the proportion of MPs with business backgrounds was as high as 22 percent among party list MPs and 30 percent for all MPs. The total number of business MPs increased from 112 in the 1996 election to 148 in 2001. As shown below, the percentage of businessmen was only second to the percentage of politicians, far exceeding those of ex- and government officers.

Party-List Elected MPs TotalElected MPs 2001 2001 Government Others Government Officers Others Officers Scholars 11% 12% 12% 15% 0% Ex-Govt Officers Ex-Govt Officers Lawyers Scholars 2% 6% 6% 0% Lawyers 7%

Business Politicians Owners 34% 22% Politicians Business 43% Owners 30%

Government Officers Ex-Govt Officers Politicians Business Owners Government Officers Ex-Govt Officers Politicians Business Ow ners Lawyers Scholars Others Lawyers Scholars Others 12 13 Source: Statistics and Result of House of Representative Election 2005, Election Commission of Thailand Source: Statistics and Result of House of Representative Election 2005, Election Commission of Thailand

Although the number of elected party list MPs in the 2005 election dropped somewhat, the number of businessmen candidates remained high (164 persons, around 28 percent). The reason for the decreasing number of businessmen MPs can be explained by Thaksin’s new approach, called “Party List 2.” To placate professional politicians who were increasingly frustrated with Thaksin’s inclination to fill his cabinet with businessmen MPs, Thaksin assigned more professional politicians to the formal party list. Yet, Thaksin created “Party List 2” to

7 Kevin Hewison (2005), “Neo-liberalism and Domestic Capital: The Political Outcomes of the Economic Crisis in Thailand,” Journal of Development Studies 41: 2, pp. 310-330.

14 accommodate leading business figures. To the frustration of politicians, Thaksin picked many of his cabinet members more from List 2.8 Such a practice was possible, as the 1997 constitution required MP status only for the prime minister, while cabinet members could be any one outside the parliament. Another explanation is that many businessmen came to define themselves as politicians, since the constitution required candidates to withdraw from their businesses as a measure to prevent conflicts of interest.9 In any case, the total quantity of business MPs was not as significant as their qualifications due to the fact that they were Bangkok-based leading tycoons who turned to directly involve in electoral politics.

All Party List Candidates for House of Elected Party List MPs: Representatives: 2001 & 2005 Comparison (Party List)

2001 & 2005 Comparison (Party List)

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Tycoon-turned-politicians: The New Capitals

Most of these tycoon-turned-politicians’ businesses relatively survived the AFC, compared to those in the financial, construction, and real estate sectors. There are two reasons why they fared better. First, many of them enjoyed semi-monopolized status and protection from the government through concessions and licensing, they were thus less exposed to international competition. This was particularly true for telecom and media companies. Second, they represented new capital that had potential to grow, including firms in the fields of

8 Interview with ex-TRT MP, February 2007. 9 Many of businessmen MPs turned over their company shares to their family members.

15 telecommunications, media and entertainment, automobiles, and transportation (especially airlines). In this sense, the AFC yielded the downfall of the old capital that used to be the main financier for political parties. Undoubtedly, financial tycoons were injured the most, while construction contractors also suffered a serious blow, since most construction projects were frozen due to the crisis.

The graph below clearly shows how Shin Corp (a Telecoms Group belonging to

Thaksin’s family) and the CP Group performed much better than two major Thai banks,

Bangkok Bank (BBL) and Kasikorn Bank (KBank formerly known as Thai Farmers Bank).

