A marketing Ph.D. has a bold strategy to revive the Thai economy-if a lending crisis and sputtering growth don’t get him first.
By Kevin Hamlin
September 2001
Institutional Investor Magazine
Two years before foreign currency traders pricked Thailand’s bubble, Somkid Jatusripitak saw the end coming. In 1995, as Thailand was about to post its sixth successive year of 8 percent-plus GDP growth, Somkid, a local business professor, warned that the country’s leading companies were borrowing too heavily to produce still more of the low-cost electronic goods, semiconductors and petrochemicals that they were shipping abroad. Speculative foreign money, he noted, was puffing up the Stock Exchange of Thailand, and overleveraged real estate developers and marketers were driving local property prices through the roof. Thailand’s apparent prosperity wasn’t going to last, Somkid wrote in Manager magazine. In his view, the “little dragon,” as the country’s vibrant economy was known, would shortly be exposed as a “little monkey.”
As Somkid had predicted, Thailand soon proved virtually defenseless as foreign speculators drove down its currency, the baht, by 25 percent in July 1997. Overseas investors fled, taking almost 325 billion baht ($7.2 billion) out of Thailand in the second half of 1997. The Thai stock market, which held up well initially, later succumbed to the weakening economy, losing a third of its value over the next two years. Fifty-eight finance houses, mostly mortgage lenders and securities brokers, closed their doors, and the government took over seven enfeebled banks. Thailand ultimately required a $17.2 billion IMF bailout to stay afloat, and the country’s central bank lost an estimated $35.9 billion in foreign exchange reserves trying in vain to defend its currency. So devastating was the blow to Thailand’s financial institutions and businesses that its once-robust economy contracted by 9 percent in 1998.
Four years after the meltdown, Thailand has not recovered: It’s one of only two Asian economies (Indonesia is the other) with a GDP below precrisis levels. The World Bank estimates that 55,000 debt restructuring cases remain unresolved, and the nonperforming-loan ratio of Thai banks is an astronomical 17.6 percent, nearly three times the precrisis level. In developed nations like the U.S., the proportion of nonperforming loans rarely exceeds 1 percent, even in the toughest times. Thailand’s creditworthiness among the world’s economies has fallen from 32nd in 1997 to 51st this year in Institutional Investor’s country credit ratings.
Now it’s up to Somkid, the former National Institute of Development Administration graduate school professor who predicted the crash, to try to solve Thailand’s huge economic problems. Following the biggest electoral landslide in Thai history, billionaire populist Thaksin Shinawatra’s Thai Rak Thai (Thais Love Thais) Party came to power in January with a mandate to reform Thailand’s economy and restore its competitiveness. Somkid, a close friend and adviser to the wildly popular, controversial new prime minister as well as a co-founder of the victorious three-year-old political party, was named finance minister in February.
Somkid, a student of and later a co-author of several books with Northwestern University Kellogg School of Management marketing professor Philip Kotler, promises that Thaksin’s administration will deliver no less than a complete transformation of the Thai economy. “The economic and social pillars of Thailand are not strong enough or flexible enough to cope with future challenges,” he says. “This country has not been reformed for more than 20 years.”
True to his word, Somkid, 48, is making changes and challenging the consensus view. The time-honored East Asian economic model says that developing Asian countries should take advantage of their cheap labor by supplying inexpensive goods to multinational corporations that can then sell them to the West. Asian countries, starting with postwar Japan and later Taiwan and South Korea, have stuck to this export-driven formula - with, until recently, much success. Today, however, faced with China’s seemingly limitless supply of cheap labor and its growing access to foreign capital, Somkid wants to travel a different path. “It’s not right if your economy has to depend only on exports,” he says. “This theory is wrong. You must have a balanced economy.”
To complement Thailand’s dominant export businesses, Somkid wants to develop a thriving core of small and medium-size local businesses. He’s pushing an aggressive lending program, including the creation of a bank to channel funds toward small business. He also wants to revitalize Thailand’s moribund small-cap stock exchange and to privatize many small and large businesses. This domestically aimed reform package, coupled with the 52-year-old Thaksin’s occasionally antiforeign rhetoric, has unnerved international investors and bankers as well as local politicians, who fear that Thailand may be veering off on a nationalistic course that will isolate it from the rest of the world. Worse, they worry that Thaksin, the richest man in Thailand, with a net worth estimated at $1.4 billion, may prove to be an autocrat who undermines the country’s democratic institutions.
