Strict New Controls on Foreigners

[Guest]

OK, the subject that interests me more in all of this (and the one I feel more competent to discuss because it really is opinion), is what I earlier referred to as a ?mini ice age? in Thailand. Even though it is just my opinion, I will also supply sources to back this up. I think Thailand is going through a pullback from the outside world - a frightened reaction to globalization that is leading to bad policy decisions.

 

On the front page of both today?s Bangkok Post and The Nation you will see articles about Thailand?s economic woes. In the Bangkok Post, the headline includes the following: ?Thais must prepare for ?downturn like 1997?? What I find most interesting is how Thailand?s policy makers ? both TRT and the opposition ? plan to address this issue: they are turning inward. They view Thailand?s problems as being caused almost entirely by external sources, and instead of focusing on problems within Thailand and opening up the economy, they are pulling back from the outside world. It's as though the French are setting economic policy here.

 

In brief, they are doing exactly the opposite of what (I think) they should do. Indeed, I am convinced the Thai economy is in its present predicament because they haven?t opened up enough.

 

In the Bangkok Post article, you see that Thailand is worried about volatile capital flows. There is the suggestion, at least I see it (because I heard this same argument back in 1997), that this is causing the problem. There are references to self-sufficiency. Khun Somkid, who is the rational business minded group in the current government, is quoted as saying: ?The government will need to promote domestic consumption to enable the economy to be less dependent on exports.? Supachai, who is in the opposition, is skeptical of free trade agreements. And if you go to the second page of the article in The Nation (page 3A), you will see the headline: ?Focus on public spending?.

 

I find the focus on public spending particularly curious. In the 26 May 2006 edition of the Bangkok Post there is an article about a shortfall in taxes and incentive program to increase collections by giving bonuses to revenue department officers depending on much money they collect. And yet they want to increase public spending. On this very board someone posted an article about cuts to Thailand?s education budget. And yet, in the front page article of the Bangkok Post we read that the government?s need to ?place more emphasis on human development.? Why not start by not cutting the education budget?

 

And why not try to seriously tackle corruption? Corruption is one the biggest impediments to foreign investment, and opening up the economy - particularly the financial sector - is probably the most effective means of combatting corruption.

 

But underlying theme to the government's programs is to turn inward. In an economy where 80% of the growth from 1993 to 2003 was fueled by export growth, which in turn, was largely the result of foreign investment, this doesn?t seem like the right policy prescription to me.

 

The BOI reports that through April of this year, foreign investment is down 50% from the same period last year. Meanwhile, The Wall Street Journal reports that foreign investment in the US remains strong (sorry, the on-line version requires a subscription; you?ll need to pay for a hard copy or a subscription.)

 

Developing countries should have a higher GDP growth rate than developed countries. It is harder to achieve high GDP growth rates when a country is already developed, but much easier when a country is less developed. The primary means of doing this is through foreign investment. Put in a factory making automobile parts or computer parts, and employ people who previously engaged in less productive activities such as farming, and you will see substantial gains in productivity and, if there is enough foreign investment of this kind, substantial gains in GDP.

 

This week?s edition of The Economist reports that ?revised figures show that America?s economy grew at 5.3%? (pp. 100). Singapore?s growth rate is over 10%. In Thailand, which is a developing country and should have a higher GDP growth rate, the latest figures are around 4.7% and are constantly being revised downward.

 

Now contrast the headline news in the Thai press with the headline news in the International Herald Tribune (New York Times). In Saturday?s edition, there?s an article about the New York Stock Exchange (NYSE) acquiring a European exchange. Financial Market Globalization The editorial page of the New York Times (Herald Tribune version) praises this development:

If a combined company can pass the fruits of those savings on to the average investor - not to mention added ease in buying shares of foreign companies - we're all for it. An era of global trading could benefit from international exchanges. Regulators on both sides of the Atlantic should take a cue and speed up the process of bringing their respective rules into harmony. There's no time to lose. The financial markets never sleep.

?The financial markets never sleep? ? except in Thailand, where the policy prescription seems to be to put them to sleep.

 

I think that all of this reflects a general pulling back from the outside world by Thailand. To prevent anyone from exaggerating this comment to create a straw man argument, I am not suggesting that Thailand is going to become another Burma. But I do think we are in the middle of a mini ice age here.

[chuckwoww]

Gadfly1 said:

 

I think that all of this reflects a general pulling back from the outside world by Thailand. To prevent anyone from exaggerating this comment to create a straw man argument, I am not suggesting that Thailand is going to become another Burma. But I do think we are in the middle of a mini ice age here.

 

I doubt if it's a conscious decision to withdraw from the world. That would be impossible now anyway. More likely it reflects a disillusionment, on the part of some Thais, with tourism and the influence of foreign cultures. What you call xenophobia.

[junglesoup]

I think alot of what you say Gadfly is right. Thailand and China, and India for that matter all suffer from a lack of domestic consumption. All business is so centralised to Bangkok. Once you go outside BKK into the sticks, Thailand is a third world country in many ways.

