What goes round doesn't always come round

Thanong Khanthong, The Nation, Asia News Network, Bangkok

The dual-track economy of Thaksinomics is making its impact felt in the region. Late last year, the International Monetary Fund held a conference in Singapore. And one of the topics was to examine whether the dual-track economy was an answer for emerging-market countries, which might need to balance domestic- led growth with export-led growth. The Philippines and Malaysia have sent teams to Thailand to study and observe the dual-track economy in action.

Is the dual-track economy really an economic model? Has the dual-track economy delivered what it has promised to do as we go into election year?

For the first track, which represents the modern sector, we have to admit that the success of Thaksinomics has been overwhelming. Most Thais living in the modern sector are enjoying the recovery.

Economic growth is expanding at 7-8 percent, the second highest rate after China. Thai stock prices gained by more than 125 percent last year. The stock market is creating a host of new millionaires and billionaires. Real estate companies are selling homes and condos like hot cakes.

Prices of construction materials are rising in the wake of strong demand. Car companies are bouncing back stronger than ever. (You have to wait three months for a Honda Stream.) Exporters, buoyed by the baht devaluation, are enriching their pockets thanks to the improved international environment, including the emergence of China. Most important of all, the middle-class are buying new homes, new appliances and new cars.

Thaksinomics, which is actually a disguised Keynesian-style of government spending, is riding on the crest of a weak baht and historically low interest rates to drive demand. Nonetheless, there is no question of Thaksinomics' success in rebuilding confidence and in turning Thailand around, particularly in the first track of the modern sector.

But when you look at the second track, which represents the grass-roots economy, the story is a stark contrast. There have been increased warnings about the risk of insolvency in the grass-roots economy as the rural folk build up a debt load beyond their ability to repay or refinance. Apparently, the micro- financing of the grass-roots economy is facing a bubble.

Prime Minister Thaksin Shinawatra's Thai Rak Thai has promised to turn around the rural sector through the dual-track economy. In a recent speech, Thaksin said he had been trying to introduce elements of socialism into the grass-roots economy because the rural sector cannot compete on an equal footing with the modern sector as Thailand has embraced capitalism.

This, he added, is in contrast to what China, a communist country, has been trying to do. China is now trying to add elements of capitalism to balance out its economic system.

The second track has promised to re-create the entrepreneurial class in Thailand and rebuild the grass-roots economy through various populist programs. Yet in fact it is little more than giving away money to local folk so that they can spend on basic necessities or re-finance their debts created in the unorganized markets.

The strategy of the second track is to quickly hand out money to rural folks so that it creates a multiplier effect in driving up domestic demand and rebuilding consumer confidence.

There is no clear evidence that the second track, financed largely from the national budget and state-controlled banks, is producing permanent businesses or creating new permanent jobs for rural Thais in any significant way.

During the New Year holiday, I spent some time talking to rural people in the Northeast. The general impression was that they had spent less this holiday.

Normally, when they have money, they will spend on consumption, on repairing their homes and on making merit. "Rural people don't have money this year because they have to repay their debt to Thaksin. If they don't borrow money to repay their debt, they will not be entitled to borrow again from government programs," said one local businessman who operates a loan-shark scheme.

For a country in which one-third of the population do not go through primary education, it is very dangerous to hand out more debt. When rural Thais get money, they just spend without realizing how they are going to repay it. When they try their hand at a new business, they don't know about costs or profits.

Several people have warned about the impending debt crisis at the grass-roots level. The latest warning has come from the University of the Chamber of Commerce. Its survey found that most Thais in the rural sector who have had access to money from government programs have spent it on refinancing their debt, new mobile phones or new motorcycles rather than investing in businesses that would garner future returns.

The jury is still out on the Thaksin government's claim of success in reviving the grass-roots economy. In the end, it would not be a surprise if it comes up with another round of debt forgiveness for rural Thais. If this costs Bt100 billion, it is no big deal because -- as the Thai Rak Thai people like to say -- it cost as much as Bt1.4 trillion to clean up the Thai financial system in the wake of the 1997-1998 financial crisis.

Well, we can expect to see more bail outs to come in the second track, which is running off the rails.