Somkid dismisses such fears. The intent of the diversification plan is to distinguish Thailand from its regional competitors and allow it to add value, rather than compete solely on the price of its labor. “Our strategy is differentiation, not cost leadership,” says Somkid, co-author with Kotler and Booz, Allen & Hamilton consultant Suvit Maesincee of an influential 1997 book, The Marketing of Nations: A Strategic Approach to Building National Wealth.
Before Somkid can put his theories to a real-world test, he must contend with Thailand’s current woes. If he can’t drastically reduce Thailand’s roughly B1.3 trillion in nonperforming and other troubled loans, accelerate economic growth in the midst of a global slowdown and find a way to pay for Thaksin’s expansive social programs, Somkid is not likely to find out whether there truly is a better path to development in Asia. He must hurry. Thaksin, who made his fortune by building Shin Corp. into Thailand’s dominant telecommunications company, must stand for reelection in 2005. Many analysts think it will take at least that long just to work through all of the remaining bank loan problems.
The time is so short and the task so daunting that two other prominent Thais are said to have turned down the finance minister position before it was offered to Somkid. In a recent interview with Institutional Investor, he pointed to his office chair and chuckled: “This is a cold seat. No one wants to sit here.”
The most pressing challenge for the new finance minister is to ease Thailand’s financial gridlock. For three years creditors and debtors have haggled over who was responsible for the crisis peak of B2.8 trillion in nonperforming loans that overwhelmed the country’s financial system. Although the most generous estimates say the banks and other lenders have written off or otherwise disposed of up to 55 percent of the bad loans, the heated debate over how to jump-start new lending touches on most of Thailand’s major political and economic issues.
To begin with, the nation faces a severe credit crunch. Merrill Lynch Phatra Securities Co. strategist Therapong Vachirapong estimates that of Thailand’s 200 largest debtors, only half can service their obligations. Wary of extending new lines of credit to these and other borrowers, banks have curtailed lending. At the end of the first quarter of 2001, private banks were sitting on excess deposits (beyond the minimum liquidity level required by the central bank) of B1 trillion, more than twice the level of a year ago.
Debtors, in turn, have transformed the banks’ growing liquidity into a political cause, claiming Thai financial institutions are too rigid in following the Bank for International Settlements’ global bank capital guidelines. A prominent nationalist, politician and advocate for the debtors, Meechai Ruchupan, asserted in one Senate debate in 1998 that “bad creditors have caused firms to fail.” Meechai has also stirred up antiforeigner passions by repeatedly questioning whether it is “worth the effort trying to revitalize the economy if everything ends up in foreign hands.”
The inability to get banks to lend and debtors to pay up contributed heavily to the failure of Somkid’s predecessor Tarrin Nimmanahaeminda, who became a liability to his Democrat Party. The public turned against him, and by the time elections neared in January, Tarrin’s party had distanced itself from its finance minister, too, making it clear that deputy party leader and former minister Abhisit Vejjajiva would lead economic policymaking if the party remained in power in a new administration.
In any event, Thaksin won, thanks largely to his nationalist platform. Thaksin’s rhetoric on the dispute between lenders and borrowers has unsettled many foreign investors and bankers, who fear that the prime minister will trample on legal rights to build his own political base. Thaksin has criticized the BIS’s capital adequacy requirements, saying their imposition on banks “had caused tremendous suffering for the poor in developing countries.” And he’s gone beyond mere words. Not long after making these comments, he fired widely respected Bank of Thailand governor Chatu Mongol Sonakul. The central banker was pursuing a low-interest-rate monetary policy to try to spur economic growth. Thaksin and Somkid believe that higher rates are needed to stop capital outflows and stabilize the baht.
