Kung Hei Fat Choi!

On 3/2/11 Chinese people all over the world celebrated the end of the year of Ferocious Tiger and the coming of the Golden Rabbit. They hoped and prayed for continued good fortune and did what was necessary to ward off bad luck and misfortunes in the coming New Year. However, political violence in Egypt, coming close at the heel of one in Tunisia, seemed to have dashed all hopes of a more subdued and peaceful year - both in and outside the country. Copycat political unrests in the Middle East, climbing inflation and interest rates, high oil and food prices, devastating natural disasters, sovereign bad debts, trade protectionism, financial imbalances, global social networking – all seemed to cry out for much more caution and prudence this year. With so much uncertainty around, it would be hard for citizens of the world to keep up their confidence and optimism. Here in Thailand, however, consumer confidence was reported by Global Consumer Confidence Index (CCI) to be as highly optimistic as 102! Let’s hope that the good Rabbit would not let us down somehow!
 
An unending marathon

In 1/11, PM Abhisit continued to weather the storm of intensified strategic attacks from his political opponents, the red and yellow shirts who wanted to replace him, with or without a coup. He had to convince his coalition partners to move ahead with the charter amendments, as proposed by the specially set up non-parliamentary working committee to make sure that new election rules were acceptable, not only to the majority of the House but also to the voters and the academics. Weekly meetings were conducted to make sure all the Pracha Viwat schemes and projects were effectively and speedily implemented by the bureaucrats. On Children Day and Teachers Day, more programs to cater to their particular needs were announced and launched. The police too have been working actively with urban communities and the BMA to improve Bangkok’s environments, combat drugs and reduce crimes in the city (by 20%). National social security fund and special assistance schemes were also launched to support workers outside the organized social welfare systems. With oil prices going through the roof, price control of essential products had to be revisited and/or extended, much to the chagrins of businessmen who saw their profit margins being squeezed from all sides. Until heavy “shooting” on the Cambodian border broke out on 4/2/11, PM Abhisit seemed to be all set for a snap election.

Don’t hold your breath

Through out 1/11, rumor of a military coup continued to persist especially when the Phue Thai spokesman went so far as to mention the initials of the coup leaders and the would-be new PM. After repeatedly dismissing that the rumor was groundless, the Army Chief came out to emphasize again on 1/2/11 that the army was unified and that no military leaders had any thought of staging a putsch. For different reasons, both the red shirts and the yellow shirts have continued to keep this burning issue alive during their political rallies. The public too has been warned by the media “not to blink”! According to the recent polls, however, most Thai people (+70%) believed a military coup would no longer be the right political solution for Thailand. The political upheaval in Egypt, its costly collateral and economic damages and its domino effects on other countries in the Middle East have clearly shown that people’s uprising against any kind of dictatorships could easily be drummed up in the e-world of today. Apparently, the weak and the poor members of the global society have discovered not only their basic human rights but also their unified strength in the world’s fast expanding social network.

Yesterday once more

The increasingly tense situation at the Thai-Cambodian border has escalated since the arrest, imprisonment and trail of the 7 Thais, who went into the disputed no-man-land, by the Hun Sen Government. The incident had put both PM Abhisit and the military chief in the hot seats. So far only 5 were released. The remaining two activists were appealing against their harsh sentences (8 and 6 year imprisonment for spying). The PAD used the incident to whip up their anti-Abhisit campaign as they continued to demonstrate in front of Government House since 25/1/11. So far, the PAD has not been able to attract the kind of numbers that led to the downfalls of PM Abhisit’s predecessors. Most people thought PAD’s demands were unrealistic and immature. Much of their verbal attacks on PM Abhisit too were considered to be self-righteous, irrational and abusive by most of PAD’s former supporters. With election just around the corner, many believed PAD had a hidden agenda i.e. to discredit the Democrats and woo away their voters and/or to pre-empt the next election by triggering a coup “to clear the decks and set up a national unity and reconciliation government with a new and stronger leader from outside”.

Return of the Jedi?