Companies’ Performance: Net Profit (Million Bath) 30,000

20,000

10,000

996 997 998 999 000 001 002 003 004 005 006 -10,000 1 1 1 1 2 2 2 2 2 2 2

-20,000

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-40,000

-50,000

-60,000

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Shin CPF Kbank BBL 6 Source: The Stock Exchange of Thailand

Though the 1997 Financial Crisis affected many businesses, Shin Corp and CP managed to stablize their economic performances quickly, after their profits slightly dropped during 1997-

98. Meanwhile, Bangkok Bank and Kasikorn Bank had suffered much deeper and longer.

Notably, Shin Corp allegedly survived the crisis well, partly because it bought massive US dollars (and subsequently gained from exchange rate margins) prior to the floatation of baht in

July 1997, thanks to insider information from Thaksin who was Deputy Prime Minister at the

16 time.10 Moreover, though the banks’ performances began to pick up around the year 2000, they had been plagued with non-performing loans (NPL) which continued to paralyze their businesses for many years afterwards.

Non Performing Loan (NPL) of Major Banks (Million Baht) 250,000 30

25 200,000

20 150,000 Kasikornbank NPL 15 Bangkok Bank NPL 100,000 % (Kasikornbank) 10 % (Bangkok Bank)

50,000 5

0 0 2000 2001 2002 2003 2004 2005 2006 Source: The Stock Exchange of Thailand

As shown above, Bangkok Bank’s NPLs had remained high; nearly 20 percent of total loans and peaked as high as 25 percent in 2002. For Kasikorn Bank, the figure shared the same trend, though to a lesser extent. The 1997 financial disaster also brought a significant change to ownership structure of Thai commercial banks. The ownership formerly monopolized by tycoon families has been substantially transferred to foreign shareholders, especially Singaporean financial institutions. The major shareholders in two major Thai banks (BBL and Kasikorn

Bank) currently are from the same group, including HSBC Singapore and Government of

Singapore Investment Corporation. The Thai Military Bank and Bank of Asia now are also owned by Singaporean capital and were renamed TMB and UOB respectively.

As Ukrit and Rattapong (2006) argue, Thai commercial banks lose their importance after the AFC by three reasons. First, the shareholder structures are now more dominated by foreign capital. Second, a more liberalized financial market increased competition from non-bank

10 Sondhi Limthongkul made this statement several times during his famous “Thailand Weekly” program.

17 financial institutions. Third, the relationship between commercial banks and the state has changed, as the Thaksin administration did not rely on banks as much as previous governments did. Traditionally, the Thai state greatly relied on commercial banks to finance industrialization and economic development, and thus tended to provide protection and favorable treatment. The

Thaksin government also relied more on state banks, namely Krung Thai Bank and Government

Savings Bank, to finance credits for economic development. The dependence on state backs was as high as 183 billion Baht in 2002 and 154 billion Baht in the following year (p. 198 reference here). Importantly, the Thai Rak Thai Party did not have to depend on banks to support their election, as tycoon members could contribute sufficient political funding for their party. As discussed above, financial tycoons could not afford to fund political parties as much as they did due to their deteriorating financial status and diminishing ownership of their financial institutions.

Linkage between Politics and Profits

There seems to be a clear linkage between politics and profits in the post-1997 period.

Tycoon-turned-politicians’ companies tended to earn more profits from government concessions, compared to those of non-political tycoons. Among 13 tycoon families that sent their members to run for the 2001 election, 10 of them had businesses related to concessions. The table below demonstrates their high proportion of earnings from concessions.

Incomes of 10 Political Tycoon Businesses (2000) Incomes from Total Incomes Concessions Other Incomes No. Family US$ Million Amount % Amount % 1 Shinawatra 1,078.71 1,013.97 94.0 64.74 6.0 2 Karnchanapas 287.13 42.97 15.0 244.16 85.0 3 Chearavanont 3,047.32 532.70 17.5 2,514.62 82.5 4 Trivitsawavet 277.89 128.34 46.2 149.56 53.8 5 Teepsuwan 394.91 52.30 13.2 342.61 86.8 6 Benjarongkakul 712.14 695.54 97.7 16.60 2.3 7 Potharamik 284.14 228.69 80.5 55.45 19.5

18 8 Maleenont 150.08 110.58 73.7 39.50 26.3 9 Wongkusolkij 292.74 75.44 25.8 217.30 74.2 10 Wilailuk 130.21 60.47 46.4 69.74 53.6 Source: Somkiat (2006).

