Unfinished Business Troubles Thailand
A group of young Thai professionals, enjoying a dinner at Christmastime in one of Bangkok’s fanciest restaurants last year when times were still flush, casually ordered a $160 bottle of Mouton Rothschild.
The bouquet didn’t much appeal to them, however. They soon ordered Coca-Cola, orange juice and Seven-Up, then mixed the wine in with the soft drinks, recalled Dutch businessman Edny van den Broek, who was at a nearby table. When they left, there was still wine in the bottle.
Today, such excess is rare. As troubles rip through the Thai economy--a punctured real estate bubble; a financial system crisis; sharp depreciation of the national currency, the baht; swelling unemployment; and accelerating inflation--the national mood is perhaps best captured by Bangkok’s acres of eerily silent, half-built or unsold housing developments.
The sense that this nation of 60 million was a “fifth tiger,” rapidly joining the newly industrialized ranks of Singapore, Taiwan, Hong Kong and South Korea, has suddenly dissolved into a morass of disappointment, self-doubt and public anger at politicians who are almost universally blamed for high-level corruption and economic mismanagement.
And there is wounded pride: Thais are humiliated at having accepted a $16.7-billion bailout led by the International Monetary Fund--including a loan from their much poorer neighbor, Indonesia.
“When I heard that Indonesia gave $500 million,” business owner Vorachan Vinyarath said, “I felt so ashamed, so embarrassed.”
Spreading Meltdown
In the world’s interconnected economy, Thailand’s meltdown spread this summer like a wild contagion through most of Southeast Asia, forcing hefty devaluations of once-stable currencies and triggering the collapse of stock markets from Manila to Kuala Lumpur, Malaysia.
The sudden wave of self-doubt--and even more serious, the flight of panicky foreign investors--marks the end of an era of dizzying growth in Southeast Asia.
The ramifications of this will cross oceans. For Americans, imported consumer goods from the region--and from other countries that hold down prices to stay competitive with Thailand and its neighbors--are already becoming cheaper.
But with Southeast Asian consumers’ purchasing power slashed, Japanese firms are likely to divert even more of their exports to the United States, said Kenneth Courtis, chief economist for Deutsche Bank Group in Tokyo. That is likely to lead to a worsening U.S. trade deficit with Japan and growing trade frictions, he said. All this could work against profits for U.S. firms, disappoint Wall Street and send U.S. stock prices tumbling.
But Thailand is where the troubles are deepest, the angst greatest.
Said Nithet Tinnakul, a sociologist at Chulalongkorn University: “Before, I think Thai people were proud. They thought we were quite successful. But now everything’s just collapsed. You cannot sell houses and condominiums because people do not have enough money. Cars cannot be sold, yet they will have to raise the price because of the devaluation of the baht.”
Thailand’s problems are rooted in too much overseas borrowing, much of it used for speculative investments in real estate, plus growing competition in export markets from lower-wage countries such as China.
Earlier this year, plunging property prices created a massive bad-loan problem threatening the stability of Thailand’s financial system. Worsening trade figures invited global currency traders to mount a speculative attack on the baht, which led to its devaluation on July 2 and a further downward economic spiral.
The new realities are visible at places like the Paulaner Brauhaus, a German food and beer joint that a few years ago became a prominent hangout for well-paid young Thais. One recent evening, barely a third of the tables were filled.
“It’s uncomfortable for me to say, but I don’t have as much income as you’d expect,” said Piyathep Keeratirattanaluck, a financial credit officer who was once a regular patron but now comes just once a month and spends about $12.
Bad times have reached down to people like Natthawat, 39, a power company repair worker who spends nights and weekends at a sidewalk stall helping his wife, Nanthawan, sell soft drinks and a kind of Thai crepe called khnom buang.
Hard to Earn Money
“We used to sell several thousand baht worth (more than $100) per day,” Natthawat said. “From the beginning of this year it’s been something over 1,000 baht, and these days it’s down to about 800 to 1,000 baht, or even less. I think people are having a harder time earning money.”
From 1985 to 1995, Thailand had one of the fastest-growing economies in the world. Now most analysts are projecting growth of 2% or less this year and next. Some say the economy could shrink.
