The Rise of Thaksinomics

Two weeks ago, I used this space to lament the austerity measures currently being implemented in Europe. With the European Common Currency Zone stuck in six consecutive quarters of recession, it’s easy to understand just how sick the continent’s economy is on a macro scale.

One country which is certainly not sick these days is Thailand. The subject of my comparison to Europe in my last post — how a failing economy can lead to draconian changes of a political nature — announced an eye-popping 18.9 percent growth in GDP for the last quarter of 2012 this past February.

There are certainly many factors which have contributed to Thailand’s impressive economy. This post will focus on the role former Prime Minister Thaksin Shinawatra and his economic policies played in the process. Thaksin came to the premiership in 2001 in the aftermath of the Asian Financial Crisis.

The election of 2001 came to define the two major Thai political parties. The Thai Rak Thai Party, founded in part and led by Thaksin Shinawatra, espoused a populist platform buttressed by a proposed universal healthcare system, fuel subsidies, and an injection of capital into rural development, all of which aimed to ameliorate the conditions of poverty afflicting a substantial portion of the country. The Democrat Party supported the economic reforms dictated to Thailand by the IMF as part of its SAP. The result was a resounding victory for Thaksin as his party captured more than 40 percent of the vote – at the time, the largest mandate ever given to a Thai political leader since universal suffrage was introduced in the country.

The overhaul of the economic system, still reeling from the financial crisis and spending cuts instructed by the IMF, began almost immediately. Thailand’s overall debt was at around 60 percent of GDP, with analysts at the Asian Development Bank (ADB) predicting that number to reach 80 per cent before peaking. Moreover, it was a common belief amongst economic scholars that Thailand’s debt was to such an extent that the government would be unlikely to pay it down, as most debt servicing was to be allocated exclusively to interest payments.

Thaksin confronted this problem by implementing a set of reforms that would later be dubbed “Thaksinomics.” One of the primary hallmarks of the populist sets of policies was the creation of a debt forgiveness program for farmers, and orders given to state-owned banks to issue loans to small businesses at remarkably low interest rates, sometimes for as little as 3.5 per cent. The quick success of the program was captured in a Time Magazine online story in 2003 of a farmer who had been the recipient of a microloan from his village, subsidized by the Bank of Thailand:

[T]he sense that the tide has turned is palpable not just in the cities but in the countryside as well, where farmers were particularly hard hit by the ’97 crisis. Indeed, Thaksin’s greatest success so far may be reviving the debt-laden rural economies. In the farming town of Bahn Rong Kong Khao, near the city of Chiang Mai in the country’s north, the government’s $2.3 billion Village Fund program, a microlending scheme, is a mini miracle, say residents. Narong Fongkraew, 50, who grows rice and chilies on his small farm, credits the Village Fund with saving not just his farm but the whole community. “After 1997, banks stopped lending to us and some people were forced to borrow from moneylenders who charged high rates of interest,” he says. Recently, Narong borrowed $475 from the Village Fund at a very low rate and used it to hire laborers to help him work his fields. Increased labor led to a greater crop yield, and this year, for the first time in six years, he earned enough to begin paying back his creditors. “I came very close to losing my land,” he says. “But now I think I will be free of debt within five years.” And Narong is not alone: nationwide, poverty levels have dropped almost 4% since Thaksin’s programs began in early 2001. Farm incomes rose 11% last year and more than 20% in the first half of this year.

Not only was Thailand able to repay its debt to the IMF, but it did so two years ahead of schedule. After watching its economy retract in the wake of the financial crisis in the late 1990s, GDP grew from 1.9 per cent in 2001 to 5.3 percent in 2002. The Thaksin administration also introduced the “One Tambon One Product” (OTOP) program, marketed after the “One Village One Product” scheme which originated in Japan in the 1980s. OTOP was designed as an economic stimulus for rural enterprises who were encouraged to develop a commodity as a comparative advantage in their tambon (village), thus facilitating trade with other tambons and boosting small businesses.

But perhaps the largest success of the Thaksin administration during its inaugural term was the reform to the country’s healthcare system. Thaksin directed the government to subsidize healthcare under the guise of the “30 baht scheme,” which essentially covered all Thai citizens during visits to state-run hospitals for the cost of only 30 baht (less than $1 U.S.). The program was widely popular throughout the country, especially amongst the poorer segments of the population who had long been denied access to quality healthcare due to costs.

Thailand recorded improvements in almost every human development category, including infant mortality, access to sanitation and clean drinking water, and access to antiretroviral drugs, according to a World Health Organization (WHO) study conducted in 2009 which measured development indicators throughout the first decade of the 21^st century. Despite criticism that the 30 baht scheme was underfunded and would eventually bankrupt the country, no Thai politicians have dared to limit or curtail the program in any way. Universal health coverage in Thailand has been continued by successive governments since its inception, even across party lines.

Thaksin completed his first four-year term in office in 2005, becoming the first Thai Prime Minister to ever accomplish the feat. Aided by a strong sense of national unity following the devastating tsunami which hit Southeast Asia in 2004, as well as a proven track record of economic growth whilst improving the standards of living, Thaksin’s Thai Rak Thai dominated the general elections of 2005, winning 375 out of a possible 500 seats in the country’s House of Representatives. This represented the largest margin of victory in the political history of Thailand, surpassing Thaksin’s 2001 inaugural victory.

Thaksin was overthrown in a coup in 2006 by anti-populist royalists. But the opposition’s reign lasted five years before Thaksin’s sister Yingluck won the premiership in democratic elections in 2011. Many of Thaksin’s populist policies have remained.

The stats don’t lie: his programs have been exceedingly successful. In essence, it was the anti-austerity route in the wake of an economic calamity. Once again, there are lessons for European leaders here. Thailand proved austerity is not the answer. But you know what they say about those who forget history.

Photo: Reuters