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A purely analytical perception...


Updated May 30, 2001

THAILAND, BLESSED BY NATURE, DESTROYED BY POLITICS

 

Thailand is the epicenter of both the economic collapse and the economic recovery of the Pacific Rim.  Formerly known a Siam, Thailand literally means, "Land of the Free".  It is one of the oldest monarchies in the world, with a proud history dating back to 1350.  The country is bounded by Myanmar (Burma) on the West, Cambodia on the Southeast, and Malaysia on the South.  It has coasts on the Gulf of Thailand and the Andaman Sea.  

The Thai-Malay Peninsula area is one of the world's richest rubber and tin producing areas.  Ample supplies of fluorite, lead, lignite and tungsten abound, while new discoveries of oil and gas are quickly making the country self-sufficient. If you want to travel from Asia to either Malaysia or Singapore, you are going to have to pass through Thailand as it is strategically situated in the very center of Indo-China. In spite of its geographical positioning, the country has never been colonized by a foreign power and people take great pride in that fact. The fact that they have been able to avoid foreign entanglements is a great compliment to the negotiating ability of the Thais.

 

This country of 60 million inhabitants has a birth rate of only 1.2, thanks to one of the globe's most successful contraceptive information programs. The country's death rate has also been substantially diminished due to its advanced medical facilities and highly regarded medical specialists.  Thai is spoken by almost the entire population, while English is its language of commerce.  The population is largely Buddhist, and the demographics show that over 80% of the people are native or ethnic Thai making up 75% of the population and ethnic Chinese comprising the largest minority group at a distant 14%.

 

Thais eat water bugs like they are going out of style and many in this country indicate that it improves sex and slows the aging process. These particular bugs are kind of scary though because they look like a big cockroach but in spite of that, this bug, which is called the equivalent of but and a half in Thailand gives off a most pleasant aroma when being cooked ([1]).  Another fabled delicacy that attracts tourist from around the globe is snake blood. Thais usually take the blood, which is harvested, from King cobras straight but tourists usually need a chaser to get it down. However, it is widely believed that great sexual and medicinal powers are achieved by anyone that can down the putrid stuff on a regular basis. Snake blood is not cheap and it sells for as much as $200 a snort.

 

Thailand's capital city, Bangkok, is the center of all commerce.  Almost all imports and exports pass through the Port of Bangkok, which captures at least 90% of all trade ([2]).  As roads and airports are of little use during monsoon periods, water or rail moves most traffic in the country.  Economic planning is precise, and programs similar to the five-year plans of Russia and China are systematically evolved and put into place.  This system, which started in 1961, is now in its eighth re-incarnation.  It evolves around issues of "human development."  While in its formative stages, the issues were presented to voters in a national plebiscite prior to ratification by a national committee. 

 

Although Thailand's late king served for almost fifty years, the Prime Minster (Chuan Leekpai) and a bicameral legislature run the actual government.  The military often has a substantial input into how things are run, and while a number of high-ranking military officers have risen to become prime ministers, their role for the most part is benevolent.  One reason for the military's relative lack of control is the historic practice of "vote buying," which makes the price of high office too rich for the blood of the career officers.  

However, there are people that will front the campaign funds for just about anybody that they think can win because the rewards are so great. It is said that Thailand spends more money on vote buying before an election than any other country on earth. No one that achieves high political office in this country fails to become a multi-millionaire. Immediately after the most recent presidential election, there was so much fraud that no one could be certain who had won the election for some time.

 

Widespread vote fraud occurred in districts where the winning Thai Rak Thai party in Thailand’s recent general elections secured its biggest gains, a poll watchdog said on Monday. The Independent People’s Network for Elections said it has “solid evidence” of fraud in nearly 100 of the country’s 400 constituencies, mostly in northern and northeastern regions…Thai Rak Thai, meanwhile, put off announcing the composition of its coalition government because of the uncertainty over election results. Announcement of official results have been delayed by protests and fraud allegations. “A flood of complaints, charges and countercharges are arriving at the commission every day. Please wait and give us time to do our Job,” said Sawat Chotipanich, an Election Commissioner. . General Saiyud Kerdpol, the People’s Network for Election chairman, said fraud was recorded in about 40 constituencies in the northeastern region, at least two dozen constituencies in northern provinces and 10 constituencies in the central provinces.”[3]