In an interview with Institutional Investor, Chatu Mongol’s successor Pridyathorn Devakula doesn’t hesitate to blame international standards for some of Thailand’s woes, insisting that Thai banks should not be overly reliant on Western models of risk assessment. Thai lenders had become too risk averse, he adds, because the central bank formerly acted “like a policeman” in enforcing the BIS guidelines. At times, says Pridyathorn, the Bank of Thailand would approve bank loans and then blame the bankers if something went wrong later. “Bankers don’t want to approve loans and then one day be sued for malpractice. This is the situation that infringes on them now.” The new central bank chief says, “If we change the environment, they [banks] will gradually change from too risk averse to a normal kind of risk-taking venture.”
Some foreign bankers and investors say that Pridyathorn’s initiatives, which Somkid supports, remind them of the lax central bank enforcement before the crisis. During the reign of Chavalit Yongchaiyudh’s New Aspiration Party, almost a quarter of all bank loans went to real estate projects in the years leading up to the 1997 crash. “Pridyathorn’s comments [about easier enforcement] will go down really well with institutional investors, won’t they?” says one prominent local banker sarcastically.
In this politically charged atmosphere, Somkid has unveiled the Thai Asset Management Corp., whose brief is similar to that of the Resolution Trust Corp., created to clean up the U.S.'s savings and loan mess more than a decade ago. The government agency, whose broad powers were approved by the Thai parliament in June, is slated to buy up to B1.2 trillion in nonperforming loans from state-owned and private banks. It will pay net book value for the loans, or the rough equivalent of the loans’ collateral value (private banks have already written off or provided for 100 percent of the uncollateralized portions of their loans). In place of the loans, the banks will get a non-transferable ten-year guaranteed bond that pays a rate of about 3 percent, or roughly the banks’ cost of funds.
The premise behind the TAMC is simple: Buying the bad loans will strengthen the banks’ balance sheets and allow them to lend again; it will also free corporations from unprofitable and unproductive assets and make them more creditworthy borrowers. Somkid, mindful of the embarrassing end to Tarrin’s tenure, is pushing TAMC hard, hoping to get the banking problems under control as quickly as possible. By the end of August, B300 billion to B400 billion in bad loans were due to be transferred to the TAMC, with an additional B300 billion to B400 billion to come in September and the remainder to follow within six months.
Despite the quick start, the TAMC’s broad powers, some of them extralegal, have raised questions about the Thaksin administration’s intent. The TAMC has the power to bypass court procedures and the right to approve every aspect of a debt restructuring arrangement. What’s more, its officers are immune from prosecution. If debtors do not cooperate with the TAMC, it can compel the courts to foreclose on collateral or personal guarantees without further investigation.
These unprecedented powers prompt Ammar Siamwalla, a distinguished economist at the country’s leading think tank, Thailand Development Research Institute, to compare the TAMC to a “declaration of martial law” in suspending certain constitutional and legal rights of debtors. A group of senators is challenging the legitimacy of the TAMC in court, arguing that it is unconstitutional.
Critics worry that the TAMC could easily become a potent political weapon, allowing Thaksin and his Thai Rak Thai Party to reward their friends and punish their enemies. Chris Baker, a former academic and co-author of Thailand’s Crisis, warns that if the TAMC’s powers are abused, debt forgiveness could become “a device that gives the government the opportunity to incentivize certain businessmen by giving them a head start over their competitors.” A senior executive at an international investment bank says the TAMC is based on two flawed assumptions: “One, that the government is more efficient than the private sector, which has never been true. Two, that government is clean, which has never been true.”
Somkid bristles at such criticisms. “Many people attack me and say, ‘If you give extralegal power to only 12 or 13 people, how can you trust them?’” he says. The powers of the TAMC are extreme measures needed to confront an extreme problem, in his view. “We don’t have any choice. It has been more than three years now, and the rate of recovery [of bad loans] is only 11 or 12 percent. How can you make it like this?”
The finance minister’s arguments on behalf of the TAMC’s far-reaching powers were not helped by Thaksin’s legal difficulties this past summer. The National Counter Corruption Commission, an independent, state-run agency that monitors corruption in the public and private sectors, charged the prime minister with failing to report about $100 million worth of shares in 17 of his companies when he declared his assets in 1997 and 1998. He was at the time deputy prime minister. Thaksin had never denied that his housekeeper, maid, chauffeur, security guards and friends held these shares, though he owned them. His oversight, he said, was “an honest mistake.”
