IT'S JUST OVER a month since Thailand's three-month anti-drug crusade came to an end. If success is judged by body count, the campaign gets a grade A. By April 30, 2,274 people had been killed as a direct result of this sharp, brutal war. With these statistics filling the newspapers, along with the histrionics about Sars sweeping Asia, it's perhaps not surprising that the appointment of Suchart Jaovisidha as Thailand's finance minister in February has been somewhat overshadowed.
Last month, however, Jaovisidha finally managed to grab some attention, though perhaps not the type he would have hoped for. On May 12 an electrical fault trapped him in his official BMW as he was being driven to a meeting. Unable to unlock the doors or lower the windows he was only released after a guard took a sledgehammer to the glass to bust the minister out into a blaze of publicity.
But attention now finally seems to be focusing on the Thai economy. One of the region's more robust performers, it is attracting compliments. Last year economic growth rates of over 5% were reported and this year a 3.5-4.5% figure looks to be equally impressive despite the global and regional challenges. Consumer demand is powering growth. In the first quarter of this year consumption increased by more than 6%. And personal loans grew by 15.6% as Thais got the spending habit.
Sars is causing problems despite the low case rate. Some 6% of the economy is tourism-related and tourist arrivals in Bangkok are down by 45% to 50%. It's estimated that 200,000 jobs could be lost despite an emergency injection of Bt2.7 billion ($63 million) into the sector. The government is attempting to put on a brave face, claiming that since people are afraid to travel, more Thais will stay at home and keep spending enthusiastically. But the government would be unwise to underestimate the power of the tourist dollar.
Before the administration of prime minister Thaksin Shinawahra becomes complacent and too dependent on Thais' consumption to boost the economy, there are several legacy issues from the fallout of the Asian financial crisis that still need to be addressed.
Thailand's financial sector is still heavily burdened by non-performing loans. Of all the economic concerns that Jaovisidha could have mentioned during an interview with Euromoney, he starts with NPLs. He blames the country's private banks for not taking the situation more seriously. According to official statistics, they are burdened with about 15% of NPLs on their books. And though the number isn't rising, it isn't coming down either.
Since Thaksin and his Thai Rak Thai ("Thais love Thais") party came to power with the widest winning margin in Thailand's democratic history at the beginning of 2001, the manner in which the NPLs are being dealt with has changed. "The administration is a lot more proactive in addressing the situation," says a local analyst. For a while Thailand had a different strategy to Korea, for example, which set up asset management company Kamco. But the decentralized method that Thailand adopted proved ineffective. "Under Thaksin the approach was modified and it became more centralized, which seems to have worked," says the analyst.
Six months after Thaksin came to power, the Thai Asset Management Company was set up. Jaovisidha says he is pleased with the progress being made.
Chinese puzzle
Another cloud on the horizon is the threat of China. Although it seems that many officials in Asia are tired of answering questions about the competitor to the north and what can be done to counter its power, behind closed doors many of the same officials are desperately trying to find answers. Very few seem to have found them yet. In 2002 China received $54 billion of foreign direct investment, making it the region's largest recipient. And FDI continues to grow.
For other countries in the region it's a different story. Since 1990 the share of the foreign investment flow into Asia received by the five largest Asean members has fallen from 51% to just 11%. Pre-crisis in 1996, Thailand was pulling in Bt529 billion. In 2000 it attracted Bt279 billion. But last year only Bt162.5 billion struggled through the door. Chia-Lian, an analyst with JPMorgan, points out: "The lag of September 11 and the poor global economy are much to blame. And it's not just Thailand that's affected." The country's Board of Investments is offering ways to help companies that enter Thailand to market and distribute their goods. It is also looking to attract high-end electronics companies rather than the mass manufacturers heading into China. Thailand could however find itself on the periphery if the board fails in its mandate.
It is perhaps this fear of being left on the sidelines that makes Thaksin's government bang the drum about the Asia Bond Fund. Some observers are confused as to why it would want to promote the fund so aggressively. "Sorry, I shouldn't laugh," says an analyst based in Singapore when the fund is mentioned, "But it really is their thing isn't it. They are into it more than any other nation in Asia." An analyst with a US house in Hong Kong says: "The government is trying to make political points out of it. It's just an attempt to raise the country's profile."
Cynical remarks apart, the idea behind the fund is for the region to keep its foreign currency reserves in Asia rather than in Europe and the US. The region's central banks would contribute a small proportion of each country's reserves to the fund and these would then be invested in local debt instruments. This, it is argued, would help create deeper, more sophisticated debt capital markets. But it won't happen overnight. To start with, the fund will only invest in dollar-denominated, high-grade sovereign bonds. Later, it is hoped, it will be able to invest in local sovereign issues. "The fact that they are only prepared to start investing in US dollar bonds shows how modest they are in taking the first step compared with what they are saying on the ground," says a debt capital markets banker.