 

Thais trace their history back to at least the 3rd Century AD.  The country's strategic location made many of its neighbors envious, and for this reason, from time to time it was over-run by various neighboring factions.  For the most part, since the late 1700s, things have been rather peaceful, with the exception of the changeover from an absolute monarchy to a constitutional government in 1932 and the most recent coups d’ e’tat which occurred in 1992 and was called “Bloody May” which saved the country from a return to dictatorship. However externally, one of Thailand neighbors is Myanmar, the world’s largest producer of heroin and methamphetamines. Because Thailand is a transshipment point for these drugs, there is substantial drug use practiced within the population. Moreover, crime is also on the rise in Thailand as a direct result of drugs entering the country.

 

It goes without saying the drug shipments entering Thailand are well protected by armed mercenaries. When these hired guns meet the border patrol, shooting normally erupts and over the last several years there have been substantial numbers of fatalities. Making the Thai border even more dangerous is the fact that Laotian insurgents are firmly planted on Thai territory and regularly use the country as a jumping-off-point for unwelcome forays into Laos. Naturally, armed conflicts arise when one side spots the other. If the Thai border guards can distinguish between Laotian revolutionaries and Myanmar gunrunners, they will usually let the Laotians kill each other and try to intercept those from Myanmar. This is like the old saw, that goes, you can’t tell your friends from your enemies without a scorecard. However, Thailand’s lax attitude exemplified by their willingness to let those from Laos murder each other with abandon has attracted other rebel groups looking for the good life.

 

Because of lax enforcement, even the Tamil Tigers of Sri Lanka have staged operations from Thai soil. Other foreign terrorist groups have been known to use Thailand as a safe haven and are not pressured by the government to leave as long as they do not overtly conduct their activities from here. There are reportedly over 1,000 hired gunmen available in Thailand used mostly by businessmen and lower level politician who view contract killings as the only way to settle their disputes.” [4]

 

If having neighbors like Laos and Myanmar seem bad, how would you also like to be bordered by the crazies from Cambodia? Thailand had to deal with folks like Pol Pot for many years and it was only the fact that Thailand was an ally of the United States that prevented them from being bombed into submission.

 

Thailand is located near the equator.  Thus, spring is hot, summer is warmer and it comes fully equipped with the wettest monsoons you have ever seen.  For foreigners, the best time to visit is the northern winter season.  The country contains the best of the old and the new, with elephants granted the right of way in downtown Bangkok.  Kickboxing is a bloody sport but is the national game.  The national anthem precedes almost every public event and the canals of the capital make interesting excursions.  Shorts are verboten, as are the tops of people's heads.  Don't wear shorts and don't touch anyone's head.  Be kind and reverent in the presence of Buddha’s statues, which are all very sacred.

 

Thailand feeds its own people and many others in the Pacific Rim because advanced irrigation techniques allow it to produce two crops a year.  Thailand is a land of both high and low technology where integrated circuits and native handicrafts are manufactured side by side.

 

The people always appear very friendly to outsiders, but crime is rampant and one of the most common ways of separating tourists from their money is by drugging candy and offering visitors apiece.  Those that accept usually wind up without baggage over at American Express wiring home for money.  The precious metal trinkets sold in many commercial stores are for the most part phony, and the con games are carried out in broad daylight.  In addition, Thailand, or more particularly Bangkok, is known throughout the world as Sin- City - and they earn that reputation.  In spite of sex being a readily available commodity, the people are modest in just about everything they do; for example, nude bathing is a major crime. Beware of bananas, for one is at tremendous risk eating Thai bananas; they contain seeds that are so hard that they will crack your teeth.