As is evident, key tycoon families make much of their incomes from concessions, particularly in telecommunication , media, and construction. Around 90 percent of Telecom tycoons’ corporate incomes came from concessions, 94 percent for Shinawatra, 97.7 for

Benjarongkakul and 80.5 for Photaramik. In the case of construction, the Trivitsawavet family earned 46.2 percent of its total incomes from concessions. Over all, on average these ten tycoon families received almost 23 percent of their incomes from concessions, compared to non- political tycoon families who received a mere 2.5 percent of their incomes from concessions. In short, seeking and protecting concessions represented a great motivation for tycoons to be directly involved in politics.11

Moreover, there was clear evidence that political tycoon families’ businesses made more profits, compared to non-political ones in terms of profits, dividends as well as market shares.

For instance, from 2001-2005, profits in minister-related companies were about 18 percent higher than average. From 2001-2002, political tycoons’ businesses were able to increase their market shares about 12 percent, compared to the average. In 2003, dividends paid by

Shinawatra-related companies were 141 percent higher than average.12

The New Regime: The Power Shift of Political Agents

The power shift of political agents is evident with the involvement of tycoons in politics.

Certain tycoons came to dominate politics at the expense of bureaucrats and even provincial

11 Somkiat (2006). 12 Ibid.

19 politicians. In fact, Thaksin made clear his aim to dismantle the power of these two groups. In an early speech, Thaksin pinpointed three problems in Thai politics (Pasuk and Baker 2004).

First, there were too many politicians taking politics as their career, as a way to make money.

They invested in vote buying to win the election, then looked to recoup their money plus huge profits through corruption. Second, the Thai bureaucracy was too powerful, too vertically- oriented, too slow and too ignorant of the business world. It lacked both the will and capacity to help Thailand develop and cope with a globalized world. Third, both politicians and bureaucrats were not modern, failing to keep up with globalization. He emphasized the 1997 Financial Crisis as evidence of how bureaucrats and old groups of politicians were inept and incapable.

Bureaucracy was the first group falling pray to Thaksin’s predatory politics. The bureaucracy came to lose much of its autonomy, as politicians intervened more extensively both in terms of policy and personnel affairs. Administration became top-down even more than before, as bureaucrats had to serve politically-oriented agendas more than before. A plus side of this was that bureaucrats have to listen to the private sector more, as politicians seek support from them.13 Yet, such policies tended to be flashy and boosted the popularity of the government, but lacked substance and were less feasible in practice. Examples include

“Bangkok Fashion City” and “Detroit of Asia” in the aim promote the garment and the automobile industries respectively.

The Thaksin cabinet went further than previous governments in personnel appointments, promotions, and transfers. Ministers intervened in appointments not only for senior bureaucrats but also for lower-ranked ones for the sake of policy implementation, personal connections, and some kickbacks.14 Thaksin also appointed more businessmen on the boards of government

13 Interview with auto parts executive, May 2007. 14 Interview with ex-bureaucrat, April 2007.

20 agencies and state enterprises, formerly occupied by officials. Example included the appointments of Boonklee Plangsiri, Shin Corp CEO, on the Board of Investment (BOI) and

Tanong Bhidaya, ex-Thai Military Bank President, as Chairman of National Economic and

Social Development Board (NESDB).

Ministry reorganization in 2003 is also a good case in point. The remapping of ministries was drawn up at the will of politicians, changing the bureaucratic structure from fourteen to twenty ministries. For example, the Ministry of Info-Communications and Telecoms (ICT) was newly created with only two departments, allegedly so as to contribute favorably to the Prime

Minister’s family businesses. The Ministry of Agriculture and Cooperatives was split into two ministries to the dismay of bureaucrats. One important motive was that Thaksin wanted to create more cabinet posts at the level of full minister (rather than at the deputy level) to pacify political pressures in his party.

