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| Thailand:
fading euphoria Thailand's economy is slipping again, and Prime Minister Thaksin Shinawatra is grasping for direction. During a late April speech at the UN Economic and Social Commission for Asia, Thaksin asserted that "one size no longer fits all," vowing to abandon the "failed" economic models of the United States and Japan. Adhering to more transparent and good-governance banking standards, he said, created "massive public debts" and only exacerbated the "problem of poverty alleviation." Doubtless Thaksin's government craves an economic course shift. Since taking office, exports--which contribute 65% to Thai GDP--have stalled, reversing Thailand's terms of trade into deficit in January, February and March. That shortfall will deepen as global demand for semiconductors--which make up 35% of Thai exports--slows and Thailand's two chief trading partners, Japan and the U.S., demonstrate signs of economic weakness. UBS Warburg in Bangkok predicts Thai exports will contract by 8% this year; but the Ministry of Commerce is still clinging to a positive 9% export-growth projection. (Preliminary figures announced by the Ministry of Finance showed that export revenue plunged 11% in April year-on-year.) "The export slowdown will have negative implications for both private investment and consumption," says Shane Gunther, head of research at UBS Warburg in Bangkok. Investment banks continue to revise downward their 2001 GDP growth forecasts, from 4.7% in September to around 2.5% in March. And with capacity utilization still below 60%, private investment remains subdued. That pessimism has the government scrambling for stopgap measures. To boost sagging world prices for rice, a key Thai export, Thaksin recently proposed to create an Opec-like cartel for rice with fellow regional exporters Vietnam and China. Thaksin also has launched a "Buy Thai" import-substitution policy for government agencies and firms. Scaled-down versions of Thaksin's bold campaign promises--including a a debt moratorium for farmers, a national health-care plan and a 1 million baht ($21,970) development fund for every village--have deflated earlier hopes of a government-led economic revival. "At only 5% of GDP, the spending programmes don't add up to much," says Usara Wilaipich, an economist at Standard Chartered in Bangkok. Indeed, with public debt at 60% of GDP and rising, Thaksin has little room to manoeuvre. According to Merrill Lynch, the Thai economy must grow at a sustained 5.5% annual clip just to start bringing public debt down by 2007. But as export growth evaporates, so too will the funds necessary to repay foreign debts. Obligations to the International Monetary Fund are scheduled to drain $9 billion to $9.5 billion from the Bank of Thailand's coffers over the next three years. A sustained shortfall in the current account will put new pressure on foreign reserves, which at $32.3 billion, declined only slightly between February and March. So far, the Bank of Thailand has remained true to its post-crisis monetary policy position, holding inflation steady at 1.5%. But the recent weakening of the baht may be the first signs of a shift in monetary priority toward export promotion. As UBS Warburg's Gunther points out: "Competitive devaluations are only short-term solutions to bigger structural problems." Now, as the world economy slows, the flaws of Thailand's past decisions are becoming more painfully apparent.
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