 

Thailand is an export led growth economy. The US is totally dependent on imports. Thailand has a trade surplus, whereas the US has a huge trade deficit. This pattern of import/export has led to massive trade imbalances. Thailand receives payment in foreign currency, and they don t convert these payments back into their own currency because it will cause the baht to appreciate, thus making their exports more expensive. This scenario cannot go on indefinitely and the global trade imbalances will play out on the global stage, ie, effecting all countries. This will cause alot of turbulence in the currencies and financial markets of these countries. We are living in an age now of capital mobility. This means that capital inflows/outflows can take place very easily. If there is capital outflow from Thailand from foreign companies it would wreck havoc on the Thai economy. Large corporations won t think twice about with drawing funds for whatever reason.

 

All the high powered money that has entered into the banking system has also caused excessive credit creation. Thai people hold alot more credit cards than before. However the major channel for this credit creation has been in the property market. That is a bubble just waiting to burst, imho. If you go on the skyscrapercity bangkok section and have a look at the new proposals and developments that under way section, what you will see are literally hundreds of projects that are either under way,or proposed. Is the demand really there? Ok, the high end exclusive projects will be taken up, but what about the rest of the projects? For example the Regent Condo project at Soi 13 Sukhumvit has only sold 40% of its units. People buy these pre-construction, and its not even off the ground yet. Thats a risky business, as can be witnessed by the existing evidence in BKK, ie, all the skeleton buildings. All it takes is a series of non-performing loans to set of a chain reaction.

 

I would like to have a condo in Bkk,but I ll be waiting alittle while longer, as some bargains may become available if the bubble does burst.

 

Timescale? I dont know when this will happen. But it more a question of when rather than if.

[cardinalblue]

I wonder if that menu includes waiting for the tuna boats to come in!

 

CB

[BuffHello]

its no use tying to sort out their problems for them ,they knew what to do back at the crash of 97 and wouldnt take the medicine to sort out their problems .bankrupcy laws, corruption, black economy, cronyism , nothing changes and never will ,so it just a rerun of what happened before .

[Guest]

I doubt if it's a conscious decision to withdraw from the world. That would be impossible now anyway. More likely it reflects a disillusionment, on the part of some Thais, with tourism and the influence of foreign cultures. What you call xenophobia

I would agree with most of this. For example, I don't think any Thai policy maker would think of these policies as, or call them, an attempt to withdraw from the global economy, although that is what they amount to.

 

There are socially conservative Thais that fear the influence of foreign cultures. They seem to be more alarmed by the westernized behavior of middle and upper class Thai teenagers and 20-somethings than farang oriented go go bars (although they seem to sometimes confuse the two) They are fighting a losing battle.

 

But I see the underlying problem as this: if you focus on and attempt to address Thailand's real problems, it gets dangerous. You challenge vested interests. It's easier and safer to raise concerns about the volatility of the international economy than to suggest putting your own house in order.

 

The financial sector here is a classic example of this. The 1997 financial crisis was primarily the result of connected lending. Powerful Chinese-Thai family groups used the local banks they controlled to fund their businesses. This resulted in connected lending where loans were extended on the basis of connections rather than commercial merit. This, in turn, created a house of cards of non-viable debt. This is why over two-thirds of the debt held by local bank during the financial crisis was non-performing.

 

It was pretty obvious to outsiders, but Thais were told a different story - basically conspiracy theories about speculators deliberately destroying the Thai economy. There is still controversy about allowing George Soros speak in Thailand. He became the bogey man for the financial crisis. TRT used this to run on a platform of economic nationalism to get elected. And the underlying problems were never addressed. I think we are seeing and will see a re-hash of this.

[Nervous_Dog]

I agree totally with what you write Gaddie, and I fear it has no chance of changing whoever gets in power

 

The reason why i say that is just last week Nation ran a very xenaphobic cartoon, with Farangs depicted as patpng gettho people, rather than the source of future growth.

 

This from the most ant Thaksin paper, and they hate us too!

 

We need to admit who ever is in power will hate us, resent us, regardless what we do for the country.

 

On the loan front, the number if middleclass loans is growing, rich are moving to cash, the poor are lucky, they get to borrow more!

 

Whole thing is going to come down soon, and I don;t see a strong enough leader to win. Parliment is too controlled by factions, ignore what party they are in, that is meaningless, Democrats etc all the same in this country.

 

Only hope is they can trade their way out again, someone smart opens the markets.

 

Chances of that hapening though?

 

DOG

[shygye]

IMO the answer is quite simple. I figure a directive went out to all departments to look for ways to increase government revenues because of the current shortfall in government funding. Force more people to PAY for work permits, force Thai "investors" in these sham land companies to pay taxes, etc.

[junglesoup]

From reading these posts, it would give the impression that all Thai people hate farangs. I really dont find that to be the case.

Maybe from a government point of view and certainly certain areas of society.

 

However I dont think enough credit is given to the younger generation of thai people. I ve spoke to lots of Thai people who talk about the corruption. Also I ve spoke to Thai people who are open minded. Some have said that they think alot of thai people are stupid, and farangs are perceived as being alot more intelligent.

 

Of course there is a certain consciouness that exists within Thailand where farangs will always just be farangs and a dollar sign.

 

However I do see alot of positives. Bangkok is a very young city( the people). I think the younger generations are quite free thinking, liberal and open minded.

 

However, it is annoying that powers above and the corruption doesnt provide the chances alot of these people deserve.

[jxxxl]

shygye said:

Force more people to PAY for work permits...

 

Are there any work permit holders (or their employers) who haven't paid? Perhaps you can tell us all how this is done?