Meanwhile, the red shirts continued to hold their weekly political rallies (in larger numbers than the PAD) in and outside Bangkok - to demand for the release of their jailed comrades and for the return of “democracy and the 2540 Constitution”. Attempts by their hired foreign legal advisor to bring their case (80 people killed during last year’s bloody crashes) to the American congress and the UN international human rights organization in New York, have been fruitless so far. With the parliament now back in session, the Phue Thai Party had finally named Mingkwan as their party leader and PM nominee for the impending no-confidence debate. The focus would be on PM Abhisit’s economic and political faux pas plus the usual corruption scandals. Thaksin was reported to have given his blessing (and funding). He was said also to have rejected the idea of red shirts joining hands with PAD to demonstrate against PM Abhisit, as had been discussed by key leftist comrades within both camps. According to press reports, a snap election could be called as early as 4/11 or as late as 7/11 – if there was no violence during the many colorful demonstrations, no war with Cambodia and no coup during the fateful months of 2-3/11.

It was a good month..still

In 12/11 private consumption remained stable and firm, with car sales at record high. Consumer confidence was in line with loan expansion and private investment growth. Import totaled USD 16 billion, down 10% yoy (due to high oil import in 09). Export was at record high at USD 17.2 billion up 19% yoy, driven by record high commodity prices especially gold, oil, rubber, sugar and cassava. Tourist arrivals hit 1.8 million, mostly from China, South Asia and Russia. Average hotel occupancy rates rose to 58%. The SET ended the month weak from profit-taking at 964, in line with global market’s concern over dramatic increase in oil prices as the result of exceptionally cold winter and recent political uprising in Egypt. With USD back again, albeit temporarily, as safe-haven currency, the Baht suffered its biggest monthly slump since 3/01, dropping 3.8% in 12/01 to THB 31.87 against USD, THB 37.34 against Yen, THB 42.17 against Euro and THB 49.14 against Sterling. Gold remained firm at USD 1,333/ounze as oil prices continued to hit the roof at +USD 100.

Hello inflation!

In anticipation of climbing inflation rates (3.03% in 1/11 vs 3% in 12/10 and 2.8% in 11/10), the Bank of Thailand increased (4th time in 6 months) their policy rate on 12/1/11 from 2% to 2.25% (1% below inflation). The next increase should be just around the corner now that all seemed to agree inflationary bubbles had to be nipped in the bud. In line with Abhisit government’s policy, a major part of the THB 140 billion excess tax collection for midyear budget was utilized to bring down next fiscal year budget deficit from THB 420 billion (4% of GDP) to THB 350 billion (3% of GDP). Meanwhile, the Abhisit government was careful to keep prices of basic food, fuels and utilities from rising too sudden and too fast. A series of measures were taken to prevent unnecessary economic shocks for the weak and the poor members of the society. How long could the Abhisit government keep controlling and cushioning price increases and inflation rates would depend on how high the oil prices would go up (to USD120 level?!) under the current explosive situation in the Middle East.

The new paradigms

This year Thailand’s GDP growth of 3%-5% forecast was based on more domestic consumption (+4.3% from strong farm income and election year) than from export (+12%). The comparatively strong Baht (THB 29-31) and still-low interest rates should support private investment activity (+10%). For sustainable long term growth, however, Thailand would have to change within the next 2 years if we were to ride the wave of “Asian Growth Decade”. Growth could no longer come from our fast disappearing natural resources, climbing wages, labor shortage, and shrinking FDI. We would need to move away from labor intensive manufacturing and go for high technology and high value added industries. To increase productivity, profits and growth, we would have to dramatically increase our dismal R&D spending. To finance private investment, we would have to rely less on external borrowings and increase our national savings (from 15% to at least 25% of GDP). The government would have to balance their budgets and improve their tax collections with appropriate increases and reductions as well as introduction of new taxes. Corruption mentality too would have to be eradicated. All these difficult and painful exercises would not be possible without the political will power, unity, stability and integrity of both the government and the people of Thailand. It would not be possible for us to have our cake and eat it too!

 

Vongthip Chumpani
7/02/11