Post-coup economy taking shape
Improved confidence has brought an initial bounce, but now investors want to know more about long-term policy.
It is still too early to weigh the economic impact of the coup in Thailand as a number of issues remain unaddressed and debate continues about structural reform, according to participants at a recent seminar at Chulalongkorn University, sponsored by the Nikkei Asian Review.
Despite the political crisis in Thailand, upheavals in Cambodia and Laos, and the prospect of renewed nationalism and protectionism in Indonesia, many Japanese companies are still confident that Asean and Thailand will remain an ideal and welcoming place for investors to put down long-term roots, said Tetsuya Iguchi, the Nikkei editor-in-chief.
The Japanese emphasis on kaizen, or constant education and improvement of the workforce to increase productivity over a long time, means that a long-term commitment to stability, productivity and friendliness in the host country is essential, said Mr Iguchi.
Total Japanese investment in the Asean 6 (excluding Brunei, Cambodia, Laos, and Myanmar) amounted to US$135 billion at the end of 2013, which is nearly 40% more than the total Japanese investment in China, the seminar was told.
The number of workers employed by Japanese companies in the Asean 6 totals 1.85 million, which is 10% more than the figure in China, he added.
Narongchai Akrasanee, the chairman of MFC Asset Management Plc and a former commerce minister and senator, said the 22 May coup had helped to turn the poorly performing Thai economy around.
Similarly, he said, past military interventions ushered in periods of great economic change in Thailand.
“The coup of 1977 led by General Prem (Tinsulanonda) spurred industrialisation efforts throughout the 1980s. The 2014 military intervention will hopefully follow this lead and implement major reforms needed in the country,” said Dr Narongchai, who is also an adviser to the junta.
He said the country was currently experiencing “Episode 1: Military Governing”, with the armed forces making quick and efficient decisions, carrying out reforms demanded by all sides and eliminating tensions on the streets. Investment promotion and factory permit approvals have resumed and the rice-pledging scheme is no longer clogging the economy, said the economist.
“Episode 2: Military Participation”, he said, would start when the country has a government by December. The government, said Dr Narongchai, would begin the process of transforming the economy toward more value-adding and value-creating economic activities.
Although Thailand has been stuck in the middle income trap, it could start to move up with improvements in productivity and better use of information technology, he said. “Just as there were great advances after previous coups, the military will hopefully implement quick and efficient reforms to get this ball rolling.”
Dr Narongchai conceded, however, that Thailand’s problem was not necessarily bad government or politicians, but bad governance. The recent burst of enthusiasm by police and other officials to enforce numerous laws that had long been ignored — if only to impress their new military masters — underlines how bad the problem had become.
The final step, he said, was “Episode 3: Military Oversight”. With the military “watching over” democracy, it is hoped that accountability and good governance would be delivered, said the junta adviser.
Hiroshi Yakame, regional head for the Greater Mekong Sub-Region and country head of Thailand Sumitomo Matsui Bangkok Corporation, said that despite nine coups since the Japanese Chamber of Commerce was established in this country, Japanese investment has been increasing. Last year it accounted for 54% of total foreign investment in Thailand, compared with 58% the year before and 49% in 2011.
Japanese companies have not been hugely affected by the political crisis, said Mr Yakame, although some businesspeople and tourists in Japan may have been scared off by the thought of martial law and a coup.
But while most Japanese businessmen in Thailand were optimistic, there remain challenges to further investment and growth, he said.
“The government will need further deregulation as well as fiscal and financial reform. Promotion of industry, technology, improved productivity and tax reform should be accelerated,” said Mr Yakame, adding that new ways of thinking about balanced policies were required.
Mr Yakame noted that after previous coups, confidence tended to improve and the economy grew quickly. But this time could be different, he warned. With household debt in Thailand at 83% of GDP, compared with 47% in 2006, activity on the consumer side could be limited.
Leigh Scott-Kemmis, president of the Australian Chamber of Commerce and chairman of Lee Hecht Harrison/DBM, noted that the Australian economic and trade relationship with Thailand was almost the opposite of Japan’s.
Thai trade and investment with Australia exceeds that of Australian businesses with Thailand, while there were as many as 920,000 Australian visitors to the country last year, he said.
He suggested the Thai government focus on improving the enforcement of laws, reducing transaction interference in the bureaucracy, and enhancing the quality of skilled labour and infrastructure.
Mr Scott-Kemmis said one of the issues that concerned the western business community was the memory of anti-foreign sentiment by the 2006 coup-makers and the subsequent military-appointed government.
Supavud Saicheua, managing director of Phatra Securities, said that while the military intervention had reduced unrest, the success of reconciliation remained unclear, hence political stability remained uncertain.
While commentators have been cheering the military’s rapid moves to restart public investment and megaprojects worth hundreds of billions of baht, Dr Supavud sounded a note of caution. There has been no evidence of public investment alone having ever led economic growth in the past 15 years, he said.
The most successful public investment-led strategy took place the 1980s when Gen Prem’s government began creating the Eastern Seaboard industrial area, but the benefits from that programme have almost been exhausted, he said.
While the military government has focused on optimistic forecasts about GDP growth to increase confidence, these must be followed by more solid action and a more precise plan to make growth sustainable, Dr Supavud said.
There remains a delicate trade-off between “zero corruption” and “scrutiny of spending”, which the military will need to balance carefully, he added.
“Expectations [for the military government] have been high, but on the ground it seems that its strategy seems to be more fragmented than orchestrated,” he said.
“It seems that the NCPO does not have an economic growth roadmap, i.e. how does Thailand make a living in the next 10 years? Should we continue to allow foreign multinationals easy access to Thailand, and so on?”