In August Thailand’s Constitutional Court, a three-year-old tribunal that handles alleged violations of the country’s constitution, acquitted Thaksin in an 8-7 verdict that baffled many legal experts. Of the ten cases heard by the Constitutional Court to date, only Thaksin, who faced a five-year ban from politics, has been found not guilty, which raised eyebrows. “The grounds on which Thaksin was tried were very similar to those of others who were found guilty, and yet he is found not guilty,” says Somchai Homlaor, a lawyer and secretary-general of the Bangkok-based Asian Network for Free Elections, a nonprofit group that champions democratic rights. Somchai adds, “The credibility of the Constitutional Court was badly damaged by this case.” Thaksin, some of whose supporters had predicted rioting if the prime minister was convicted, only heightened the concern when he said dismissively afterward, “The case caused Thailand to waste time.” If he had been convicted, he added, “it would have shown there was something wrong with our Thai legal system.” He also promised to rein in the powers of the NCCC and the Constitutional Court.
Although initially supportive, some bankers began to have concerns about the TAMC when the government gave Meechai, the former senate speaker and outspoken pro-debtor advocate, a leading role in drafting legislation to govern the body. Central bank governor Pridyathorn says the original draft of the law, written by Somkid’s Ministry of Finance, was “totally pro-creditors” and that Meechai’s input was sought so “that debtors wouldn’t be overpowered by creditors.” Meechai’s involvement made it easier to push the law through parliament, Pridyathorn adds. For the present, however, Meechai’s role and the TAMC’s all-powerful position have raised questions about whether the agency will be evenhanded in its debt collection.
For deputy Democrat Party leader Abhisit, the operation of the TAMC also raises an overriding question about Thai Rak Thai: Can it make tough decisions? A raft of feel-good, sugarcoated policies that promise many Thais concrete benefits and new hope drove its electoral success. But what Thailand needs now, say some, is a government willing to enforce discipline and capable of persuading its people that substantial pain will be needed to work their way out of the current mess.
That has not been Thaksin’s message to date. The prime minister has promised a three-year debt moratorium for farmers, B1 million to every village in the country and a health care scheme allowing up to 18 million people to get medical attention for just B30 a visit. All this, estimates TDRI economist Ammar, will add to Thailand’s budget, already in deficit, up to B60 billion a year, or 6.6 percent of its total expenditures. “My concern is that the prime minister has never demonstrated in any instance a willingness to make hard decisions that might go against people who have a strong voice given their previous economic or social status,” says Abhisit. “Often they succumb to the temptation of giving hope too easily.”
A more direct solution, says Abhisit, would be to enforce existing bankruptcy and foreclosure laws more rigorously. “The TAMC is being set up under an atmosphere where a number of debtors, rather than seeing this as an opportunity for restructuring, feel they are just going to have their burden taken off them,” says Abhisit. Given the banks’ improving liquidity, they may simply not want to lend to uncreditworthy borrowers, particularly without adequate protections in a bankruptcy.
The whole process is going to take time to resolve itself. “Bankers aren’t lending because of a cyclical downturn and deep-seated structural problems. Businesses need to restructure and improve governance and transparency, and the legal framework needs strengthening if banks are to find a mode that will allow them to enter into the market without incurring the losses they faced in the past,” says Chulakorn Singhakowin, head of the Thai Bankers’ Association and president and CEO of Bank of Asia. “The problem is that people see this [the TAMC] as part of a panacea,” says Kosit Panpiemras, executive chairman of Bangkok Bank and an adviser to Thaksin. “In reality, I cannot see that it will achieve results as quickly as people are expecting now.”
Somkid could more firmly establish the credibility of the TAMC with the appointment of a highly regarded executive to run it. As of early August, however, this was another “cold seat.” Thanong Bidhya, a former finance minister who turned down an offer to oversee the agency, remains a temporary caretaker. Until a permanent head is appointed and the debt collection process gets under way, the questions about the TAMC’s operating style and goals will persist.
