BANGKOK Thai Prime Minister Prayuth Chan-ocha may
not be popular with human rights groups and democracy activists, but he has
earned a certain respect from local and expatriate business executives.
"Whenever
I meet him he tells me, 'Don't complain! Tell me how,'" said Stanley Kang,
chairman of the Joint Foreign Chambers of Commerce in Thailand. "We told
the government that if there is no investment in infrastructure, there is no
foreign investment. If he wants to stay in power, he has to make sure it's happening.
He cannot sit in that post and do nothing."
Thailand's
economy has been flaccid since the military coup two years ago, notching up
just 0.9% annual growth in 2014 and 2.5% last year. The World Bank has forecast
2.5% growth in 2016, below the 3.1% predicted by the Bank of Thailand, which
recently lowered its forecast due to weakening exports. Exports rose a scant
0.4% in the first five months of 2016 from the same period in 2015, and the
outlook remains poor. Nonetheless, the government recently set a target of 5%
annual growth between 2017 and 2021.
"Earlier
on we were expecting 3% growth this year, now [after the U.K.'s Brexit
decision] we are looking at 2.8%," said Nalin Chutchotitham, chief
economist at HSBC Thailand. "The political uncertainty in Europe and
uncertainty in regard to trade policies could cause delays in some export
orders around the world, so ... Thailand could be impacted indirectly."
Thailand's
export-led economy -- exports amount to 65% of gross domestic product -- has
been faltering due primarily to slowing global demand, especially in China.
Thailand is also becoming less competitive in some sectors such as electronics,
with foreign investors shifting to Vietnam, where labor costs are lower. A
decade of political upheaval -- with two coups and occasionally violent street
protests -- has also taken its toll.
The
political conflict centered on controversial former Prime Minister Thaksin
Shinawatra, who first came to power in 2001 and then again in 2005, winning
strong election mandates. Part of Thaksin's appeal was his ability to get
things done, thanks to his monopoly on power -- sometimes with a strong whiff
of corruption. Bangkok's Suvarnabhumi Airport, the last Thai megaproject under
Thaksin, was pushed through, opening days before he was overthrown in 2006.
The 2006
coup spawned a military-led government dubbed the "Tom and Jerry"
cabinet because of its obsession with chasing down former Prime Minister
Thaksin Shinawatra, cat-and-mouse style, turfing out acolytes from the
administration and undoing some of his more populist policies. By contrast, the
Prayuth regime has been more focused on policies to keep the private sector and
foreign investors happy.
"The
government is very conscious of trying to make it easier to do business here
given the increasingly competitive environment in the region for foreign direct
investment," said Darren Buckley, country head of U.S. bank Citi for
Thailand, Cambodia, Myanmar and Laos and chairman of the Association of
International Banks in Thailand. "Incentives for regional headquarters,
relaxation of some of the visa rules, a focus on digitization as a national
priority and enhanced anti-corruption measures are steps in the right
direction, with more still to do."
STIMULUS
EFFORTS Prayuth's first economic czar,
former Deputy Prime Minister Pridiyathorn Devakula, helped launch Thailand on
the path toward the digital economy and push through a new tax package for
international headquarters and international trade centers to compete with
Singapore and Hong Kong. After Pridiyathorn's departure a year ago, Prayuth's
new czar, Deputy Prime Minister Somkid Jatusripitak, has primed the pump with
long-term public investment plans and short-term consumption led stimulus
packages.
Somkid
has adjusted tax incentives for 10 industrial clusters, each focusing on a new
industry -- next-generation cars, smart electronics, upscale medical tourism,
agriculture and biotechnology, food, industrial robotics, logistics and
aviation, biofuels and biochemicals, digital products and medical services. The
clusters will be located in the Eastern Economic Corridor along Thailand's east
coast industrial belt. The Thai cabinet has approved an initial budget of 300
billion baht ($8.59 billion) for related infrastructure projects.
Economists
say that for Thailand to succeed in the new value-added sectors, it will need a
value-added labor force, which the country's abysmal education system does not
seem ready to provide. "But it's a good start," Nalin said. "I
think it's like a wake-up call to Thailand. In the end, it is productivity and
innovation that can help us grow, not cheap labor or adding on machinery."
The EEC
might boost Thailand's competitiveness in the long term, but in the short-term
Prayuth faces a formidable challenge keeping annual growth at 3% or above. This
year, Thailand's twin engines for growth are tourism and public spending. After
some weak periods, tourism is performing reasonably well. In the first five
months, the country drew some 14.2 million foreign tourists, up 12.9%
year-on-year, with Chinese tourists driving the numbers. The tourism ministry
has targeted a total of 32 million visitors this year. But officials know that
mass tourism is hardly a sustainable economic engine in an era where one
terrorist incident can send shock waves throughout the entire sector.
The
private sector is particularly keen to see whether the government can push its
ambitious plans for 20 fast- tracked infrastructure projects -- roads, mass
transit lines in Bangkok, dual track rails and some more dubious plans for
high-speed train lines -- by next year, when an election is planned.
Cabinet
approvals will be sped up by the use of Article 44 under the interim
constitution, which provides Prayuth absolute power to fast-forward projects by
bypassing bureaucratic requirements such as thorough environmental impact
assessments, before a referendum is held on Aug. 7 over a new charter. The
projects would eventually pump about 1.6 trillion baht into the economy.
"They
need to do something to show to the investors -- and to the public too -- with
the referendum coming up," said Charl Kengchon, managing director of the
Kasikorn Research Center. "I think they are doing the right thing, but it
will take more than infrastructure, more than the EEC. It takes other
ingredients like labor, education and competition issues."
Despite
the increased public spending, which was up an annual 30% last year and will
grow 11.5% this year, consumer confidence surveys have consistently found that
Thais remain concerned about the future. Household debt remains perilously high
at 82% of GDP, and manufacturers are not hiring because of excess capacity. In
early July, Toyota Motors Thailand, one of the country's biggest employers,
launched its first-ever voluntary redundancy program, aimed at shedding 10% of
its regular workforce. Many other automakers in Thailand have been quietly
sacking part-time workers, as their factories are operating at only 60-70%
capacity.
To boost
Thailand's manufacturing and exports, the global economy needs to recover,
which Prayuth cannot accomplish even with Article 44. But he does seem
determined to push through his other plans for the economy, including a new
land and building tax that would have been hard for an elected government to
achieve.
"Regardless
of the outcome of the referendum, the current government can carry on with
their projects and initiatives because they are going to ensure that they have
a mechanism built into the new constitution to do so," said Kasikorn's
Charl. "I think they are going to carry on with this legacy no matter
which constitution they use."
Peter
Janssen
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