Weak State and Political Economy of Thailand: Ten Years after the Crisis

Apichat Satitniramai25/2/2008

Introduction

Crisis destroyed old mode of K accumulation; Bankers’ Capitalism—capital (credits) allocation and Investment coordination

Re-form = building a new form of accumulation

Main Qs: what is the new form? is it success?, why?

Main Arguments

Weak state unsuccessful reform (case of financial sector) Slower econ growth

Weak state = low capacity (ability) of state to negotiate and collaborate with strong societal actors, esp dominant econ class. Or low institutionalized capabilities for guiding sectoral changes, e.g. coordinating Investment, upgrading industries/sectors.

Capacity determined by level of autonomy and effectiveness of state agencies: bureaucracy & government (technocrats & politicians)

Autonomy = state’s policy/direction is not captured by dominant class/group

Effectiveness = ‘getting thing done’

Main Arguments

Unsuccessful Reform

Slow pace of crisis solution, both in FIs capitalization and NPLs workout

Unable to build rules (laws) for facilitating neoliberal new mode of K. accumulation

Legislative failures of 3 basic laws: Bank of Thailand Act, Financial Institution Act, Deposit Insurance Act.

Slow pace of crisis solution (Chuan Government)

Political weaknesses (lack of autonomy) of the gov’t, due to pre-1997 constitution, ‘forced’ it to use Mkt-led approach > state-led app., e.g. NPL transfer pricing between. Private FIs & state own AMC,

Mkt-led app. both for recapitalization & NPLs workout

Chuan’s gov’t mkt-led app. outcome

Voluntary K support of the state for FIs: a backstopping plan

Failure: big banks refused to join: want to protect their control & ownership inadequate K for absorbing losses from NPL workout slow pace of workout

Slow NPLs workout Weak bankruptcy law—watered downed by de

btors-cum-senators: automatically allows a bankrupt person to re

gain their normal status after 3 years of the court’s ruling, hence would be freed of any debt obligations; shortened the bankrupt period by at least 9 years. inadequate threat against debtors to workout debts with FIs

Chuan’s gov’t mkt-led app. outcome

Slow NPLs workout

FIs lacked of K to absorb losses from NPLs workout: to protect ownership cosmetic method: rescheduling (min. ‘haircut’) > restructuring reentry NPLs

Chuan’s gov’t mkt-led app. outcome

NPLs of Financial Institutions Unit: Million Baht, %

19981999 2000 2001 2002 2003 2004 2005 2006

2,674,533

2,094,425

863,663

477,405

771,126

641,883

592,171

477,071

484,905

45.02 38.93 17.73

10.41 15.65 12.70 10.73 8.16

8.19

Source: BOT

Slow pace of crisis solution; contraction of FIs’ loan till 2002 slow econ recovery

Unable to build new mode of K accumulation (Thaksin Gov’t)

Legislative failures of 3 basic laws: Bank of Thailand Act, Financial Institution Act, Deposit Insurance Act

Main issue of conflicts, teachnocrats VS politicians = political autonomy of BOT i.e. level of central bank independence

Appointing & dismissal of BOT’s Governor FI supervision authority: Gov’t proposed new reg

ulatory organization; Financial Services Authority (FSA)

All problematic original laws still intact after 10 years

Why did Thaksin’s gov’t want less independent BOT?

It was a real sector gov’t who captured the state & used state power for benefiting its constituencies, cronies & inner circle

Further amend bankruptcy law in favor of debtors State direct credits & ‘picking winner’ industrial p

olicy,

Unable to build new mode of K accumulation (Thaksin Gov’t)

Thai state under Thaksin was further weakened. It was directly captured by a new dominant capitalists from real sector.

But, the executive branch of the state as an organization was strengthened by the 1997 Constitution, more effective gov’t

Unable to build new mode of K accumulation (Thaksin Gov’t)

Outcome of reform 10 years after

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สินเชื่�� อ เงินฝาก

Excess liquidities continues Growth rates of Deposits & Credits (%)

Imbalances in capitals and credits allocations

Sector

1988 – 2000 2001 - 31 May 2007

GDP

security

credit GDP bonds

security credit

Manu, Export, Import

31.6 16.9

36.7 34.6 3.9 21.4 27.6

Services, Consumer Products, Utilities

20.0 10.4

22.4 22.8 16.7 38.0 29.7

Wholesale, Retail16.

5 2.016.

7 15.1 7.1 0.4 16.2

FIs, Constructions, Real Estate

12.1 67.3

21.1 9.3 72.4 40.0 24.1

Agricultures 10.

2 - 2.5 10.1 - - 2.1

Mine 4.1 3.5 0.6 2.8 - 0.1 0.4

Defense 3.0 - - 4.5 - - -

Housing 2.5 - - 0.8 - - -

รวมทั้� งิหมด

100.0 100.0

100.0

100.0 100.0

100.0

100.0

1959-1986 1987-1996 1997-1998 1999-2006

Output (growth %)

8.3 9.5 -5.9 5

Investment (growth %)

11.1 15.1 -32.4 7.6

Private (growth %)

9.8 15.9 -41.4 11.9

Government (growth %)

17.4 14.1 -9.3 9.6

Investment (% of GDP)

26.3 29.1 27.7 21.2

Private (% of GDP)

19.4 21.5 17.4 14.6

Government (% of GDP)

6.8 7.7 10.4 6.5

Investment & output still lower than the pre boom period

Most investments are replacement, not new investment Share of Replacement to Total

Private Investment (%)

1986-1996

1997-1999

2000-2005

36.4 97.3 82.4

Productivity growth is lower than others

GDP per person employed (1980=100)

0

50

100

150

200

250

300

350

400

450

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

China

Indonesia

Korea, Republic of

M alaysia

Taiwan, China

Thailand

Viet Nam

Future of Thai political economy 19th September Coup: A royalist led

coup against effective government 2007 constitution’s agenda is to

produce weak government slower economic growth than pre-

boom period