Moreover, the cross-ministry appointment of Bunpot Hongtong from the Ministry of

Commerce as secretary general of the Ministry of Agriculture and Cooperatives (MAC) is indicative how the tycoon-cabinet arbitrarily shuffled bureaucrats as they pleased. This led to the dismay of MAC bureaucrats. Some even wrote open letters to air their grievance on the press.

The cabinet, yet, lent a deaf ear to such complaints. Likewise, a permanent vice secretary from the MAC was appointed as secretary general of the NESDB at the Prime Minister’s Office. In other words, bureaucratic autonomy was significantly destroyed by the Thaksin administration.

Furthermore, Thaksin introduced the plan to appoint non-bureaucrats, particularly businessmen, to senior bureaucratic posts, including director-general and ambassadors.

Apart from bureaucrats, provincial politicians also came to lose much of their power.

Traditionally, factions of provincial politicians formed the core groups that determined the

21 survival of the government. If large factions withdrew their support during a non-confidence debate, the government would fall apart. As such, Sanoh Tientong, a faction leader from

Srakeow Province, had been a kingmaker installing both the Banharn and the Chavalit cabinets during the 1990s. He was also instrumental in the early Thaksin cabinets as well. During the

Thaksin administration, provincial politicians were weakened in several ways. First, as discussed above, provincial politicians who tended to run in single-seat districts were deterred from executive posts, as cabinet appointments favored party list MPs (and later non-MPs from

Party List 2). Without cabinet posts, they had fewer resources for their power bases. Second, the 90-day rule deterred provincial politicians from protesting against or jumping ship from the party. Third, the government campaign against “dark influences” hurt many provincial politicians who had local influences or mafia backgrounds. Police arrests included even the eminent local godfather in Chonburi Province, Kamnan Poh, on criminal charges. This was unprecedented. The Thaksin administration was willing and able to do so, as provincial politicians now had less bargaining power. Importantly, provincial politicians were bought out through salaries from the Thai Rak Thai Party funded by the new capital. The additional salary approach was supposedly aimed at constituency maintenance, but many politicians used it for personal expenses as well. Of course, they also received extra funding from the party during elections.

As pointed out by Pasuk and Baker, with the rise of TRT, money politics has been replaced with “big money politics.” Politics came to be operated by the funding of leading big businessmen whose roles became more prominent than provincial politicians. Thaksin thus was able to fill cabinet posts with more of his close associates, including Prommin Lertsuridej,

Poomtham Vetchayachai, Suwan Walaisatien, and Pongthep Thepkarnchana. Business-oriented

22 cabinets became more interventionist in bureaucratic affairs, significantly reducing bureaucrats’ roles in managing the country.

It is important to note that many of these new tycoon-turned-politicians initially came from the real estate sector, not the nominal sector like finance. 15 Though these leading businesses tended to be from new capital during the early years of Thaksin, the TRT later on extended its influence to cover a wider business circle, including some old capital sectors like construction and manufacturing. Leading businessmen knew well they should get close to the center of power for their business interests.

IV The Supremacy of Economic Agenda

The Asian Financial Crisis greatly shifted the domestic agenda from political reform towards economic recovery, as people came to care more about their livelihood. Shortly after the crisis broke out in mid-1997, Chuan Leekpai from the Democrat Party formed a coalition government to pull the nation out of the doldrums. Since the economy failed to pick up quickly and evenly, the Chuan administration was criticized as being a too docile disciple of the IMF, implementing many neoliberal policies that emphasized market forces but allegedly hurt domestic capital and workers alike. Such policies included raising banking standards, a credit crunch, and state-enterprise privatization.

