A History Of Thailand

by Baker Chris

  Parliament failed to deliver on the post-1992 aspirations for change. Partly, this was because the pressure for reform soon faded. Once political instability no longer represented a threat to Thailand’s globalized economy, big business lost its passion for taking a personal role in politics; making money out of the continuing boom consumed all of its attention. Similarly, broader middle-class support for reform waned once there seemed to be no political threat to continued urban prosperity. Besides, most MPs (including most in the Democrat Party) were still returned by rural electorates which were little moved by the issues behind the politics of 1991–92.

  Thus, the final outcome of the events that began with Chatichai’s attack on the bureaucracy in 1988 was a compromise between the senior bureaucracy and the new politicians. Chuan Leekpai, the Democrat leader who became prime minister in late 1992, was a small-town lawyer from the south. He affected the polite, restrained manner of a typical bureaucrat and always worked cautiously, with extreme respect for rules and laws. The aggressive attacks on bureaucratic power of the Chatichai era ceased. No policy-making think tank was formed and the initiative in policy making returned to senior officials. Bureaucratic reform was constantly discussed but never formulated. Similar agreements to share power and profit between bureaucrats and business politicians were negotiated down the ladder from nation to locality. Cabinets returned to the pattern of the 1980s, with reshuffles at roughly annual intervals to allow rival factions to rotate through ministerial posts.

  Under this arrangement, the activists’ agenda of reforms was quietly sabotaged. Constitutional changes were whittled back to some minor amendments, proposals for media liberalization were reduced to a single additional television station (ITV), discussion of decentralization was suppressed, and educational reforms were delayed.

  The compromise between politicians and officials had two other results. First, it intensified the depletion of natural resources for both private and public benefit. Government agencies commandeered more land and rivers for dams and other infrastructure. The Forestry Department declared many new national parks, denying land rights to hill peoples and peasant ‘squatters’. Politicians, officials, and their clients used influence to acquire land for developing industrial estates, pulp plantations, gravel quarries, golf courses, resorts, and residential development. Local peoples who depended on these resources were disadvantaged and provoked to protest. In 1978, the government had counted 48 demonstrations and protests. In 1994, the number was 998, mostly rural, and many over the control of natural resources.

  Second, the 1995–97 Cabinets failed to manage the increasingly globalized and delicate national economy. This became apparent when Banharn, ‘this new élite’s representative par excellence’,24 became prime minister in 1995 at a time when the economic boom had begun to crumble. Banharn focused on the share-out of the budget among political factions and had little awareness of the need to manage the national economy, which had seemed to boom of its own accord over the previous decade. For his finance minister, he appointed first a pliable young politician and then a pliable technocrat. He dismissed the stockmarket head over a personal quarrel, lost the central bank chief over a bank crash, and then struggled to find willing and qualified replacements. His successor in 1996, Chavalit Yongchaiyudh, promised to field a ‘dream team’ to manage the economy, but failed to recruit the technocrats he wanted. Within months he had lost his finance minister, central bank chief, and finance permanent secretary, and again was forced to accept mediocre replacements. As signs of the looming economic crisis appeared, academics and businesspeople urged that macro-management ‘is so urgent and technical it cannot be left to the politicians’, and argued for ‘depoliticization’.

  The 1992 events had led not to reforms to end the military era, but to a compromise between bureaucrats and business politicians that sabotaged the reform agenda, licensed profiteering at the expense of natural resources and local communities, and neglected management of the national economy.

  As parliament stumbled over reforms and as social problems mounted, an intense debate on the future of Thai society blossomed in the public space nok rabop (outside the system) opened up by the retreat of the military. The participants fell roughly into two schools.

  On one side were modernists who put their faith in globalization and economic growth. Political scientist Chai-Anan Samudavanija believed that the old elites would soon be ‘bypassed’.25 Thirayuth Boonmi, the 1973 student leader turned ‘social critic’, predicted that Thailand would now experience ‘a transfer of power and legitimacy from the state to society…from bureaucrats to businessmen, technocrats, and the middle class’.26 To overcome ‘money politics’, Anek Laothamatas argued that the peasantry had to be modernized out of existence by a mixture of prosperity and education ‘so they become individuals like the people of the city and other modern classes…only such a civil society can deal with the state and truly control and reform the bureaucracy’.27

  On the other side were localists or communitarians who hoped to draw on the ethics of Buddhism and the sharing practices of peasant society to create a more just and harmonious society. A group of senior activists formed the Local Development Institute to mobilize ‘social energy’ for reform, advocated greater participation at all levels, and drafted plans or reforms in education and healthcare. As a result of this lobby’s pressure, the Eighth Plan (1997–2001) was for the first time compiled through a process of consultation and proposed a major shift ‘from a growth orientation to people-centred development’.28