It’s a tough spot for any finance minister, let alone someone who has been a teacher and adviser for most of his career. Somkid, whom some believe was reluctant to accept the post, has no background in banking, and his government experience has been behind the scenes. He was an adviser to Thaksin when his friend served as foreign minister and deputy prime minister in the mid-1990s. He served as secretary to Thanong for a few months in 1997 when the caretaker TAMC head was finance minister, and also to his own brother, former commerce minister Som Jatusripitak, during the same year. While a professor at NIDA in Bangkok from 1985 to 1998, Somkid was a consultant and director to several major Thai corporations and institutes, including the Petroleum Authority of Thailand, PTT Exploration & Production and the Stock Exchange of Thailand.
Somkid’s father, who was from China, fell on hard times when he tried to start a business in Thailand, and his son’s studies were supported by scholarships and an uncle. Somkid received an economics degree from Bangkok’s Thammasat University in 1972 and an MBA in finance from NIDA in 1976. He completed his Ph.D. at Kellogg in 1985. His father’s experience left a lasting impression on Somkid, one of 11 children. “It was good for us because I still remember how hard my father worked, and I still remember how tough is an entrepreneur’s life,” he says. “Once he was not rich, all the children worked hard, studied hard. If my father were a millionaire, I’m not sure I would have the drive to study.”
Kotler, who describes the Thai finance minister as an “exceptional” Ph.D. candidate, noted this intense focus early on. In fact, he grew concerned that Somkid, who lost weight and looked like he wasn’t getting enough sleep while he labored on his dissertation, was either pushing himself too hard or running out of funds for food. Kotler, regarded by some as the “father of modern marketing,” became worried enough to inquire if Somkid needed money. “I will be fine,” his young prot?g? assured him.
The two met when Somkid was a student at Kellogg in the early 1980s. The doctoral candidate decided to pay an unscheduled visit on his marketing professor after reading one of his books. Because Kotler had so little time available, Somkid camped outside his office. When he knew Kotler was in, he knocked on the door and quickly asked him to supervise his dissertation. Kotler handed him a paper he had written, “Strategic Global Marketing: Lessons from the Japanese,” and told him to come back another time to talk about it. Somkid spent the next month writing and returned with a lengthy paper of his own. Shortly thereafter Kotler sent it to Prentice Hall for publication. The paper became the basis for their joint 1985 work, The New Competition: Meeting the Marketing Challenge from the Far East, which analyzed the sources of Japan’s then-potent economy.
The second part of Somkid’s brief, the reform of Thailand’s export-driven economy, is no doubt closer to his heart than the battle over the TAMC. What Somkid envisions is a more resilient, diversified system that can withstand “external shocks” of the sort that proved so devastating in 1997. Last year nearly 60 percent of Thailand’s GDP came from exports, most of which are manufactured by huge multinational corporations with large operations in Thailand, companies like the American General Motors Corp., Procter & Gamble Co. and Colgate-Palmolive Co.; the Anglo-Dutch Unilever; and the Japanese Sony Corp. and Fujitsu.
Somkid wants to promote exports through these and other companies (exports rebounded by 20 percent last year), but neither he nor Thaksin want Thailand to be so dependent on them. Pansak Vinyaratn, Thaksin’s chief economic adviser, says: “There’s no question we have to have internal growth to bridge the problem of a contracting world economy. If your GDP depends on exports, you’re dead. By looking inward we are trying to stabilize our growth.” Focusing so much of the country’s resources on supplying inexpensive goods to the rest of the world only leads to competition against nations like China on the price of labor.
One of the core tenets of The Marketing of Nations is that a country should be run like a company (Thaksin often refers to himself as the CEO of Thailand Inc.) and use strategic marketing to identify and then capitalize on its comparative advantages. Among the areas analysts say Thailand should focus on are tourism, agricultural products, food processing, toys, textiles and ceramic products, all Thai strengths. By developing these categories, Somkid would like Thailand to “move up the value chain” so that it can charge higher prices for its goods and create its own powerful brand names.
Somkid sees small and medium-size enterprises playing a pivotal role. One of his first initiatives is the SME Development Bank of Thailand, which will specialize in lending to these businesses. The prime minister’s cabinet in June approved amendments that upgraded the Small Industry Finance Corp. to full bank status. Industry Minister Suriya Juengrungruangkij, who will oversee the operation, will have B2.8 billion in capital to start; that will grow to B7.8 billion in 2003. The bank aims to lend B200 million in its first two years of operation. At the same time, Somkid has already ordered the country’s state-owned banks to lend B100 billion to SMEs.