Thaksin wanted to break with such neoliberalism and make a difference. Thus,

Democrat-bashing and IMF-bashing became important campaign features for the Thai Rak Thai

Party during the 2001 election. The TRT election campaign also insisted that only a successful businessmen like Thaksin could lead the country in a globalized and competitive world, not

15 I thank Apichat Satitniramai, my colleague at the Faculty of Economics, who raised this point.

23 torpid old-generation politicians and bureaucrats. As a credit crunch devistated domestic capital, particularly small and medium businesses, Thaksin promised easier credit for business liquidity and investment. Most significantly, TRT’s main platform was basised on populist policies towards the rural masses, including the Village Fund (one million baht each), the 30-baht

Medicare Program, Farmers’ Debt Moratorium, and the Bank for the Poor.

As a result, the campaign worked very well as TRT impressively won the election, with almost double the seats gained by the runner-up Democrat Party. More importantly, not long after the election victory, Thaksin was able to narrowly escape immediate impeachment on the charge of asset concealment at the ruling of the Constitutional Court. With the split votes of 8-7, some judges admitted that they considered public opinion in ruling in favor of Thaksin (Baker).

It was evident that the Thai public opinion condoned the question of political integrity and ethics for the sake economic recovery, as they placed high hopes in Thaksin’s leadership of the economy.

Accordingly, the main agenda of the Thaksin government was to promote economic growth to recover from the 1997 crisis. Although previous Thai governments also emphasized

GDP growth, Thaksin’s administration stressed it even more, almost even to the point of turning growth into a fetish. The GDP growth would help boost the image of the government as one capable of delivering what it had campaigned on.

The way to reach high GDP was through so-called “Thaksinomics”. First termed by

President Arroyo of the Philippines, “Thaksinomics” referred to a dual-track policy that promoted both domestic demand and foreign exports with the aim of tapping both national and

24 global markets. In Pasuk and Baker’s words, “Thaksinomics is a growth-oriented strategy to drag Thailand out of the 1997 crisis and to make leap towards first-world status.” 16

The government launched many schemes to support both local and national capital. The former included “One-Village One-Product” (OTOP), apart from the populist policies mentioned above. The Thaksin administration extended the populist policies to the urban poor as well, as demonstrated in cheap housing and taxi schemes. Such policies were termed as “pluto- populism” (Baker 2005). Whenever the government was under attack, populist policies were launched to boost domestic popularity.

The middle class also gained somewhat from the Thaksin administration. Not only did the government offer economical computers, both desktops and laptops, but it also raised the salary for civil servants across the board. Such schemes for the middle class were not surprising as Thaksin attempted to form a grand coalition to support the TRT. The grand coalition was glued together by nationalism arguably growing out of the Financial Crisis. Thaksin always rode on the current of nationalism, particularly when declaring liberation from the IMF upon

Thailand’s completion of its debt service in 2004.

For domestic capital, the government promoted “strategic industries,” focusing on five sectors: food, fashion, automobile, tourism, and computer graphics. Later on, the government also extended this emphasis to cover medical care and logistics as well. Though claiming to depart from the East Asian economic model that overwhelmingly emphasized exports, the

Thaksin government remained subscribed to the idea of protecting and promoting domestic industries. In effect, Thaksin brought Thailand back to the developmental state model by identifying target sectors for nurturing and promotion. However, the developmental state this time was not a bureaucrat-led one, but one led by politicians, namely by Thaksin himself and his

16 Pasuk and Baker (2004), p. 128.

25 inner circle of politicians. Yet, one advantage of a politician-led developmental state was cross- ministry integration and policy coordination, replacing the vertically oriented administration led by bureaucrats. The Thaksin government regularly set up committees to coordinate across ministries.

On the one hand, the Thai developmental state under Thaksin resembles 1960s Japan that emphasized GDP growth and promoted target industries. On the other hand, it was similar to an authoritarian regime, probably like that of Singapore, in the sense that the government promoted growth at the expense of political space and freedom. Being obsessed with stable government for policy continuity, he seemed to have either Singapore’s Lee Kuan Yew or Malaysia’s

Mahathir in mind.

It was this authoritarian style of leadership that created the pretext for the political crisis.