Last week, the Bangkok Post ran an article headlined “2.9 million risk losing jobs by December.”
That would be one out of every 10 workers.
The new mood is reflected in a banner outside a Chrysler showroom that advertises two-year financing at zero percent interest, part of a summer campaign launched because of sagging industry-wide sales. The effort fizzled.
“In the past two months, sales have dropped about 40%,” a supervisor said. “People are not sure about their personal finances, so they don’t want to spend a lot of money.”
Chrysler prices in baht have not even been raised yet to reflect the currency’s fall, but soon they will have to jump by more than 10%, putting further pressure on sales, she added.
The baht has dropped about 30% against the dollar since its devaluation.
The crisis afflicts not just auto sales but manufacturing as well. Thailand has become an important builder and exporter of vehicles, especially of Japanese nameplates, and Toyota has predicted its production here could tumble by 30%.
Dutch businessman Van den Broek, the managing director of Hagemeyer (Thailand) Ltd., said his company’s sales here--which include imported wine, cosmetics, kitchen appliances and industrial chemicals--will drop this year to about half of last year’s $24 million.
Choochart Thongkam, 46, owner of the Roong Roj Tour Travel Center Co. Ltd., has seen his small firm nearly destroyed by baht devaluation, rampant economic insecurity and new austerity rules banning government bureaucrats from holding meetings in resort towns.
Choochart initially had contracts to provide tours to 700 customers in August, in five groups, including four tours for hundreds of government employees. The government tours were canceled because of the new rules banning “seminars” outside the workplace. The fifth tour was dropped when a company canceled its plans in order to save money in the economic downturn, leaving Choochart with no clients.
“This year I just want to survive,” he added. “I don’t think it will be better next year either, because this is the worst I’ve seen in 20 years in this business.”
Watchara Anunrojwong, 36, owner of Double A Creation Co. Ltd., a jewelry designer, manufacturer and exporter, is the kind of businessperson who by economic theory should win from a weaker baht, which boosts the international competitiveness of Thai products. In the short run he is indeed benefiting. But he too is scared.
“Exporters have no complaints,” Watchara said. “But for the long term, if the economy is not good, everybody loses.”
The problem for Thailand is that Watchara--like many others who might be in position to benefit from new opportunities but are spooked by economic fears--plans to sit on his money rather than invest in large-scale expansion.
In that sense, he is not much different from U.S. mutual fund investors who are bailing out of Southeast Asia, even though stocks in Thailand, Malaysia and the Philippines can be had for less than two-thirds their price of just eight months ago.
Lack of Confidence
“We are not really confident of the situation right now,” Watchara explained. “The government is not stable. The baht is not stable. If I have money now, I don’t invest. We keep it in the bank.”
Conversations about the economy in Thailand turn constantly, almost inexorably, to discussions of politics, especially a proposed new constitution that many people hope will clean up politics and reignite the economic miracle.
A key provision of the proposed charter--which was drawn up by a panel with some appointed legal experts and a majority of elected members--is a ban on members of parliament serving simultaneously as cabinet ministers. Backers hope that the rule will cut down on what is widely perceived to be the practice of politicians buying votes, then trying to cash in from government positions to get that money back plus more.
The proposed constitution has polarized the country, though a political compromise struck Monday appeared to improve its chances and caused stocks to rally. Parliament is scheduled to vote on the issue later this month.
“One thing I think is important is the need for trust in our financial institutions and even Thai politics,” said Boonchai Jakraworawut, associate creative director of the advertising agency McCann-Erickson (Thailand) Ltd. “We feel we can’t trust them anymore. I blame the whole economic system, and not just this government, but the government before that, and the one before that.
“And the Thai people themselves are spoiled. When the economy was growing fast, they spent more and more. They paid for imported brands. . . . People just looked ahead, but didn’t take care of their backs. When this kind of situation happens, people feel it’s unbearable, a shock. Yesterday you were rich. But today you have to be poor.”
* * HANGING ON IN BANGKOK: For importer, the future means cheaper wallpaper. D1