 

Dentistry for tourists is a specialized avocation in Bangkok, where most dentures are quickly separated from their owner’s mouths.  Substantial rewards are offered by the police for turning in those who purchase drugs.  As a matter of fact, there is more profit in the reward than in the sale.  Thus, many unsuspecting tourists wind up in an unpleasant Thai jail for endless periods of time until they can barter for their release.  They make a simple, but understandable mistake in thinking that because the sale of sex is so pervasive, the sale of drugs must also be pervasive and acceptable.  It well may be pervasive, but it is good way to wind up behind Thai jail bars, and that’s the last place you want to spend you time there.  

 

Thailand was regarded as an economic miracle by other countries in the region and was held up as an example by the World Bank and the International Monetary Fund.  With vote buying and bribery pervasive, many bureaucrats looked the other way when friends of paying clients got into trouble.  Those small enough to fail were kept in business and those too large were given government largess to stay alive.  Unfortunately, no one was told the facts of life or made to get their act together.  It was never said, “You are running your business like a dunce, and if you aren’t more careful, you will be out walking the street.”  As a result, bad business practices continued as though there was no tomorrow.

 

While many saw great opportunities in Thailand’s impressive growth, behind the economic explosion lay a largely unregulated country with little economic infrastructure. As an example, Thailand’s Securities and Exchange Commission was not established until 1992, it wasn’t until “1989 that the Bank of Thailand lifted the ceiling on term deposits with maturities greater than 12 months; the following year, it removed ceilings on all term deposits, and in 1992 controls on lending rates were finally abolished. The ceiling on mortgage rates was fixed at commercial banks’ minimum lending rate for low-income individuals holding a mortgage prior to June 1992.”[5] These and other reforms allowed the banks to increase their lending spread substantially and get fat at the basic expense of the poor.

 

Moreover, foreign exchange controls were eliminated in 1992 and individuals as well as banks were allowed deal international in whatever way they wanted. It wasn’t until 1992 that commercial banks were allowed to conduct business in financial consulting, debt instruments and securities issuing, underwriting and trading: managing personal funds; acting as trustees for mutual funds.[6] It wasn’t until 1989 that the Government Savings Bank was allowed to invest in anything but Government Securities. Ceilings on rates that finance companies could charge were eliminated in the early 1990s and these institutions were allowed to conduct leasing businesses, to act as selling agents for government bonds and to provide information and advisory services to companies wishing to go public. I wasn’t until 1992 that the Insurance Act was passed in order to introduce better supervisory measures and to establish a court of last resort. In spite of this fact the regulations in this industry remain archaic.

 

The country’s stock market was more of a joke than a reality until 1986. Early on, the government had established an interventionist policy relative to stock prices in a declining market, something that historically, just does not work. However, it wasn’t until 1993 that there was an independent rating system for securities put in place in the Thai stock market. Thus, until that time, things were just about the same as they were in America’s Wild West in the late 1800s. In addition, it wasn’t until 1992 that more than one mutual fund was allowed to function in the country by the government and offshore funds were not allowed until 1986. In 1993, banks were first allowed to act as managers and depositors for registered funds and futures and options trading are not part of Thailand’s financial scene.

 

However, because of the fact that Thailand’s financial institutions were at the lower part of the learning curve in a recently deregulated economy when the Pacific Rim crisis occurred, they were even less equipped to handle the tribulations that transpired. Thailand was from an economic standpoint, the new kid on the block and yet international banks treated the country as a sophisticated member of the global community and looked upon it as a piece of raw meat.  Below, we have sited one example of the indecision, arrogance and unethical practices still prevalent in the insurance industry in Thailand through two articles appearing in the Bangkok Post, The first on December 14, 1998.

 

“Thai agree to pay-out for victims, Bangkok Post, Vassayos Ngarmkham, December 14, 1998.

 

Thai International yesterday announced that it will pay a compensation of 3.6 million baht for each of the 101 victims who were killed on Friday’s crash in Surat Thani. Thai president Thammanoon Wnaglee said the airline and insurers Theves Insurance, Thippaya Insurance and Bangkok Insurance companies had agreed to the sum. Survivors will get an initial 200,000 baht for medical expenses. An agreement can be reached later if they think that this is too little. Thai would consider claims on a case-by-case basis. “Whether they are slightly injured or crippled, the airline will take care of all their medical expenses,” said Mr. Thammanoon. He said those injured still in Surat Thani would be moved to other hospitals if they wished…”

 

“Insurers won’t pay 3.6 million baht each, Thai Airways Disaster, Bangkok Post, December 15, 1998.

