Thailand facing lean years in wake of financial woes

By Gwynne Dyer

LONDON (JP): Out in eastern Bangkok, at Benz Thonglor on the Sukhumvit Road, you can buy used light airplanes for a song. Speed-boats and luxury cars, too: an almost-new BMW that would have cost over two million baht ($US25,000) only a few months ago can now be picked up for less than one million. It is Talad Nat Khon Kuey Ruay -- roughly, the 'market for the formerly rich' -- and it has already become an emblem of the new Thailand.

Thailand is where the Asian crash started last summer, and it's where the economic pain will be worst. In fact, few Thais have any idea how bad it's going to get.

For the moment, the 'formerly rich' send their servants to Benz Thonglor to flog the Merc and the family silver to deal with immediate cash-flow problems, and play status games about how long they have to wait to get their money back from the 58 finance and securities firms that were suspended last summer. (Investors who had less than 10 million baht have to wait three years to get their money back, but bigger players must wait five years).

Those who believe that sort of fairy-tale should look at the unfinished or unoccupied 30-story office buildings, built with no parking and no access to public transport, that lurk at the end of every other soi (lane) leading off Sukhumvit Road. Their missing money mostly went into wildly optimistic property developments like these, and it's never coming back.

The middle classes, meanwhile, drive their Hondas and Toyotas to the parking lots of Bangkok's shopping malls, open up their car boots (trunks), and start selling clothes, electronic goods, and even antiques out of them. The management of the malls, far from discouraging this competition, actively promotes these sales, as it's one of the few ways of enticing reluctant customers into their parking lots, and maybe into their shops.

At this point, six months after the baht's devaluation (it has now lost half its former value), most middle-class Thais still have their jobs, or think they will get another one soon. It's tough, but not disastrous. Reality, however, is about to arrive.

Last week Toyota, which controls about 30 percent of vehicle sales in Thailand, announced that it was suspending production at its Thai manufacturing plant because practically nobody is buying new cars. As closures of this sort spread through the economy, the pain will rapidly escalate from manageable 'Asian' dimensions to the kind of anguish Mexicans experienced after their economy crashed in 1995. And what will the new government do then?

It was Thailand's politicians, spectacularly corrupt even by the region's demanding standards, whose greed ensured that the crash in their country would be the first and worst in the region.

When Thailand's economic problems first became evident last year, the coalition led by prime minister Chavalit Yongchaiyudh ignored them and went on robbing the state as usual. Even after the meltdown began last summer, it clung to power -- mainly because its members needed time to steal some more in order to finance their campaigns in the forthcoming election, due early next year.

What finally triggered the fragmentation of the Chavalit coalition this month was the recognition by some of its richest members, men like Vatana Asavahem of the Prachakorn Thai party, that even their great wealth was threatened if strong measures were not taken to stop the decline and clean up the economy.

"I love my friends, but I love my country more," said Montree Pongpanit, leader of another small party that abandoned Chavalit's coalition -- but he loves his money, too, and that had at least as much to do with it. Soon, enough defections had occurred that Chuan Leekpai, leader of the Democratic Party, was able to form a new coalition with a reforming mandate.

Chuan, whose last administration in 1992-1995 was relatively clean by Thai standards, has now formed a government built around his own Democratic Party, which is the closest thing in Thailand to a broad-based, modern party. It attracts technocrats and idealists as well as businessmen, its internal processes are open and democratic, and Chuan himself has a reputation for honesty.

This is all to the good, but Chuan also has a reputation as slow-moving, cautious, even indecisive leader, which is not precisely what the situation calls for. And things are going to get a lot tougher in Thailand before they start to improve again.

Chuan is doubly lucky politically, in that he was out of office when the crash finally came, and will be able to fight the next election before the most painful phase of the recovery process hits the electorate. With the opposition parties deprived of the cash flow and special media access that they enjoyed in government, and a new constitution that hampers small parties' chances of getting into parliament, he will probably win easily.

To improve his chances, Chuan has already called for renegotiation of the tough budget cuts that the International Monetary Fund imposed as a condition of its $US17.2 billion rescue package for the Thai economy. He knows perfectly well that the cuts will have to be made eventually, and that a year from now Thai voters will be in a bitter and desperate mood. By then, however, the election will be over and done with.

There may never be a return to the 8 percent annual growth rates that Thailand enjoyed for the past decade. In the long run 5 or 6 percent should be quite feasible -- if the global market doesn't go into recession, and if Chuan does everything right, and if a rapidly developing China does not steal Thailand's export markets. But for the next two or three years, it is going to be very, very miserable in Thailand.