Somkid also promises to reinvigorate the two-year-old Market for Alternative Investment, Thailand’s equivalent of Nasdaq, as a means for these smaller companies to be brought public. As yet the market has no listings, though three companies recently received approval to go public in the near future. In a similar vein, Somkid’s finance ministry in August made a renewed bid to attract venture capital investment in fledgling businesses by exempting private equity funds from capital gains and dividend taxes.
In tandem with efforts to overhaul the country’s economic strategy is a privatization program of unprecedented scale. Somkid says six state-owned enterprises - Internet Thailand Co., Thai Airways International, the Petroleum Authority of Thailand and three banks (Krung Thai Bank, Bangkok Metropolitan Bank and Siam City Bank - are to be privatized this year, and an additional 12 by 2003. The World Bank says that if Somkid’s plan is accomplished, it would represent “one of the fastest and most dynamic case-by-case privatization efforts of large-scale enterprises.” Can he make that target? “This is a crisis; you must manage by stretching,” he says. “That means you put the figure out, and everyone must work hard for it.”
Somkid’s program to diversify Thailand’s economy is already encountering roadblocks. Some critics contend that SMEs will make even less attractive loan candidates than the larger companies. Most skeptics cite a recent World Bank report noting that “large numbers of [Thai] SMEs are believed to maintain alternate sets of books for various stakeholders.” Others contend that it will take many years and hundreds of millions of dollars to upgrade education and management training before Thailand can make these industries capable of competing on the international stage. Even then there’s no guarantee of success.
And, once again, Thaksin’s comments haven’t helped. To make his program work, Somkid needs to maintain his relationships with foreign multinationals to sustain his export base. In March Thaksin said that Thailand must cease being a “slave to the world” by making brand name products for foreign multinationals with “the larger portion going to owners of the brand names.”
Such comments only served to prompt allegations in the local and foreign press that Thailand’s internal development program was a means of boosting Thaksin’s domestic political standing at the expense of global relationships. Somkid denies all of these suggestions: “It’s wrong. Look at Thaksin: He is educated in a Western country [the U.S.]; he is a private entrepreneur. Look at me: I studied economics, I went to Kellogg, Northwestern University. When I came back, I am a professor teaching business administration and consulting in the private sector. How can we look inward?”
Thailand’s approach has begun to win supporters as well. Daniel Lian, Southeast Asia economist for Morgan Stanley, agrees that the East Asian economic model has caused many Asian countries “to be stuck in a vicious cycle of offering cheap labor to produce industrial goods for the rest of the world.” That single-track model gave Thailand no pricing power on its exports but “bred excesses that eventually led the kingdom to the devastating 1997 crisis,” because it encourages excess investment in production capacity and unproductive assets, Lian says. The Morgan Stanley economist says the policies of Thaksin and Somkid “deserve careful analysis,” because they mark an “important first step toward the emergence of an antithesis and the eventual dismantling of the EAEM.” Should Thaksin and Somkid make progress, Thailand’s neighbors “could well jump on Mr. Thaksin’s bandwagon and pursue alternative development strategies,” says Lian.
Can they deliver that progress? Fiery speeches and ambitious social programs will buy only so much time. Some analysts warn that Thailand is following some of Asia’s bigger counterparts on a downward spiral. “We’re already in the middle of a Japan-style crisis that has lasted four years,” says Kenneth Ng, head of research at ING Baring Securities (Thailand) in Bangkok. “I don’t see Thailand wringing these problems out of its system for at least another two or three years.”
With global growth slowing and Thailand’s exports again falling, Somkid’s projection of 2.5 percent growth in GDP for this year is looking very suspect, and his five-year forecast that GDP will grow to 4 percent next year, 5.3 percent in 2003, 5.6 percent in 2004 and 6 percent annually for the subsequent two years may also need to be revised downward. Without substantial economic momentum behind him, the finance minister will be hard-pressed to sort through all of the country’s problem loans before the end of Thaksin’s term. And the impact of his broader plan for a more diversified Thai economy will likely be delayed much longer than that. Even so, Somkid’s bold experiment will be closely watched to see if it opens a new path to Asian development. Don’t forget - politicians, analysts and investors who didn’t listen to Somkid in 1995 paid a huge price.
