Thais say country's economy challenged by multiple 'traps'

JUST when Thailand's economy breaks out of one trap, it falls into another. Bangkok-based economists describe their country's economic plight in multiple ways - as a "middle-income trap", a "wicked development trap", and an "agriculture trap". Then, there is a fourth problem, the "military-coup trap".

Many Thais believe that the country will never get out of the middle-income trap unless it "breaks out of the military-coup trap". The continuing rule of the military is hurting the country's economic prospects, according to a growing consensus within Thailand.

It is an anomaly that a country with a burgeoning private sector and a massive tourism market should have languished as a victim of the middle-income trap for nearly 50 years. The World Bank ranked it as a lower-middle-income country from the 1970s until it graduated to upper-middle income status in 2011.The country is likely to stay at this rank for several years because of protracted political uncertainty and weak governance, according to Thai analysts.

The term "wicked problem" - formulated by theorist Horst Rittel in the mid-1960s and widely used to characterise an issue that is difficult to resolve - applies to Thailand, argue Thai economists. Military rule, they explain, has long been a "wicked problem" that generates political turbulence, lack of socio-political consensus, and ineffective economic management.

Yet, as an upper-middle-income country the Thai people have prospered in general as their economy is no longer characterised by low wages, low skills and dependence on agriculture. It has transitioned to a centre for the manufacture of electronics and vehicles, and for healthcare, with impressive global exports rankings - second in hard disk drives, sixth in rubber tyres, and seventh in computer devices.

The traps have, however, taken a toll over the decades. Matters worsened with the military coup in 2014 led by General Prayuth Chan-ocha, who became the prime minister and now faces the formidable task of reviving a sputtering economy and sagging investor confidence at a time when he leads a fissiparous 19-party coalition government with a sliver of a parliamentary majority of four seats.

The anomaly is that Thailand's per capita income has grown slower than its Asean partners, despite a lower population growth rate because Thai gross domestic product (GDP) grew slowly in the aftermath of the November 2006 military coup, says Bhanupong Nidhiprabha, a professor of economics at Thammasat University.

The problem goes back to 2007 when Thailand's GDP growth of 4.8 per cent was below the world growth pace of 5.1 per cent, and East Asia's 5.3 per cent. Other Asean countries delivered excellent exports, propelled by the more than 11 per cent growth of the Chinese economy. Although Thailand also benefitted from the growth of China's imports, it could not generate high economic growth.

The slow growth rate of 4.8 per cent can be described "as a proxy of the cost of the military coup", Professor Bhanupong says. Things might have been better if Thailand had kept pace with world growth in 2007. In short, Thailand's problems arise from the "dismal growth" of domestic demand.

The coup of 2014 was an event with repercussions that have lasted for a few years. Going forward, the coup's impact may cause capital formation and investment to lose steam, which would erect speed-breakers on the path of economic growth in the longer term.

This brings us to the "agriculture trap". Professor Bhanupong argues that the Thai military government's continuation of the longstanding policy of populism in agriculture by providing subsidies to farmers - who frequently demand public help - is prolonging the "captivity of Thai farmers in the agriculture trap". They would find it impossible to break out of the trap unless farm productivity improves substantially. One way of making the sector dynamic is by accelerating its transition into food processing.

CREATING A LINK

An essential strategy to escape from the agriculture trap is to create a link between the agriculture and non-agriculture sectors. The agro-industry, being more labour intensive than manufacturing, would provide farm workers a migration avenue. This solution is not being implemented properly because successive governments in Bangkok have seen agricultural subsidies as a moral mandate to take care of the poor, ignoring the ineffectiveness of their intervention in the market. Over time, such subsidised agricultural products have become "political liabilities", Professor Bhanupong explains.

Chronic agricultural subsidies thus create a trap for the Thai economy to maintain agricultural production and employment at levels higher than they would have been if the government had allowed the market to function unfettered. The slow transition of farm workers from the rural to urban economy results from the agricultural trap, which keeps them working inside the farm sector.

The military rulers are finding themselves friendless as mass anti-government protests have shaken stability. The protestors are currently demanding the resignation of the prime minister, dissolution of parliament, an end to the harassment of dissidents, and the drafting of a new democratic constitution. These demands have been ignored, with the authorities coming down heavily on dissenters.

When the protests broke out last year, it seemed that they would scare away foreign investors, but presently there are signs of investor confidence making a slow return. Yet, foreign investors remain deterred by the instability. To cap it all, the Covid-19 pandemic has devastated the tourism sector that the country is heavily reliant on. By all accounts, the political unrest is weighing heavily on investor and stock market sentiment.

The protests appear to have had some influence in driving capital out of the country last year, when US$7.8 billion exited Thai stocks at the end of August, and another US$2.3 billion flowed out of bonds. According to the Thai Ministry of Industry, the manufacturing sector contracted by 2.75 per cent last year over the previous year.

Foreign investors have become accustomed to military coups in Thailand, but it will be tough to live with them because of the massive scale of the protests. The prognosis is not good, and many investors may not wish to enter a country of prevailing uncertainty that explodes in violent street incidents. The "military-coup trap" is certainly holding the economy hostage.

• The writer is the editor-in-chief of the Rising Asia Journal