  During 1994–97, these very varied agendas for reform came together in the demand for a new constitution. In 1994, Amon Chantharasombun, a senior bureaucrat, published the book Constitutionalism with proposals for major reform. Amon argued that parliament had become too powerful, had subtracted too much authority from the senior bureaucracy, and was both unstable and inefficient, as indicated by the succession of squabbling coalitions and the poor record on legislation. In 1995, Prawase Wasi played a key role in persuading the prime minister, Banharn, to allow a Constitution Drafting Assembly (CDA) to prepare a new charter independent from the parliament. The CDA was headed by Anand Panyarachun, the former bureaucrat, business leader, and prime minister under the NPKC, who had become a leading advocate of reform. The draft re-engineered parliament along lines suggested by Amon. Election procedures were redrawn to encourage a more stable two-party system. The prime minister’s position was strengthened. An Election Commission, National Counter Corruption Commission, Constitutional Court, and ombudsman were introduced to provide checks and balances on corruption and the abuse of power. To increase Bangkok’s influence in parliament, 100 additional seats would be filled by a national vote by party. To prevent the uneducated entering parliament, MPs had to have a tertiary degree – a provision that excluded 99 per cent of the agrarian population.

  NGOs lobbied for clauses to change the balance of power between the state on one side and the individual or community on the other. As a result, the draft included an extensive catalogue of the ‘rights and liberties of the Thai people’, formation of a National Human Rights Commission, removal of the electronic media from the grip of military and government, and democratic decentralization of power to local government.

  The economic crisis of 1997

  In 1997, the context of these debates on Thailand’s future was totally transformed by an economic crisis that changed people’s perception of the present.

  By the early 1990s, four years of double-digit growth had created problems. The capital’s chronic traffic jams symbolized a more general strain on infrastructure. Real wages began to rise as reserves of slack labour were absorbed. Technicians and scientists were in short supply because education planners had not foreseen the inflow of technology-based industries.

  In the late 1980s, the World Bank had urged Thailand to liberalize its financial system as the next stage in making the economy more efficient and more accessible to foreign capital. The reform tec
hnocrats concurred with this theory. They believed financial liberalization would loosen the grip of the existing conglomerates and allow new entrepreneurs to contribute to growth. Between 1989 and 1993, the baht was made convertible, interest controls removed, the stockmarket made more accessible, and an offshore banking system installed. These reforms coincided with a phase of low growth and high liquidity in the advanced economies that made international investors enthusiastic about ‘emerging markets’. Brokerages and offshore banks arrived from Japan and the west. Thailand was hit by a flood of money. In 1990 alone, private capital inflows, net of foreign direct investment, exceeded the total over the previous decade. Between 1988 and 1996, the private sector’s foreign debt multiplied tenfold. The stockmarket index rose from around 400 before the liberalization to a peak of 1753 in January 1994.

  Thailand already had a high rate of investment and generated enough savings to cover it. Because of the strain on infrastructure and rising wages, profits in export manufacturing were already falling. Thus, although some of the capital inflow was used productively, a lot was diverted to projects based on very ambitious assumptions of future growth, and a lot went into speculative markets, especially for property. By 1995, the cracks were visible. The stockmarket had begun to slide, the property market had become detached from reality, and export growth was faltering. But foreign investment still surged, as many western firms belatedly tried to participate in what the World Bank had christened the ‘East Asian miracle’. The reform technocrats, impressed by their own apparent success and goaded by businesspeople gorging on cheap credit, refused to rein in the boom. They imposed only ineffectual controls on financial markets and denied any need to float the currency.

  In late 1996, foreign capital began to leak away, and international speculators began to attack the baht. The central bank contributed 500 billion baht to prop up financial institutions and committed virtually the entire foreign reserves to protect the currency. But against the enormous funds of international speculators, these funds were puny. The government was obliged to seek the help of the International Monetary Fund (IMF), which raised a loan of US$17.2 billion, mostly from Asian neighbours. In return, it insisted that Thailand allow the currency to float on 2 July 1997, imposed an austerity programme of increased taxes and high interest rates, demanded the closure of weak financial institutions, and began reforms to further liberalize the Thai economy and facilitate access for foreign capital.

  This package did nothing to soothe foreign investors. Most of the loan and portfolio money that had come to Thailand since financial liberalization fled the country within the next two years. The baht plummeted to less than half its value (against the dollar), before recovering to around two-thirds. Firms that had taken foreign loans were rendered illiquid as well as technically bankrupt. Banks that had intermediated the loans were wrecked. Creditors stopped paying their bankers. Consumers stopped spending. Over 2 million people lost their jobs. In 1998, the economy shrank 11 per cent – a dramatic end to the 40-year ‘development’ era during which the Thai economy had averaged 7 per cent growth and never fallen below 4 per cent.

  In mid-1998, the IMF was forced to abandon its austerity programmes in the face of social distress, business anger, and international condemnation. The government tentatively began a Keynesian economic stimulus (budget deficit, low interest rates), which was intensified by a new government installed in early 2001. In 2002, the economy began to revive.

  But it was an economy that had changed out of all recognition as a result of boom and bust. Since the Second World War, the Thai conglomerates, especially those based around the major banks, had been at the core of economic growth. In the crisis, a few of the conglomerates disappeared altogether, and most others were reduced in size and importance. The big banks survived, but reoriented themselves to consumer banking and were no longer the centres of the key commercial networks.

