Thai Military’s Grip on Business Is Still Strong : Commerce: Senior officers have lost political power, but they still play a big role in the economy.

Outgoing Prime Minister Anand Panyarachun has made good use of the retreat the Thai military has made since the violent demonstrations in May to trim the role of military leaders in business affairs, but analysts say the process of reform is just beginning and cannot be expected to be smooth.

Anand, a diplomat turned businessman, was appointed by King Bhumibol Adulyadej in June after a violent clash between the military and pro-democracy demonstrators led to the resignation of military strongman Suchinda Kraprayoon, who became prime minister in March. Anand had previously served 13 months as prime minister following a 1991 military coup.

The military is involved in business in a myriad of ways. Reducing its role in state industries was a key issue in the Sept. 13 elections.

Besides giving military leaders an extra paycheck, seats on state enterprise boards have afforded them an array of perks they have long considered a just bonus for their national service.

More importantly than perks, however, the huge contracts these enterprises let out for infrastructural projects carry with them the potential for kickbacks.

“The Anand Administration has used the May incident to break the influence of the military in state enterprises and, of course, it annoys them--but there is a limit to how much they will take,” notes a foreign military analyst.

There is “growing resentment” against these moves, Gen. Saiyud Kerdpho, former supreme commander of the Thai armed forces, warned in a newspaper editorial, because “many in the military regard these actions as just another shift in the political spoils system.”

This will be reinforced if noticeable levels of corruption return to the state enterprises--as well as to the key ministries--under the new government, analysts said.

Democrat Party leader Chuan Leekpai, who is expected to become prime minister in a coalition government, is considered a relatively honest politician but many analysts say the pressure from his supporters, as well as those from other parties, will likely result in favoritism.

“Right now the military has to swallow it (their loss of control over the government), but they are just laying low waiting for the politicians to screw up again,” says the analyst. “Unless the politicians can get their act together, the military will return as the dominant force again.”

Most notable among Anand’s targets was Thai International Airways. After several years of political interference by the Air Force, it posted its first operating loss in 1991 and had sunk from the league of other regional stars, such as Hong Kong’s Cathay Pacific Airways and Singapore International Airlines.

The Air Force launched the national flag carrier with the help of Scandinavian Airline System (SAS).

Under Anand, the Air Force was stripped of its automatic lock on the chairmanship of the airline board and its representation cut from seven seats to two, out of fifteen.

Another target was the Army-dominated Telephone Authority of Thailand (TOT), which was accused of awarding a multibillion-dollar “sweetheart” contract to politically connected Charoen Pokphand Group (CP Group), an agricultural-industrial conglomerate with no previous telecommunications experience.

During Anand’s first administration, his straight-shooting communications and transport minister, Nukul Prachuabmoh, renegotiated the 25-year deal under new terms that saved the government $8 billion.

Following the May incident, Army Chief Gen. Issarapong Noonpackdi, who served as TOT board chairman, was ousted, along with other officials.

About the same time, the interior minister, Gen. Anan Kalinta, was removed from his post as chairman of the board of the Communications Authority of Thailand (CAT), where he was busy dispensing contracts in excess of hundreds of millions of dollars.

Although these moves to dampen its control were significant, the military has hardly been eliminated from the state enterprise sector.

Among new members appointed to the TOT board is an Army general. And Thai International will continue to draw on Air Force pilots and engine experts.

The most important fount of the military’s financial clout is its $3-billion budget.

Despite the fact that the military budget represents nearly 20% of the national budget, there has never been significant civilian oversight of defense expenditures, which are widely believed to be riddled with corruption.

“Everything has a commission attached, between 10%-50%,” says a Thai businessman familiar with the military’s spending.

A huge military buildup in recent years has generated personal fortunes of tens of millions of dollars for many senior officers, sources say.

The military-business nexus is particularly strong in the provinces. These alliances provide much of the military’s political base in parliament.

The military has manpower far in excess of its real defense needs and, with barely adequate pay, moonlighting is rampant.

Military analysts say up to 40% of senior officers have no identifiable responsibilities.

Many of those without family wealth devote most of their time to running businesses--security firms, hotels, construction firms, golf courses. Often these are operated collectively, with officers from the same military academy class pooling resources.

In the provinces, commanders have virtually a free hand to pursue business. Especially lucrative are the border provinces, where taxes on interstate commerce yield handsome supplementary income.

Companies controlled by active or retired military officers figure prominently in harvesting natural resources or investing in neighboring countries.

The 30% military-owned Thai Military Bank has been one of the most successful Thai banks, setting up branches in neighboring Indochina and Burma.

The new Army chief, Gen. Wimol Wongwanich, has won praise for curbing the political interference of the military, but many were disappointed that the recent annual reshuffle he engineered did not seem to advance the reform Anand had started. Infantry division commanders regarded as bearing some responsibility for the events in May were transferred but were not demoted.

Although regarded as honest, Gen. Wimol has not committed to trimming the military’s business activities. In a recent interview, he said he was unaware of corruption in the military.

“He seems to be treading a fine line between professionalizing the military withbout interfering in their other activities,” said a Western military analyst.

Still, in the future the military will be operating in a more politicized environment.

This was evident by numerous leaks to the local press from a demoralized Thai International staff about alleged irregularities committed by senior Air Force officers involved in the airline.

It is also evident by a new political activism among business people.

Besides contributing campaign monies to political candidates they viewed as honest and progressive, businesses--including some multinational firms--funded political advertising.

One long-term problem, say critics of the military, is that despite previous attempts to restrict the size of the armed services, the military academy is still graduating far more officers than there are essential positions.