The Thailibanization of the Economy

The signs are becoming clearer by the day. Thailand is saying “Stop the world, we want to get off.”

Too bad no one is stopping. If this continues, by the time we come to our senses, the world will have left us behind.

Thursday, Jan. 18, 2007
Thailand: The Land of Fading Smiles
By Hannah Beech / Bangkok
Thailand prides itself on its way with Westerners. After all, the kingdom survived the Age of Empire as the only country in Southeast Asia to avoid colonization. Success in deterring the foreign barbarians came from deftly playing the Western powers off against one another, and throwing open doors to European traders. Siam, at it was known then, didn't so much repel the Western invaders as charm them into submission with armfuls of exotic bounty and respites from their malarial colonial outposts.

The military junta that rules Thailand these days might do well to remember the ways of the nation's diplomatically skilled forebears. Just as before, Thailand's economy is dependent on negotiating global forces—the country is the world's No. 1 exporter of rice and relies on tourism and foreign direct investment to power its growth. Yet in recent weeks, the Cabinet appointed by the ruling generals, who in September overthrew the democratically elected Prime Minister Thaksin Shinawatra, has unveiled economic measures that have left foreign investors distinctly uncharmed. In December, to combat an appreciating currency that was irking Thai exporters by making their goods pricier overseas, the central bank briefly instituted harsh capital controls, precipitating the worst one-day drop in the 31-year history of the Bangkok stock exchange. Then, last week, Thailand's Cabinet began tightening foreign-ownership laws, closing loopholes that had made the country one of the region's most welcoming destinations for overseas investment. At the same time, the government is clamping down on the thousands of foreigners who work in Thailand without proper permits. "Given the strong regional competition for foreign investment, Thailand should be sending a message that we welcome foreigners," says Sompop Manarungsan, an economist at Chulalongkorn University in Bangkok. "Instead, we're doing the opposite."

That globalist warning bell may ring true in Davos, but in Thailand, ground zero of the 1997 Asian financial crisis, economic protectionism is on the rise. "There are several members of the coup Cabinet who believe Thailand is too dependent on foreign investment," says Supavud Saicheua, head of research at Phatra Securities in Bangkok. "They believe it's their duty to fix things before global economic trends negatively affect Thailand." In a country where the King is widely revered, the junta's Cabinet has shrewdly tied its closing-door strategy to an existing royal mandate. After the regional financial meltdown a decade ago, Thailand's King Bhumibol Adulyadej urged his subjects to forgo the turbo-charged drive of capitalism for a Buddhist-inspired "sufficiency economy" that embraced moderation. Sounds harmless enough. But free traders complain that the military junta is now using the fuzzy precepts of a sufficiency economy to undermine the legacy of former Prime Minister Thaksin, a billionaire who avidly pursued free-market policies, signing international trade deals and encouraging farmers to take out small-business loans. "Whether you like it or not, we have to live under a capitalist system," Thaksin told the Wall Street Journal on Jan. 15. "If you make a 180-degree about-turn in one day, confidence is destroyed."

So far, the Thai public doesn't appear too rattled. Although a local poll showed the junta Cabinet's popularity plunging from 90% to 48% since October, that's largely blamed on a mysterious New Year's Eve bombing campaign that killed three people in Bangkok—not on economic nationalism. "I think there is a growing group in Thailand that believes business here should belong to Thais, not foreigners," says Sukhbir Khanijoh, senior analyst at Kasikorn Securities in Bangkok. That sentiment was stoked by Thaksin's controversial $1.9 billion sale last year of his family stake in telecom firm Shin Corp. to Singapore's Temasek Holdings—a deal perceived domestically as delivering a key national industry into foreign hands. The tax-free sale came courtesy of the loopholes in the country's Foreign Business Act that the junta government is now eliminating. The changes aim to stop foreign investors using local nominees to put their firms in a Thai name without giving them commensurate decision-making power. "It's clear these moves are going to discourage new investors," says Peter van Haren, head of the Joint Foreign Chambers of Commerce in Bangkok. "Our members have come to me and said this is essentially a forced divestiture."

Thailand's economy is still more open than many of its neighbors'. But in hot investment destinations like Vietnam and China, the trend is toward fewer restrictions, not more. Nor have recent trade figures justified the pleas for protection by Thai exporters, which led to the controversial capital controls. Despite the baht's 15% rise in 2006, Thailand's exports actually climbed 17% last year, to $130 billion. So who loses out? In the short term, mainly foreigners. But given Thailand's dependence on overseas investment, such protectionism may backfire. "The repercussions of these policies will eventually affect Thais too," says van Haren. "There's no way to escape global economics."