Lady in distress

Two months into her premiership, PM Yingluck has managed (according to the polls) to maintain her popularity rates even though she continued to shy away from difficult issues and questions posed by the mass media as well as by the Opposition and the Senators. Her first weekly radio address to the nation on 1/10/11 focused only on “safe issues”. Her critics, however, have become much more vocal by the day, as they continued to challenge her leadership and her government’s failure to effectively deliver their election promises e.g. to bring down the high cost of living, to put more money into the pockets of the poor and restore the political divide. There were also glaring delays and inefficiency in providing timely and adequate help to the fast rising number of flood victims. Meanwhile, the Revenue Department had decided to drop their THB 21 billion tax claim from Thaksin’s two children. The Attorney General too had opted not to take the tax-avoidance case against her former sister-in-law to the Supreme Court. PM Yingluck’s quick trips to Brunei, Indonesia, Cambodia, Laos and Myanmar too were fraud with skepticism because her brother, Thaksin, was reported to be calling on their heads of state just before or after her visits. He even “Skyped” in during the Phue Thai “cabinet meeting” on Monday to “inspire” PM Yingluck and her cabinet members.
 
The red “Amataya”

The on-going efforts by the Phue Thai government to find ways and means to bring Thaksin back as a free man was strongly supported by the red shirts. Red shirt legal advisors and academics have managed to come up with all sorts of alternatives, including a royal pardon on 5/12/11 and a constitutional amendment to nullify all of the country’s past coups. Meanwhile, hard core red shirts who were on the run, have started to turn themselves in soon after the red shirts’ Phnom Penh visit en mass to pay their respect to Thaksin as well as to play football with PM Hun Sen as their team captain! Hence, warm and cordial relationship between Thailand and Cambodia was restored. Under the new leadership, “talks between brothers” were scheduled to discuss border issues as well as to negotiate the “fair sharing” of oil and gas deposits in the Gulf of Thailand. On the cabinet’s front, Phue Thai ministers were moving quickly and systematically to put their own people in key positions at all the ministries, state enterprises and independent organizations. The Opposition cried foul and a number of cases were filed against the ministers for interfering and unfair transfers of state officials. The army annual reshuffle, however, had been left more or less untouched due to the Defense Ministry Administration Act which deterred political tampering with reshuffle decisions made by the armed forces. As expected, the Yingluck government wasted no time to set up a new legal committee, under the chairmanship of Dr. Ukrit Mongkolnavin, to review and amend all the existing “archaic and undemocratic” laws and regulations.

Easier said than done

In 9/10 most of Yingluck government’s populist schemes were revised time and again to address many of their ill-thought-out shortfalls and loopholes. The public became confused and the private sector was frustrated by the inconsistency and vagueness of their related procedures and terms and conditions. Most controversial was of course the scrapping of oil taxes that resulted in the need to raise THB 10 billion loans to shore the state oil fund in less than a month. Equally detrimental and confusing was the THB 300 minimum wage that has remained stubbornly unsettled. As for the THB 15,000 starting salary for university graduates, the government was able to implement the scheme only for government employees, leaving the private sector to follow suit on voluntary basis. The rice price guarantee scheme (reintroduced to replace Abhisit government’s crop insurance program) was expected to benefit rice millers and merchants more than the majority of the farmers, many of whom were stuck with flood damaged crops. The “First Car” scheme has created an unleveled playing field for at least one car manufacturer. The “First House” scheme was said to benefit only those with earnings of THB 100,000/moth or over. The corporate income tax cut from 30% to 23% was expected to benefit only large corporations, leaving the SME’s to struggle with higher labor, raw material and logistic costs.

Water, water everywhere

For one reason or another, nature’s wrath has been extraordinary intense this year. Since mid 9/10, it has been raining day and night in the north, the northeast and the central plain, causing flash floods and landslides. Floods, rising as high as 2 meters, have damaged farmlands, villages, schools, hospitals, ancient temples and towns along the river banks. Railways, inter-provincial bus services to the north and the northeast had to be suspended. Over 10,000 soldiers have been deployed to work with mobile medical teams to help stranded flood victims. At least 3,000 electronic factories in the north of Bangkok had to stop production due to floods, absent workers or disrupted supply chains. Most of the reservoirs in the country were reported to be at full capacity and excess waters would have to be released down the river soon. With the strong seasonal monsoons coming in October, coupled with the high tides from the Gulf of Thailand, Bangkokians were hoping against hope that they would be spared from this big flood which has already affected 58 provinces and killed at least 250 people so far.

A good month still

In August, the economy seemed to have fully recovered from supply disruption related to Japan’s earthquake but there were signs of declining consumer’s demand in the USA and the EU where severe economic weakness was accompanied by the threats of sovereign debts as well as financial distress that could spell a global recession. Improved export demand for electronic and automotive parts gave rise to a 7% yoy increase in production. Export totaled USD 20 billion in 8/11, up 28% yoy. Imports totaled USD 20.2 billion, up 46% yoy. However, the economy grew only 2.9% in the first half of 2011 and the whole year forecast was revised down to 4%. Although farm income rebounded to 13% yoy, severe floods during 9-10/11 were expected to affect their income in the months ahead. Meanwhile, inflation rates continued strong, in line with other major export countries in the region. Economists, along with central bankers have been sending out warning signals to the government to keep their powder dry and to focus instead on investment in job training and logistics to increase productivity and to lower production costs. Alas, after much haggling with the Bank of Thailand, the minister of finance had finally agreed not to tap the country’s international reserve to set up a sovereign wealth fund (to invest in oil and gas as well as other infrastructure projects).

Black Monday

In 9/11, global economic worries manifested themselves in the unprecedented high volatility in world’s stock and foreign currency markets, accompanied by the simultaneous plunge in the prices of oil, gold and other commodities. Investors were spooked by bad news coming in daily from the US and the EU. The SET, which had remained unperturbed so far, took a sudden plunge on 26/9/11 to hit the lowest point this year at 855 on 3/10/11. The Baht weakened to THB 31.30 and has become volatile again from uneven fund flows caused by panicky foreign investors. Notwithstanding the substantial damage by the floods, the Thai economy, financial and corporate sectors continued to be fundamentally healthy. Local value-investors have therefore started to accumulate “cheap” stocks with good fundamentals and steady dividends for their medium and long term investment. Under the prevailing highly volatile global circumstances, however, extreme caution and diversification have never been so crucial for investment at any levels – be it personal, institutional or national. Nothing could be taken for granted and any wrong move could easily trigger severe cash flow problems and bankruptcy being experienced now by a number of European banking giants and weaker member countries of the EU.

Going forward

During the first week of 10/11, the Thai private sector has already revised this year GDP growth down to 3.6% and the inflation up to 3.8%. So far, the estimated loss from the 9-10/11 floods came up to THB 130 billion, of which THB 67.8 billion would be in the farming sector, THB 21.7 billion in industry, THB 16.9 billion in trading and THB 7.2 billion in tourist industry. Meanwhile, theYingluck government seemed to have lost their sense of direction. Having badly underestimated the severity of the flood at the initial stage, they have been fighting a losing battle. With so much human sufferings and collateral damage piling up, the Yingluck government would do well to switch their focus immediately from their own political agenda to more hands-on flood relief and rehabilitation programs to save the nation from going under the water!

 

Vongthip Chumpani
7/10/11