The Financial Crisis and Thailand


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.’