Selling Thailand
Thailand’s finance minister, Somkid Jatusripitak, doesn’t just want to accelerate his country’s GDP growth; he also wants to create a more resilient economic structure that’s able to withstand external shocks like the 1997 Asian financial crisis. Although critics say his plan is too isolationist and nationalistic, it offers one of the first alternatives to Asia’s time-honored development model, which is to produce inexpensive exports using cheap labor. Will it work? Somkid, a marketing specialist, believes that diversification is the only way to prevent the kinds of setbacks most of Asia suffered four years ago. He recently spoke with Institutional Investor Hong Kong Bureau Chief Kevin Hamlin in Bangkok about his program’s merits, among other issues.
Why would a former marketing professor be an appropriate choice as finance minister of Thailand?
To reform this country you cannot be a specialist. You must know a large dimension: finance, banking, the industrial and service sectors, for example. To help propel Thailand and create new wealth, the key is not only financial instruments but marketing, especially if you want to get Thailand out of the crisis. Exports are declining globally, and the government has limited resources to spend. So the important thing is local consumption. You have to make people confident in the fundamentals of this country and make foreign investors confident in you. This is marketing. My boss [prime minister Thaksin Shinawatra] and I also have the same kind of thinking: that the crisis of this country is not a financial crisis. It has to do with lost competitiveness. If you want to reform this country and make it more competitive, you must have strategic marketing. What kind of industry do you want to focus on? What strategy do you use to move into this industry? It’s marketing strategy.
Why emphasize the development of small and medium-size enterprises?
In developed countries the key engine of growth is the SME, not the large corporation. But Thailand’s economy has been concentrated in the hands of a small group of big corporations. When the foundation of the economy is not strong and a storm comes, a crisis is inevitable. So we have to change this economy, push the competitiveness of the nation. You must start from the grass roots and build more SMEs to be your new tax base. But you cannot ignore the engine of growth, all the big companies. You must promote them, make them stronger so that they can compete globally. It’s balanced growth. What we want now is to stabilize the economy. If anything happens outside, at least we must retain our stability.
Many foreign investors say your emphasis on strengthening the domestic economy is too inward-looking. Are they right?
That’s a wrong interpretation. Look at the books I wrote: The New Competition and The Marketing of Nations. Not even a single word supports “inward-looking.” This is the era of globalization. Some people use the word “self-reliance” to describe our strategy. That’s wrong. I use the words “more balance.”
The government recently issued a decree saying foreign consultants should be hired only if local firms cannot do the work. Is that antiforeign?
Don’t worry about that. I have a recommendation that anything that Thai people can do you should let them have a chance to do. But if they cannot do it, foreign investors can join. And I promote joint participation with foreigners.
Is Thailand emphasizing the domestic economy because of the global slowdown?
The IMF team came to see me recently and said things would be better for Thailand when the world economy gets better. I said, “Don’t worry, I think we are lucky enough that since we took office we have put more balance on the local economy.” It’s not right if your economy has to depend only on exports. This is the wrong theory. And export-led economy is wrong. Our strategy is that we must have a more balanced economy. And what I want is a stable growth economy - quality, not quantity oriented. I will not be satisfied with a high GDP growth figure. What kind of GDP is very important, what kind of production led to this GDP. If the production base is on a limited industrial sector, I don’t want it.
Is the Thailand Asset Management Corp. going to kick-start bank lending?
I believe it can produce results. As the liquidity in the banks is injected back into the industrial sector [after all the nonperforming loans have been transferred out], it will start moving.
Are people right to worry that the TAMC’s extensive extralegal powers could be abused?
We have to make it transparent. So I promised the Senate that I will ask all the TAMC directors to disclose their assets. They have to come to the Senate to inform, to answer questions. If you don’t give them extralegal power, how could they manage? You must give them legal powers, but you must inspect them. That is the key.
