One day left before Thailand’s general elections. Whoever wins, the economy is a likely loser
A month-long campaign ends Sunday in Thailand. It has been a largely peaceful one: no violent incident has been reported, and even the rhetorical jockeying between candidates has remained relatively soft. Yet the election will confront two bitter rivals, whose hatred of each other, fed by a recent history of political gridlock and street violence, leaves a huge question mark as to whether the looser will accept the result - and what sort of economic policy will come out of it.
The contest will oppose Yingluck Shinawatra, of the opposition Pheu Thai party (PT), to Abhisit Vejjajiva, of the ruling Democratic Party (DP). A few days before the vote, the PT looks set to win the majority of the 500-strong Thai parliament, despite the DP having the advantage of incumbency. This owes a lot to the PT’s unofficial leader and Yingluck’s brother, Thaksin Shinawatra - the former prime minister ousted in a military coup in 2006 and forced to exile by the Thai justice - who retains massive popularity among the rural poor.
But her younger, good-looking sister has showed unexpected talent at re-energizing the PT’s electoral base. Whilst the two candidates started the campaign almost on par, her freshness and easy-going style has contrasted with the technocratic, lacklustre campaign led by the DP. Abhisit Vejjajiva and his finance minister, Korn Chatikavanij, have also suffered from a major legitimacy deficit - they’ve been grabbing power not by winning an election, but by being at the right place, right time following the 2006 coup. As a result they are irremediably associated with the widely loathed army, a constant, looming shadow over Thai politics. More broadly, they’re seen as the candidates of the Bangkok rich and the Monarchy establishment, making them an unappealing choice for the disenfranchised rest of the country.
Yet if their political positioning offers starks contrasts, the economic policies they propose have become increasingly similar - and equally short-sighted. The populist economic program of Ms Shinawatra - a continuation of her brother’s policies - has put stars in the eyes of the rural poor, promising free Tablet PCs to schoolchildrens and a 40% increase in minimum wage. At first the DP held to its ground of fiscally responsible and economically sensible policies, such as programs to reduce household debt and widening the pension coverage. Trailing in the polls, however, the party has reconsidered its approach and resorted to the same expensive promises as the PT. It now wants to offer subsidies to rice farmers and also champions a steep hike in minimum wage.
Good news for the voters, maybe - but not for the economy. For whoever wins, such largesse will bear a high cost: besides a rise in the minimum wage and various subisdies, parties have promised credit card for farmers or interest-free mortgages for first time buyers, all of which could push the fiscal deficit beyond 350 billion bats, a threshold most analysts recommend not to cross.
Both candidates back their pledges with the need to rebalance Thailand’s economy towards domestic consumption. The general consensus is, indeed, that the country is too dependent on exports - 65% of GDP last year - which makes it vulnerable to a downturn in overseas demand, such as the one that shook the markets in the aftermath of the 2008 crisis. Transferring more purchasing power to Thai consumers will help ease such concerns in the long-run.
Yet in the short run the campaign’s profligate promises will make it harder to control inflation, singled out as the rising risk for Thailand’s otherwise sound fundamentals. The Bank of Thailand has raised interest rates seven times over the past year, but because inflation is mainly imported - due to bangkok’s heavy dependence on oil - this has had only limited effect. So the government has had to a wide range of price caps on key commodities, like palm oil, sugar and eggs, and an expensive tax-cut on diesel; this has so far maintain headline inflation to an artificially low of 4.1%. Boosting demand as commodity prices show no sign of wavering thus risks not only stretching the country’s finances - it might also tip its economy towards far sloppier inflation levels.
Thai opinion polls are notoriously unreliable, and fears are that the result will trigger a bitter post-election fight, so there is plenty of room for political volatility. Yet a safe bet seems to be that inflation will win - and that the people, once again, will loose.
Photo credit: ibtimes