The new pluto-populist regime of Thaksin overreached itself politically, alienated and antagonized the middle class and other elite groups. Taxpayers were annoyed that their taxes were spent relentlessly on numerous populist policies, which might not only fail to sustain the economy but also might lead to moral hazards among the poor. Thaksin’s arrogance and overconfidence also warranted antagonism among intellectuals and the middle class. Being allergic to criticism, press freedom was suppressed mostly by the financial power of tycoon- politicians’ businesses. Specifically, those businesses would hold back advertisement, the cash- cow of the media, if a newspaper and a TV program criticized the government. Intellectuals who attacked Thaksin would be rebutted strongly most of the time by the prime minister himself.

26 After the peak of Thaksinomics in 2003 when the GDP growth reached 6.7 percent, 17

Thaksin’s administration went downhill after 2004 when several crises emerged almost simultaneously. On the economic front, oil price hikes and the avian flu were threatened the growth prospects of the Thai economy. On the political front, the Thaksin government faced various problems of its own making. First, the separatist insurgency in the Malay Muslim- majority south of the country intensified in early 2004, not long after Thailand was declared as part of the “non-NATO alliance” by the United States and subsequently dispatched troops to Iraq.

The Prime Minister did not help by bluntly criticizing insurgency as the work of thugs without ideology while discounting any possibility of separatist or religious elements. Second, the issues of human right violations became more acute with the “war on drugs” campaign and the mishandling of insurgency in the South. Third, Thaksin was accused of lese majeste after he presided over a ceremony at the Temple of Emerald Buddha, a royal site for state ceremonies by the King and royal family. Fourth, corruption among the cabinet became more visible.

Outstanding scandals included the procurement of “CTX” luggage screening equipments at the new Suwanabhumi Airport. Throughout the Thaksin government, a new type of corruption,

“policy corruption,” emerged due to the conflict of interests among tycoon ministers. The public were suspicious of many policies that would benefit certain tycoon businesses. Well known cases include the amendment of telecom concessions in favor of Shin Corp.

The public, by and large, remained patient. The last straw was the sale of Shin Corp stocks to Singapore’s Temasek without paying a penny of tax in early 2006. Thaksin’s family managed to use the loophole of the security-exchange law to evade tax. As a result, the country is very much divided between rural and urban poor who support Thaksin on the one hand, and

17 By that time, the Thai economy had surpassed the pre-crisis level.

27 the middle class and bureaucrat elite who oppose Thaksin on the other. This popular distinction seems somewhat exaggerated as a significant portion of the middle class is also pro-Thaksin.18

Conclusion

The 1997 Asian Financial Crisis strongly shaped Thai politics in various ways, particularly in terms of its “agent” and “agenda.” First, certain big business groups who survived the economic crisis subsequently came to dominate electoral politics, taking advantage of the new Constitution (1997) and the related election law. According to the new rules, a new category of party-list MPs was created in addition to the pre-existing constituency MPs, to be elected by proportional representation, thus making it much easier for Bangkok-based big businessmen to enter politics. Second, economic revival became the dominant issue in the public agenda, taking priority over political reform. The pre-existing bureaucratic administration was seen as too sluggish and incapable of dealing with economic difficulties. This paved the way for the political ascendancy of Thaksin Shinawatra, a telecoms tycoon-turned-politician and policy entrepreneur, who became highly popular with his entrepreneurial image and populist policies.

Over all, the AFC shifted Thai political economy in favor of business dominance. However, the new pluto-populist regime of Thaksin overreached itself politically, alienated and antagonized the middle classes and other elite groups, reignited the separatist insurgency in the South, faced a continuing mass protest movement and widespread opposition, all culminating in its recently overthrow by the military in a coup d’etat. While political reform (particularly the 1997

Constitution) was a necessary condition, the AFC constituted the sufficient condition for the said

18 See detailed account of the political crisis in Kasian (2006).

28 political development and eventual crisis. In this sense, the AFC had a profound effect on Thai politics, culminating in the political crisis and the coup ten years after.

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