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Tuesday, October 21, 2003

Thailand's Second Track Gambit

Bloomberg's William Pesek on Thailand's 'quiet revolution' in Thaksinomics:

John Maynard Keynes. Milton Friedman. Karl Marx. Adam Smith. Thaksin Shinawatra. The last name, that of Thailand's prime minister, rarely gets grouped with modern history's best-known economic theorists. But Thaksin, a self-made billionaire, is vying for a role as economic visionary in Asia, if not the entire developing world. Thailand is using this year's meeting of 21 Asia-Pacific Economic Cooperation nations as a coming-out party for ``Thaksinomics.'' Here in Bangkok, a DVD touting its merits is being passed out. It carries Thaksin's smiling face on the cover and boasts that his plan makes nations less reliant on exports and ``offers a new role for Thailand in the global economy.''

Some local commentators say Thaksin should be on the shortlist for a Nobel prize in economics. And with Thai stocks up 80 percent this year, his reputation as an economic guru is growing. The buzz has the Philippines scrambling to adopt Thaksin's plan for economic revival. Malaysia and Indonesia also are giving it a look. Yet Thaksinomics could have a dark side that leaders should consider before jumping to adopt it: debt. The thrust of the ``dual track'' plan is to keep on exporting, while stimulating the domestic side of the economy. It's all about getting Asia out of the trap of export dependence and, here, Thailand has had remarkable success. The economy is growing about 6 percent this year, the second fastest in Southeast Asia after Vietnam.

Thaksin has been especially aggressive with what's called ``managed asset reflation,'' which aims to boost demand among households and businesses without creating another bubble. This $136 billion economy was, after all, at the epicenter of the 1997 Asian financial crisis. Bangkok's move to devalue the baht set the meltdown in motion. Yet Thaksinomics may be little more than old-fashioned pump priming dressed as something new and revolutionary. At its root is cheap money: official interest rates are at a record-low 1.25 percent, meaning credit has never been so affordable or accessible. Household spending sprees on cars, motorbikes, homes and cellular phones are driving the nation's post-crisis recovery.

So are Thaksin's efforts to force banks to lend to farmers and other rural Thais. The state-run Government Savings Bank and the Bank for Agriculture and Agriculture Cooperatives were ordered to lend about $2 billion to tens of thousands of villages for households to invest in small businesses and farm produce. Thailand's debt-driven boom looks great today, but what happens when the economy slows? Considering Thailand's unimpressive progress in ridding banks of bad loans, this is no small risk. In July, Standard & Poor's estimated bad loans in the financial system accounted for about 30 percent of assets.

Thaksin shrugs off such criticism. He argues that nations need to take risks to reinvent their economies. While that's true, it's not clear Thaksin is reinventing the economic wheel here, or just repackaging it. It was a credit bubble that caused Thailand's 1997 meltdown; is another one afoot, albeit on a smaller scale? The focus on poverty reduction is heartening. Overt signs of prosperity strike foreigners visiting Bangkok these days. There's an abundance of late model cars and motorbikes, flashy cellular phones and Louis Vuitton boutiques.

Of Thailand's 63 million people, however, 55 million live outside Bangkok, and life for them can be markedly different. Rural Thais were slammed hard by the Asian crisis, but have benefited little from the boom since. Here, efforts to boost living standards at the grassroots levels make perfect sense. Less clear, though, is whether Thaksinomics is little more than quick-cash populism. The Thai prime minister is certainly offering poor Thais a few tidbits now -- a chance to buy a mobile phone, a television or maybe even to board an airplane for the first time. He's also offering a bit of nationalist sentiment to encourage Thais to be proud. But is Thaksinomics offering this nation a new future? It'll take time before we know if lending to rural Thais results in ground-up prosperity or lifelong indebtedness.
Source: Bloomberg

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