Thailand’s new government
After the euphoria, a deluge of problems
Oct 15th 2011 | BANGKOK | from the print edition
ASKED what was the biggest test for politicians, the post-war British prime minister Harold Macmillan is said to have replied “Events, dear boy, events”. Yingluck Shinawatra, Thailand’s new prime minister, might concur. Elected by a landslide just over three months ago, the euphoria of victory is being swept away by an unforeseen calamity—the worst flooding in the country for 50 years. Economic forecasts are being revised downwards almost as fast as the sandbags stack up in the streets. The signature economic policies that helped get her elected, already under fierce attack, may never be fully implemented. It has been a harsh introduction to the realities of power for the 44-year-old neophyte, who is the younger sister of the populist former prime minister, Thaksin Shinawatra.
Thailand is used to monsoon rains at this time of year, but not of the intensity of the past few weeks. Over 270 people have been killed, about 700,000 homes destroyed or damaged and large areas of the central plains region have been inundated. The waters are heading for Bangkok, and an emergency call has gone out for people to donate sandbags to protect the ill-defended capital. Nonetheless, it is expected that the northern and eastern suburbs, at least, will be affected.
Ms Yingluck has been valiantly touring the flooded areas, offering moral and economic support. Nonetheless, her government’s response has been criticised as tardy and ineffective. On top of the short-term damage to the government’s reputation, however, the longer-term economic consequences of the floods will most worry Ms Yingluck and her ministers. The University of the Thai Chamber of Commerce (UTCC) has estimated that the cost of the flood damage could be as high as 150 billion baht ($4.8 billion), and that total will rise significantly if Bangkok is badly affected. The rice-growing areas of the rural north have been hardest hit; more than 3.4m acres (1.4m hectares) of farmland are already under water. So are industrial estates. Many economists are predicting that the disaster could shave 1% or so off the country’s GDP growth rate this year: UTCC, for example, is revising its forecast down from 4.4% to 3.6%.
A dip on that scale could begin to dent the government’s ambitious policies. These depend on the economy staying in the rude good health that it enjoyed under the previous government. Proposals such as a new form of rice subsidy, a doubling of the salaries of new civil servants and free tablet computers to all children starting school will cost a lot of money. Even at the best of times, all these schemes would probably have led to higher inflation and a growth in public debt. But these could now be the worst of times, particularly if the world economy slows a lot more. Exports make up more than 60% of the country’s GDP—Thailand is the world’s largest exporter of rice.
In this context, the proposed increase of the minimum wage to about $10 a day, another election pledge, is under particular scrutiny. Kittiratt Na-Ranong, a deputy prime minister and the government’s co-ordinator for economic policy, argues that this proposal reflects sensible economics rather than vote-grabbing economic populism: “Our problem is that our domestic consumption is too low”. He wants to increase the purchasing power of millions of poorer Thais so as to make the economy less reliant on the vagaries of the export markets.
Most agree that Thailand’s economy is unbalanced. However, there is plenty of argument over whether a rise in the minimum wage is the best remedy. Employers’ representatives say some small businesses could collapse if they have to accept a 50% rise (or more) in their wages bill.
It seems the government has been forced to listen, and the policy is in flux. Mr Kittiratt says the government will now start by implementing the scheme just in Bangkok and five other provinces (out of 77). However, it is unclear what will happen after that, or whether the wage will apply to the 2m or so foreign workers, many of them from neighbouring Myanmar, whose low pay depresses salaries in the first place.