Despite the Commerce Ministry’s Mama San’s comments yesterday, the figures for exports for January show a precipitous 26.5% decline on this time last year, with imports down more than 30%. These are the worst figures since the 1997 crisis and are likely to get worse – the impacts on western countries continue to mount and they are the markets to which Thailand was looking to send its exports. Many of the automobiles and electronic goods manufactured or assembled here are destined for other Asian countries and those exports will worsen as the economies in Asia suffer more and more.
Thailand is almost uniquely vulnerable to external economic shocks because of the need to spend 12% of GDP on importing oil and gas and the extreme openness of the economy (i.e. its reliance on exporting). One of the reasons that imports have declined so much is because a lot of them are worked on and then re-exported.
Job losses are, as sadly predicted, intensifying.
Around the world, meanwhile, people are starting to feel, it seems, less optimistic about the ways in which governments (led by President Obama) have put together stimulus packages to maintain liquidity and confidence, according to newly-restored Keynesian thought. Some institutions – notably banks and markets – are refusing to respond to these measures in the required way. In the absence of the obvious answer of taking these institutions into public ownership, it is possible that the measures will fail (although there is no data about what ‘success’ or ‘failure’ mean in this context).
If it does fail, then we will be condemned to a period of depression which may takes years to end (and much longer to repair the damage, with some of the human cost never able to be repaired). Eventually, obsolescence and decay will come to the rescue: people will eventually have to spend money on replacing their goods since cars and equipment will no longer serve and prevarication will no longer be an option. Yet that is a long time away.
The DG of the International Labour Organization, Juan Somavia, has observed that the emerging international financial crisis could lead to an additional 20 million people becoming unemployed – the figure around the world will rise from 190 to 210 million. Further, the number of people living in absolute poverty (less than US$1 per day) will rise by 40 million and those living in poverty (less than US$2 per day) by 100 million.
The sectors expected to be hardest hit in terms of employment include ‘construction, automotive, tourism, finance, services and real estate.’ These are all sectors which are important to Thailand – mostly it will be low-skilled, low-paid and low-value added jobs that will be lost. The tourism and related industries have recently been suffering significantly because of the PAD mob’s illegal occupation of government and the conflict on the Cambodian border. Since many jobs are informal or semi-formal in nature (e.g. family members no longer needed) it is difficult to know what effect has already been felt.
Thailand is a country suffering from what the World Bank calls the ‘middle income trap’ – that is, it emerged from non-developed into developing status through emphasizing exports and manufacturing based on low labour costs. This is successful up to a point (which has now been reached) but is not sustainable any further as rises in standard of living make low labour costs more difficult to obtain (especially because of the increased competition from China, Vietnam and India). It is also dangerous in that it renders the country very sensitive to what is happening in the rest of the world – the first thing that people do around the world when facing economic difficulties is to stop buying things and, in general, they stop buying imported goods first.
The Thai Rak Thai administration of 2001-6 attempted to deal with these issues when the painful memories of the 1997 crisis were still fresh. PM Thaksin aimed to reduce reliance on the outside world by developing domestic capitalists and empowering the poor through regional development at the village level, which also had the aim of reducing the incentives for labour migration and the social costs that entailed. Had those policies still been in force, Thailand could look at the current crisis with much more confidence. Alas, most policies were abandoned after the disastrous 2006 military coup and the current PPP government has been largely unable to implement similar policies because of the ongoing PAD protests. Indeed, courts have recently begun to decide that policies of redistribution as practiced by TRT with huge electoral mandates to do so are ‘unconstitutional.’
Exports are set to be higher than forecast in 2009, according to the Department for Export Promotion. That is good, of course, since more exports means more Thai goods being sold around the world and more jobs and money coming back here. Thailand exports agricultural products (including frozen chickens, shrimps, fruit and vegetables) as well as manufactured items.
The growth of Thailand’s economy since the 1950s has been based on promoting exports, encouraging inwards foreign direct investment and some substitution of imports, as well as access to western markets, particularly the USA, as a reward for fighting against Communism. This was the growth model approved for all developing countries by the IMF and the World Bank.
The 1997 financial crisis showed some of the weaknesses of this model. Southeast Asia as a whole has always been very open to international trade for many centuries. That has the negative effect that what happens in the rest of the world has a disproportionately strong impact on the home economy. There are other problems too: keeping exports competitive can lead to pressure to keep costs down and this has resulted in low salaries, exploitation of some workers and suppression of rights such as freedom of association and collective bargaining.
The Thai Rak Thai government of 2001 brought about some changes to the Thai economy with a view to trying to reduce the negative effects. The country was to remain open to the rest of the world but more resources would be given to domestic entrepreneurs and rural people to encourage the development of skills and create other export goods which rely on added value (i.e. something which people want because of what it is rather than just because it is cheaper than its competitors). Putting resources into rural regions also helped with poverty reduction during a difficult economic period while reducing the incentive for migration and the various social problems that caused.
The events of the next few months will be influential in determining whether this model will continue or whether it will be replaced and, if so, by what. Closing the country to international business or adopting an anti-business agenda would not be permitted by international markets but there are still many other issues to be resolved.