There are reasons to believe that the US state department reads this newspaper. After the last Bare Talk column on Indonesia appeared, secretary of state Hillary Clinton visited Jakarta. OK, enough self-indulgence. It is highly unlikely that she is going to Bangkok where Bare Talk went next.
Over the last three years, Thailand has been in the news most of the time for the wrong reasons. It was political turmoil followed by military coup, botched elections, re-elections, protests, airport siege, resignation, another government, capped finally by the inhuman treatment meted out to refugees on the boat from Myanmar.
Combined with the global downturn, these have the potential to hurt tourism receipts, one of the chief export drivers for Thailand. The country’s January exports slid 26% year-on-year, more than expected. At first glance, people do not think of Thailand as an export-driven economy as much as Singapore, Taiwan and Korea are. But, partially because there was not much autonomous growth in domestic investment and consumption, the export share of GDP rose to high levels, leaving the economy vulnerable to the global downturn.
Signs of political spring are in the air. But instability is not too far away, as former prime minister Thaksin Shinawatra has not given up hopes of returning to the country and recapturing the seat of power.
Views on the former prime minister straddle the extremes. Some hail him as a policy innovator who genuinely tried his hand at domestic demand through many schemes that boosted rural purchasing power. This signalled a shift in power from urban Bangkok to rural Thailand; hence the elites conspired to remove him from power.
The other view is that he hankered after power and the other trappings that went with it, culminating in a tax-free sale of stake in Shin Corp. to Singapore’s Temasek. That is what triggered the riots. As always, the truth will lie somewhere in the middle.
Thailand has to face up to questions over its long-term economic future, once the current crisis ebbs. It has to find its economic niche. Malaysia and Thailand will have to face up to competition from Vietnam eventually: Vietnam is in the same state of development but, arguably, with greater potential than Thailand or Malaysia had 20 years ago, owing to its high literacy rate, commodity endowment and a favourable demographic profile as well.
The present government’s response to the crisis gives rise to the hope that it would respond creatively to existential challenges, too. The government has decided to distribute around 2,000 Thai baht (Rs2,800) in cash to each worker who earn less than 15,000 baht monthly. Its success will be closely watched. Some call it a political ploy to wean away the supporters of Thaksin. But, for us, it is an interesting economic experiment and one that makes a lot of sense. If private demand is weak and if the economy is operating below potential, the best thing to do is to help private demand revive rather than substitute it with public spending.
The Thai currency has held up well in these turbulent times compared with the Korean, Indonesian and Malaysian currencies. Since the collapse of Lehman Brothers, the dollar-baht exchange rate has appreciated only by 3%, compared with 35% for the Korean won and 28% for the Indonesian rupiah. The Indian rupee, the Singapore and Taiwan dollars, too, have performed worse than the baht. In the short term, it signals the risk of greater weakness in the baht than other currencies.
Indeed, if one looks back since China did a modest revaluation of the yuan in July 2005, the Thai baht has lost competitiveness against most other Asian currencies. That only increases the burden on exporters and the need to take productivity more seriously than before. Thailand has its task cut out.
Stock investors are giving the benefit of doubt to Thailand this year. The Thai stock market is one of the better performing Asian markets this year. On many measures, the Thai stock market appears rather cheap. But then it has been so for quite some time. If political stability holds up a little longer, perceptions will begin to change. The Thai stock market might be on the verge of being attractive.
At least the good news is that Thai stocks have such a high dividend yield (something that Indian corporations would do well to take note of) that even if earnings decline and dividend yields drop by 50%, the dividend yield would still be higher than long-term interest rates in the country.
Thailand has a long way to climb back to respectability after the events of the last several years. Once done, it has to decide on what would keep the nation of at least 63 million well fed, well clothed and well sheltered in this century. The payoff will be substantial if the government pulls it off. Investors are going to be short of good investment opportunities in the years ahead.
V. Anantha Nageswaran is head, investment research, Bank Julius Baer and Co. Ltd in Singapore. These are his personal views and do not represent those of his employer. Your comments are welcome at firstname.lastname@example.org