Why Thailand risks a lost economic decade
Junta must tackle underlying causes of low growth
The group of generals running Thailand risk giving the military a bad name for economic management.
In 2014, a junta led by General Prayuth Chan-o-cha seized power, promising a return of public trust and the get-things-done competence that militaries use to justify coups. The key problem was a chaotic political system that had seen seven prime ministers in 15 years, complete legislative gridlock and massive protests clogging the capital.
Thirty-eight months on, Prayuth and his men have thrown away that argument. Instead of restoring the vibrancy of Southeast Asia's number two economy, attacking corruption, increasing transparency and fueling industrial output, the junta have made things worse.
Scant progress on all these fronts is evidenced by lackluster growth. Thailand's roughly 3% pace is the slowest among Southeast Asian peers. The Philippines economy, by contrast, is expanding more than 6%, while Indonesia's is growing above 5%. Worse still, today's policy drift and short-termism are raising the odds of a lost economic decade for Thailand.
The most obvious failing: moving too slowly to martial an ambitious infrastructure campaign -- roughly $67 billion -- off the strategy table and into action. Among the projects getting slow-walked into reality is a $5.2 billion high-speed rail undertaking with China. Just like Rodrigo Duterte in the Philippines, Prayuth pledged to reduce red tape, cut out rent-seeking middlemen and bypass democratic checks and balances to get Thailand back in business. If Bangkok is going to encourage the Toyotas and Samsungs of the world to produce more there, it must upgrade ports, roads, bridges and power grids and make it easier to get projects completed.
Another problem: Thailand still has some of the region's most highly leveraged consumers. Gross nonperforming loans at commercial banks jumped to nearly 3% of total loans in the first quarter, the highest since 2011. Fitch Ratings maintains a negative outlook for the Thai banking system. Investors, too, it seems. Bad-loan concerns are partly to blame for Bangkok`s SET stock index being among the worst performers in Asia this year.
Human capital is another blind spot. As rising production costs confront a weakening U.S. dollar, Thailand is bumping up against a chronic skills gap. It ranks 54th out of 70 countries in the latest Organization for Economic Cooperation and Development student assessment study. Singapore topped the list, followed by Japan and Taiwan. China came in sixth, Vietnam eighth. Here again, the junta is practicing short-termism -- tossing cash at the problem, not modernizing a rote learning system ill-prepared for a future that prizes critical thinking and inventive solutions.
Raising Thailand's global skills game is not easy when you are on your 20th education minister in 17 years. But it is vital as the military government talks of advanced industries, or "Thailand 4.0," to lift incomes and beat the middle-income trap. That goes, too, for moving up the value-added ladder with a $45 billion Eastern Economic Corridor project and developing "Green Agriculture Cities" around the nation. Again, the talk sounds great, but what about the execution?
Thailand's demographic trajectory makes this moment especially crucial. The 67 million-person nation will see its working-age population shrinking about 11% by 2040. The answer is increased productivity. It is time, too, to improve English proficiency, still among the lowest in Asia. An ironic handicap for a place that gets Southeast Asia's biggest haul of foreign tourists each year.
But the real skills mismatch may concern the generals themselves. A glaring irony of Prayuth's reign is how his government has read from the playbook of the Thai leader whose influence they hoped to banish from modern history. The mercurial Thaksin Shinawatra served as prime minister from 2001 to 2006, until his ouster in a coup. A billionaire turned populist leader, Thaksin bought the loyalty of rural communities with lavish handouts, while bending Bangkok institutions to the benefit of his businesses.
It was odd, then, to see Prayuth hire Thaksin's economic brain, Somkid Jatusripitak, to lead the charge toward greater prosperity. Predictably, some of the worst elements of Thaksinomics have been resurrected, including doling out financial inducements to rural communities. Those bags of cash busted the national budget for a temporary boost to gross domestic product, but did nothing to improve education, innovation or productivity. The junta is presenting farm subsidies, clearing streets of food vendors and old economy pump priming as something new and visionary. It is not.
What happens if U.S. President Donald Trump makes good on his trade war threat? Exports, 70% of Thai growth, would collapse. Is Bangkok ready for a sharp Chinese slowdown or renewed turmoil in global markets? Hardly.
On the bright side, Thailand's leadership is stable enough for Prayuth to be devising and articulating grand national strategies. First, though, the military government must state clearly and irrevocably when elections will be held and civilian rule restored. Next, it must make up for lost time with vital economic upgrades that thrust Thailand into the digital age, not retreads of Thaksinomics that produce short-term boosts, at best.
In a speech in Bangkok earlier this month, Somkid demonstrated that he understands the problem. "In the world of the future," the deputy prime minister said, "technology, innovation and a sharp business model are the important weapons that a future economic warrior will need to have."
Somkid and the junta can create that future by revolutionizing education, plowing into new productivity-enhancing industries and crafting a meticulously clear vision for where Thailand wants to be 10 years from now. Bangkok has the right "weapons." It just needs to improve its economic aim and firepower.
William Pesek is a Tokyo-based journalist and author of "Japanization: what the world can learn from Japan's lost decades." He is a former columnist for Bloomberg.