Thailand at a Glance: 2001-02
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COUNTRY REPORT Thailand At a glance: 2001-02 OVERVIEW Thai Rak Thai (TRT), led by Thaksin Shinawatra, won an overwhelming victory in the January 6th election. The TRT is moving quickly to implement its populist policies, designed to raise rural and urban incomes and stimulate overall growth. The proposed fiscal stimulus will underpin growth during 2001-02, but, by mid-2002, rising inflation and mounting public indebtedness will lead to tighter monetary and fiscal policies. Export growth will be subdued in 2001, owing to the sharp slowdown in global demand. Key changes from last month Political outlook • The TRT has formed a coalition with two parties, enabling the government to avoid no-confidence motions and facilitating the legislative process. However, factional divisions within the TRT and its partners, primarily between reformists and the old-style patronage politicians, could impede progress on policymaking. For investors and the public, there is the risk that constitutional or IMF-inspired reforms could be reversed or delayed by the TRT government. Economic policy outlook • Thaksin has made his policy statement to parliament, outlining nine key programmes for immediate action. The more expansionist fiscal policy is going to be financed this year by a reallocation of funds within the budget formulated by the outgoing Chuan government. More details on the proposed asset management company for banks’ bad debts have been announced. The principal beneficiaries will be the nationalised banks. Economic forecast • Anecdotal evidence of slower than expected economic growth in the first months of 2001 was borne out by the January trade figures which recorded only the second deficit in 30 months. Exports to the US, particularly of electronics, were significantly lower. The trade account is not expected to stay in deficit since the high import content of exports will lead to lower import demand in the months to come. March 2001 The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The EIU delivers its information in four ways: through our digital portfolio, where our latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group. 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ISSN 1356-4056 Symbols for tables “n/a” means not available; “–” means not applicable Printed and distributed by Redhouse Press Ltd, Unit 151, Dartford Trade Park, Dartford, Kent DA1 1QB, UK Thailand 3 Outlook for 2001-02 Political outlook The new government The Thai Rak Thai (TRT) party of Thaksin Shinawatra won an overwhelming victory in the January 6th 2001 parliamentary election. The election was the first to the House of Representatives (the lower house) to be held under the new constitution. The Electoral Commission played an active role, requiring re-votes in 62 constituencies because of allegations of malpractice. The final tally gave the TRT 248 seats in the 500-member house, just short of an absolute majority. Before the final result was announced, Thaksin had formed a coalition with the New Aspiration Party of General Chavalit Yongchaiyudh and the Chart Thai party of Banharn Silpa-archa, both of whom are former prime ministers. The small Seritham party later dissolved itself to merge with the TRT, giving the coalition a total of 339 seats in the lower house. Thaksin’s 35-member cabinet, announced on February 17th, failed to meet expectations and pre-election promises of a fresh start, as many veteran MPs reappeared in key posts. Other key posts went to relatively inexperienced newcomers whose main qualification for the job was their loyalty to Thaksin. In total, 17 of the 22 full ministerial posts went to members of the TRT. On the positive side, the fact that the key economic posts were filled by Thaksin’s most trusted supporters bodes well for the smooth and quick implementation of the TRT’s election promises. The key post of finance minister went to one of Thaksin’s closest aides, Somkid Jatusripitak. While Somkid’s lack of banking experience provides some cause for concern, it probably means that Thaksin himself will be closely involved in policy planning and implementation. The powerful Ministry of the Interior went to Thaksin’s right-hand man, Purachai Piemsomboom, while the Ministry of Foreign affairs went to yet another close aide, Surakiart Sathirathai, a former finance minister. The appointment of General Chavalit Yongchaiyudh as defence minister is particularly controversial. There is no one more closely associated with the old-school of Thai politics. He has already stated his intention to reinstate the seniority system for military promotions and is widely expected to demote the current army commander-in-chief, General Surayud Chulamont, who is much respected for his efforts to depoliticise the armed forces. A further area of political uncertainty is the December 2000 indictment against Thaksin for filing false asset statements in 1997. It now rests with the Constitutional Court to reach a verdict. If the court upholds the ruling then Thaksin would be banned from politics for five years–this, however, could be backdated to 1997. On March 1st Thaksin’s lawyers submitted his rebuttal of the indictment and the trial is expected to start in the next couple of months, although the final ruling is unlikely to be handed down within the year and could take up to two years. International relations Foreign policy, which had a low profile during the election campaign, has become the new government’s immediate focus of attention after a border EIU Country Report March 2001 © The Economist Intelligence Unit Limited 2001 4 Thailand incident with Myanmar in early February. Myanmar soldiers reportedly hit the Thai town of Mae Sai with stray shells during a battle against ethnic guerrillas. Thai soldiers returned fire, and three Thai villagers were killed and seven injured. The border was immediately closed to all trade. The new Thai administration is keen to improve relations with the Yangon government, primarily in order to enhance commercial ties but also to co-operate on the drugs problem. Foreign policy is set to have a different focus under the new Thaksin administration. The Chuan government alienated many of Thailand’s neighbours by taking a vocal and aggressive stance on human rights. The new foreign minister, Surakiart, has stated that relations and economic co-operation with other Asian countries are to be the new priority but that this will not involve any interference in the internal governments of those countries. Economic policy outlook Policy trends In late February Thaksin presented his policy statement to both houses of parliament. He outlined nine “emergency” programmes for the revival of the economy, which he pledged to start implementing within the next three months. These include his electoral promises of a three-year suspension on some farmers’ debt repayments, a Bt1m (US$23,000) fund for each of Thailand’s more than 70,000 villages, a national asset management company and a universal healthcare scheme. The other programmes include the creation of a people’s bank and a bank to grant loans to small and medium-sized enterprises (SMEs); steps to encourage the depoliticisation of the management of state enterprises; the establishment of narcotics suppression, prevention and rehabilitation programmes; and a continued drive against corruption. The new finance minister , Somkid Jatusripitak, has separately announced that shares of public enterprises will be offered to the Thai public instead of selling them to foreigners. Economic and industrial policy generally is likely to be less welcoming to foreigners, at least until widening economic imbalances necessitate a more open policy by mid-2002. One of the key promises of the Thai Rak Thai (TRT) party during the election campaign was to create a national asset management company (AMC) or centralised debt restructuring mechanism.