 

“Insurers will not pay 3.6 million baht to the families of each of `those killed in the Thai Airways TG261 Airbus as promised by Thai president Thamanoon Wanglee on Sunday. (Yesterday) Charuek Kungwanphanich managing director of Dhipaya Insurance Co. said his company will abide by international insurance regulations, which do not offer fixed, or flat-rate compensation payments for victims. Instead they will consider the victim’s “station in life” and determine payments on a case-by case basis. Insurers will need the relatives to provide information about the death victims before they can obtain compensation, Mr. Charuek said. The statement sharply contradicts Mr. Thammanoon’s announcement that each victim would obtain $100,000 or 3.6 million baht in compensation. Thai had insured TG261 with Dhipaya Insurance Co…”

 

We are left to our own devices to guess what happened overnight to so totally change the decision made by this august group. However, if the president of any country on earth had made such an announcement after consulting with the insurance companies involved and then had the rug pulled out from under him the very next day as was the case here, you can bet your last nickel that heads would roll. In a dictatorship, the senior management of the insurance companies involved would summarily have been executed or tortured and then executed depending upon what country we were talking about. In more democratic countries, the offending insurance companies would have had their charters pulled and the officers arrested for fraud. Nevertheless, in Thailand, things are somewhat different and as we have indicated, everything has a price. We can only surmise that the government determined that too much was being paid and that the money would be much better positioned in either the ruling parity’s political coffers or directly into the bank accounts of certain senior government officials. However, even if this was the fact, this would only have been business as usual in Thailand.

           

Japanese bankers surveying the synthetic opportunities couldn't wait to jump into the game.  They saw the opportunity to move into Thailand en masse, literally take over the country’s banking industry and then manipulate rates as they saw fit.  This required them to first buy business.  This was done by a number of Japanese banks acting in concert and making under-the-market loans to poor credits.  Thailand soon had a steaming economy with too much money chasing only a small number of logical transactions.

 

On the other hand, the people didn’t really care if senseless housing projects were started where there weren’t going to be enough tenants to fill the complexes in the next decade; and the same was true with regard to industrial parks and manufacturing facilities.  The people had two cars in every garage and for the most part, they were both Mercedes Benzes.  Jobs for a time were plentiful, but when push came to shove, there was to little management ability chasing too much money for an economy the size of Thailand.  The country became an accident waiting to happen, and an incompetent government pushed it right over the edge.

 

On several occasions there were opportunities to right the ship, but in every instance, disorder overturned logic, and all the well-laid plans of the International Monetary Fund, The World Bank and others fell on deaf Thai ears.  They chose to listen to some of their compatriots in the Pacific Rim and hang tough.  They eventually were left hanging tough by their more nimble compatriots.  Western companies seeing disaster written all over the place started pulling up stakes. 

 

A bloodbath ensued, taking the bankers from the Land of the Rising Sun down the tube with losses that are still inestimable. The country’s leaders became catatonic, as those that were able to grasp what was going on were unable to do anything about it and those that could do something would not admit that the end of the world had arrived.  As Thailand dallied, the Pacific Rim caught fire and burned.  The panic spread throughout the region, infecting Indonesia and Korea almost critically while doing substantial damage to Hong Kong, Singapore, Taiwan, China, Malaysia and even newly budding Vietnam.

 

The character of this major economic disaster was defined by Thailand’s poorly educated workforce and labor-intensive industries.  After being in the dumper for three years, only now are their signs of serious recovery.  On the other hand, serious damage has been done to the Thai infrastructure, what little of there was and there has been a major change of ownership in the country’s industrial base.  Western Banks came in to bail out a depleted and bankrupt Thai banking industry, financial companies were taken over by large primarily American Multi-nationals and the face of the country has changed, perhaps forever.  The country is only now recovering from this most serious crisis, but it will never be the same.  Their economy is linked to the yen, while their monetary system operates on a U.S. dollar peg.