  Foreign capital acquired a much larger role in the economy. In the eye of the crisis, restrictions on foreign holdings in banks, property, and other sectors were eased. Investment flowed in to buy bankrupt companies, especially in manufacturing, and to exploit new opportunities during the recovery while local capital was still shy. Helped by the fall in the currency’s value, exports more than ever drove the economy, with exports of manufactures made by multinational companies as the spearhead. International car manufacturers bought out their bankrupt local partners and reoriented their business to export, resulting in Thailand becoming the world’s 11th- largest car exporter by the mid 2000s. European chains built 150 megastores in a decade and captured over half of everyday retailing.

  Most surviving Thai capital was clustered in service businesses where laws still provided some protection against foreign investment. Many business leaders of the post-crisis era were relatively new faces with a business base in services – for example, Thaksin Shinawatra in mobile phones, the Maleenont family in entertainment, and the King Power duty-free retailing company. The biggest success of the bust was Charoen Siriwattanapakdi. His wealth was based on a cheap liquor business under a government concession. He was not undermined by foreign debt because much of his business was still in cash and foreign bankers were reluctant to lend to him. His cashflow held up because consumers downtraded to his cheap products. He bought massive amounts of land that his bankrupt colleagues were desperate to sell, and emerged as the country’s biggest plantation owner and property developer.

  In the aftermath of the crisis, the Thai economy was much further integrated into the international economy through heightened flows of exports and investment capital. Multinational manufacturers dominated the export economy, with the surviving Thai capitalists clustered in property and services.

  Reactions to crisis

  The shock of the crisis created a widespread demand for change, especially in the political system that had led the country into this disaster.

  The constitution drafted over 1995–96 initially faced fierce opposition. Many politicians and bureaucrats saw it as an attack on their power. Police chiefs, army generals, senators, judges, and village heads all came out in opposition. Some provincial boss politicians began to mobilize the Village Scouts to block it. But the draft’s fate became bound up with the economy’s slide into crisis in 1997. Bangkok’s businesspeople and middle class began to blame the crisis on mismanagement by politicians, and seized on the constitution as the way to bring politics into line with the needs of the globalized economy. White-collar street demonstrations demanded passage of the constitution. The draft was passed on 27 September 1997, the same day that the government concluded an agreement with the IMF.

  After the baht was floated in July 1997 and the economy slid rapidly into crisis, business and the urban middle class demanded the removal of the current Chavalit Cabinet, dominated by provincial bosses. They wanted the Democrats and their technocrat team to return and manage the economy. Some appealed to the army to intervene, but the generals held aloof. In November 1997, Chavalit resigned and a reshuffle of minor parties enabled the Democrats to return without an election.

  The Democrats lobbied the IMF to adjust the details of the package, but not before the economic slump had created widespread bankruptcy and social distress. In general, the Democrats cooperated with the IMF and suffered a gradual erosion of support as the crisis deepened and lingered over the next three years.

  The enthusiasm for globalization declined with the GDP figures. Some now pictured globalization as a malign force that had ‘enslaved’ Thailand and undermined its stability. Others concluded that the crisis showed Thailand was not prepared for globalization and had been unwary of the dangers. Even devout liberal modernists, who initially protested that Thailand should not reject globalization and turn inwards, now admitted that the country needed to strengthen its internal institutions in order to survive and prosper in an unstable and rapidly changing world. In the pit of the crisis, localists dominated the debate. They blamed the crisis on the prior pattern of develo
pment. The monk-intellectual P. A. Payutto said the crisis had arisen because Thailand ‘misguidedly developed the country in a way which relied too much on the outside’.29 The king again legitimized this thinking in his birthday speech in December 1997:

  Being a tiger is not important. What is important is to have enough to eat and to live; and to have an economy which provides enough to eat and live…We have to live carefully and we have to go back to do things which are not complicated and which do not use elaborate, expensive equipment. We need to move backwards in order to move forwards. If we don’t do like this, the solution to this crisis will be difficult.30

  In the short term, this was simply practical advice as people laid off from the urban economy were thrown back on the resources of the family and village. Many government departments launched community-based schemes to combat the crisis. NGO activists persuaded the World Bank not to disperse its main social relief loan through government channels, but instead through an NGO-established network to local communities for projects to build such ‘social capital’ as local welfare schemes, education projects, child-care centres, and environmental protection schemes.

  Prawase called for ‘a war of national salvation’ to rebuild society from the local community upwards, based on a ‘cultural economics which is not about money alone, but also about family, community, culture, and the environment’.31 He and others called for the government to focus more on agriculture, which had been neglected in the rush to industrialization yet still served as the primary support for half the population. Rural protest groups made similar demands with a more immediate and practical bent. They demanded the government bail out the debts of poor farmers rather than those of urban businesspeople and bankers. They petitioned government to support falling crop prices. Some thrown out of urban jobs occupied vacant land, and activists demanded land reform to reverse the trend of transfer of land from farmers to urban use and speculation.