Weak State and Political Economy of Thailand: Ten Years after the Crisis

1
Weak State and Political Economy of Thailand Ten
Years after the Crisis

• Apichat Satitniramai
• 25/2/2008

2
Introduction

• Crisis destroyed old mode of K accumulation
  Bankers Capitalismcapital (credits) allocation
  and Investment coordination
• Re-form building a new form of accumulation
• Main Qs what is the new form? is it success?,
  why?

3
Main Arguments

• Weak state ? unsuccessful reform (case of
  financial sector)? Slower econ growth
• Weak state low capacity (ability) of state to
  negotiate and collaborate with strong societal
  actors, esp dominant econ class. Or low
  institutionalized capabilities for guiding
  sectoral changes, e.g. coordinating Investment,
  upgrading industries/sectors.

4
Main Arguments

• Capacity determined by level of autonomy and
  effectiveness of state agencies bureaucracy
  government (technocrats politicians)
• Autonomy states policy/direction is not
  captured by dominant class/group
• Effectiveness getting thing done

5
Unsuccessful Reform

• Slow pace of crisis solution, both in FIs
  capitalization and NPLs workout
• Unable to build rules (laws) for facilitating
  neoliberal new mode of K. accumulation
• Legislative failures of 3 basic laws Bank of
  Thailand Act, Financial Institution Act, Deposit
  Insurance Act.

6
Slow pace of crisis solution (Chuan Government)

• Political weaknesses (lack of autonomy) of the
  govt, due to pre-1997 constitution, forced it
  to use Mkt-led approach gt state-led app., e.g.
  NPL transfer pricing between. Private FIs state
  own AMC, ?
• Mkt-led app. both for recapitalization NPLs
  workout

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Chuans govt mkt-led app. outcome

• Voluntary K support of the state for FIs a
  backstopping plan
• Failure big banks refused to join want to
  protect their control ownership ? inadequate K
  for absorbing losses from NPL workout ? slow pace
  of workout

8
Chuans govt mkt-led app. outcome

• Slow NPLs workout
• Weak bankruptcy lawwatered downed by
  debtors-cum-senators
• automatically allows a bankrupt person to
  regain their normal status after 3 years of the
  courts ruling, hence would be freed of any debt
  obligations shortened the bankrupt period by at
  least 9 years. ? inadequate threat against
  debtors to workout debts with FIs

9
Chuans govt mkt-led app. outcome

• Slow NPLs workout
• FIs lacked of K to absorb losses from NPLs
  workout to protect ownership ? cosmetic method
  rescheduling (min. haircut) gt restructuring ?
  reentry NPLs

10
Slow pace of crisis solution contraction of FIs
loan till 2002 ? slow econ recovery

• NPLs of Financial Institutions Unit Million
  Baht,

Source BOT
11
Unable to build new mode of K accumulation
(Thaksin Govt)

• Legislative failures of 3 basic laws Bank of
  Thailand Act, Financial Institution Act, Deposit
  Insurance Act
• Main issue of conflicts, teachnocrats VS
  politicians political autonomy of BOT i.e.
  level of central bank independence
• Appointing dismissal of BOTs Governor
• FI supervision authority Govt proposed new
  regulatory organization Financial Services
  Authority (FSA)
• All problematic original laws still intact after
  10 years

12
Unable to build new mode of K accumulation
(Thaksin Govt)

• Why did Thaksins govt want less independent
  BOT?
• It was a real sector govt who captured the state
  used state power for benefiting its
  constituencies, cronies inner circle
• Further amend bankruptcy law in favor of debtors
• State direct credits picking winner
  industrial policy,

13
Unable to build new mode of K accumulation
(Thaksin Govt)

• Thai state under Thaksin was further weakened. It
  was directly captured by a new dominant
  capitalists from real sector.
• But, the executive branch of the state as an
  organization was strengthened by the 1997
  Constitution, ? more effective govt

14

• Outcome of reform 10 years after

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Excess liquidities continues Growth rates of
Deposits Credits ()
16
Imbalances in capitals and credits allocations
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Investment output still lower than the pre boom
period
18
Most investments are replacement, not new
investment

• Share of Replacement to Total Private Investment
  ()

19
Productivity growth is lower than others
20
Future of Thai political economy

• 19th September Coup A royalist led coup against
  effective government
• 2007 constitutions agenda is to produce weak
  government
• slower economic growth than pre-boom period