 

The U.S. Dollar has appreciated over 50% against the yen within the last two years as the bath (the Thai currency) has collapsed.  Thus, the economic system was totally decimated.  Loans are repayable to primarily Japanese Banks in U.S. Dollars, a condition that could give the hardiest economy a case of nervous indigestion.  On the other hand, it was this same relationship over the previous ten years of dollar depreciation against the yen that created such a springboard for all of the “Asian Tigers”.

 

At the height of the crisis, the Thai stock market had collapsed, ([7]) real estate prices were in free-fall, ([8]) the banking sector staggered under the weight of non-performing loans, which in 1999 reached a staggering percentage of 47% of total lending, companies were defaulting on interest payments and the banks were forced to reschedule borrowings, exports stagnated, the country’s current account deficit soared, ([9]) foreign investment dried up and wage rates rose. ([10])

 

“…Thailand’s financial system has been squeezed by bad loans, high interest rates, a cutoff in funds from lenders and a stock market that has plunged 57% from its 1996 high.“ ([11])  “Labor has become incensed at various government policy’s, and Thailand’s economic woes have spilled into the streets.”[12]  Speculators had attacked the baht, property prices plummeted, bad debts mounted and the country’s economy had braked sharply.  The battered Thai stock market continued in a downward spiral with no end in sight until very recently.  Thailand, not wanting to leave well enough along, exported its plague throughout the Pacific Rim and has been rewarded with its now apt sobriquet, “bahtulism.”

 

Banking practices in Thailand did not help to reverse the national crisis.  “Even when borrowers stop paying, Thai banks are allowed to keep booking interest for up to a year before they have to classify a loan as problematic - a longer grace period than allowed in most Southeast Asian countries.  Then once the necessary accounting work has been done, foreclosing can take years.

 

“You cannot quickly push anyone into bankruptcy,” says Donaldson Harman, banking analyst at Salomon Brothers.  “The judicial process is so slow, most of the bankers say it takes five years to force bankruptcy and liquidate assets.”  “That makes it all the more difficult to determine the ultimate exposure of banks and finance companies to the emerging property debacle.  Nevertheless, given the timetable for identifying problems, foreclosing of properties and selling off seized assets, its possible debt problems could drag well into the next decade.  “Here you start making Japanese comparisons rather than American ones,” says Harman. “Instead of seeing prompt corrective government measurers, we’re likely to see a continuing flow of bad news.”[13]



[1] Pad Gajajiva, Ray’s List of Weird and disgusting Foods.

[2] However, Bangkok has recently become overcrowded and many multinationals have moved out of the city and are now ensconced in more spacious factories in the surrounding regions.

[3] http://www.bdfm.com.za/cgi-bin/pp-print.pl

[4] Overview, Hill & Associates in Thailand

[5] Financial Service Liberalization in the WTO: Case Studies, Thailand, Institute for International Economics

[6] Ibid

[7] Share prices have declines in excess of 65% since early 1994. .

[8] “Estimates say from 30 to 40 percent of the more than 800 billion baht worth of property loans may be non-performing”, where borrowers have begun defaulting on interest payments. There are more than 300,000 unsold housing units in and around Bangkok, enough to meet demand of the next three or four years.” International Press Service, English News Wire 7/7/97 Satya Silverman.

[9] The current-account deficit is running 8% of GDP, the exact percentage Mexico ran before its collapse in 1994.

[10] Making Thailand a less attractive place for multinationals to invest in.  Because of the fact that Thailand’s population was substantially less educated than their Eastern Asian brethren, they are saddled with labor-intensive industries and thus are more directly effected by upward wage movements.  Other countries in the region, when wages soared they were able to compensate by moving in higher-value products.  Already there are signs of low-cost assembly businesses moving to Malaysia and the Philippines, where wages are lower.

[11] Wall Street Journal, Paul M. Sherer, A 12, 5/9/97.

[12] June 11, 1997, Asia Times.

[13] The Far Eastern Economic Review, 3/6/97, “State of Denial.”

 

 

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