Can Thai Rak Thai reverse economic policies?

Can Thai Rak Thai reverse economic policies?

By Thanong Khanthong

BANGKOK: CAN the Thai Rak Thai Party reverse the key economic
policies implemented by the Democrats if it wins the next
election? Kitti Limsakul, an adviser to Thai Rak Thai, believes
so. He accuses the Democrats of mishandling the management of the
economy, which has led to the sluggish recovery. If elected to
form the next government, "we'll reverse all the key economic
policies of the Democrats," says Kitti, who is also an economics
professor at Chulalongkorn University.

It is easy to shadow box and punch the sandbag. But once in
the ring, you're facing a moving opponent, who can hurt you. The
analogy is that any new government coming into office will at
once be confronted with myriad problems, so that it becomes a
sitting target, fully exposed to the public eye and susceptible
to political attacks. The government is not operating out of thin
air; it functions within political institutions and bureaucratic
procedures. It has to observe international obligations and
practices.

It is doubtful that Thai Rak Thai can undo the legacies of
financial and economic reforms put in place by the Democrats.
Prime Minister Chuan Leekpai appeared to ridicule the Thai Rak
Thai Party in his speech to the Annual Economic Review Forum on
Wednesday. "What the present government has been doing in the
past two years is something unavoidable, whoever is in charge,"
he said. "Any change in policy by the next government would be
considered a backward move."

Only a man of Virabongsa Ramangkura's stature or a man of
Ekamol Khiriwat's temperament has the intellectual might to
challenge the economic orthodoxy of the International Monetary
Fund. But it does not necessarily follow that their unorthodoxy
can be prescribed and implemented under the present political and
cultural conditions. Then how can we be sure who gets the right
fix?

The four institutions behind Thailand's economic policy
management are the National Economic and Social Development
Board, the Budget Bureau, the Fiscal Policy Office and the Bank
of Thailand. All of these institutions are conservative; they
might err or be inefficient, but they have the data. More
importantly, they are there, existing as part of the government
apparatus to serve the Cabinet, the super-body of the executive
branch.

For this reason, it is rather convenient to criticize from the
outside that the government has mismanaged the Thai economy or
that it has led Thailand on a wrong track. But once you're part
of the government apparatus, you're constrained by the
bureaucratic rules and the prevailing policy wisdom of the day.
For better or for worse, the Democrats, aided by the four
financial institutions, have led the country through the
tumultuous course of stabilization, reform and recovery. It is
far from perfect, but along the way the policies have been
adjusted to suit the market conditions.

Last week, Ammar Siamwalla, the respected economist, raised
his doubts yet again about the mountain of debt load in the
country. "Before we heard that the debtors made a default. Now it
has reached a point that the creditors are defaulting too," he
said.

Thailand's foremost problem lies in the banking sector and the
indebtedness of its corporate sector. That is why the economic
recovery remains in doubt because the banks have not yet been
fixed. Ammar sympathized with Finance Minister Tarrin
Nimmanahaeminda over his cause to salvage the banking system,
though he personally believed that the finance minister could
have taken over the entire banking system and then set forth to
separate the banks into the good and the bad.

Still, it is difficult to say which would have been the most
cost-effective way to tackle the banking system in the middle of
the crisis. For sure, Tarrin could have cleaned up the banking
system in one swoop. But did political conditions allow him to do
so with a free hand? When he told a banking analyst from Goldman
Sachs that the Bangkok Bank was the biggest threat to the banking
system in 1999, he came under a hail of political attack.

So instead of producing a sweeping banking reform, Tarrin has
come up with a market-oriented approach and a mixture of bank
closures, mergers and government-sponsored recapitalisation
schemes.

The Thai Rak Thai Party would like to nationalize the bad
debts in the banking system, but it might be too late. The only
challenge for Thailand ahead is to accelerate corporate debt
restructuring and banking recapitalisation and to improve the
competitiveness of the entire corporate sector. These measures
are micro, hamstrung by Thailand's weak institutions.

Whoever comes into office will face exactly the same problems.

-- The Nation / Asia News Network