Thailand’s junta is taking a page out of Thaksin Shinawatra’s policy playbook, adopting some of the populist measures that drove his political success in a move that may help stabilize growth for the remainder of 2014.
Since the May 22 coup that displaced former Prime Minister Yingluck Shinawatra’s Pheu Thai government, the military has vowed to accelerate budget spending, capped fuel costs and asked consumer-product makers to freeze prices, echoing steps favored by Yingluck and her brother Thaksin. It also restarted payments under a disputed rice purchase program, aiding farmers who were the biggest supporters of the Shinawatras.
“Now I can pay off my debt to the loan shark and get back my land which I used as collateral,” Wilaiwan Seua-sang, a 52-year-old mother and supporter of the rival Democrat Party, said by phone on June 10 after tending her rice field in the northern province of Nakhon Sawan. Wilaiwan also bought a new Honda Wave motorcycle this month.
Thailandâs Troubled Democracy
The measures have helped improve Thailand’s economic outlook since the coup, reducing pressure on the central bank to cut interest rates. The junta’s efforts to spur growth and “return happiness to the people” also take aim at the political dominance of parties linked to Thaksin, which have had a lock on electoral majorities since 2001 with a platform of expanded public services and aid to lower-income households.
“It’s a new kind of coup that focuses on the economy,” said Kampon Adireksombat, an economist at Tisco Securities Co. in Bangkok who previously taught in the economics department at Singapore’s Nanyang Technological University. “They have made the right move in unlocking money for farmers first, because that’s a key drag on the economy. This will not only help boost consumption, but also build support for them.”
Thailand’s stocks have outpaced most Southeast Asian peers since the coup, with the benchmark SET Index (SET) rallying almost 4 percent since May 22. Consumer confidence rose in May for the first time in 14 months. The SET Index fell 0.5 percent today.
About 800,000 farmers will receive overdue payments totaling 92 billion baht ($2.8 billion) by the end of June, as the military government orders funds released for grain sold since October under a rice program introduced by Yingluck.
The payouts stalled late last year as growing protests prompted Yingluck to dissolve parliament, restricting her government’s ability to raise funds. The deposed premier is also being investigated for alleged negligence for failing to prevent an estimated 500 billion baht in losses from the program, based on the anti-graft commission’s report.
Pato Chemical Industry Pcl (PATO), a distributor of pesticides, said sales jumped shortly after the coup after suffering from a slump since February.
“Our orders from dealers came back right after the junta announced the payments to farmers,” said Managing Director Viwat Trillit. “This is such a promising sign. The payment to farmers will help jumpstart the economy.”
The boost to rice farmers will help lift gross domestic product by 210 billion baht, said Bhumisak Rasri, director at the Agricultural Economics Operation Center. The estimate translates to almost 2 percent of GDP.
“Confidence has improved but there are some limitations this year, so growth won’t be that high,” Bank of Thailand Governor Prasarn Trairatvorakul told reporters today in Bangkok. “Consumption can’t rise much because people have a lot of debt. High household debt will be the main limitation.”
The populist policies of the Shinawatra governments were attacked by opponents for being fiscally irresponsible. The military has pledged to rid subsidy schemes of corruption, intimating this is what will differentiate it from previous administrations.
“We are very careful with the national budget in order to make sure that all are in accordance with the law, fair, and transparent,” coup leader Prayuth Chan-Ocha said June 6.
The junta has vowed to revive infrastructure investments to boost Southeast Asia’s second-largest economy, which contracted in the first quarter. Prayuth also capped cooking-gas and diesel prices and approved handouts to the tourism industry.
“It’s one thing to buy popularity in the near term with populist policies but in the end that will only last for a very short amount of time,” said Nariman Behravesh, chief economist at consultancy IHS Inc. “In the long run the emphasis has to be on infrastructure investments, it has to be on improving the climate in Thailand for inwards investment.”
The junta’s policy focus will likely now shift to the economy, reducing the risk of further monetary easing by the Bank of Thailand, Benjamin Shatil, a Singapore-based analyst at JPMorgan Chase & Co., said in a June note. The central bank’s rate-setting committee is scheduled to meet on June 18.
“Recent developments remove some downside risk” to JPMorgan’s second-half growth forecast, Shatil said. “Fiscal stimulus will support growth in the second half of the year.”
Winning the hearts of Thaksin’s entrenched supporters may be less straightforward. While farmer Wilaiwan is “very happy and grateful” that the army is making the payments to rice farmers and will continue to vote for the Democrat Party that opposed the Shinawatra administrations, she says her cousins backed Thaksin and will probably continue to do so.
The junta believes “that it can build mass support for the new regime with such policies,” Michael Montesano, coordinator of the Thailand Studies Programme at the Institute of Southeast Asian Studies in Singapore, said in a June 10 e-mail. “The junta may believe that people in the Thai provinces want only goodies. But many of those people also want to feel that they have a participatory stake in the country. Hand-outs from men in green with guns will not meet that interest in participation.”
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