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 ’ Capitalism — capital (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.  Capacity determined by level of autonomy and effectiveness of state agencies: bureaucracy & government (technocrats & politicians)  Autonomy = state ’ s policy/direction is not captured by dominant class/group  Effectiveness = ‘ getting thing done ’ Main Arguments

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 gov ’ t, due to pre- 1997 constitution, ‘ forced ’ it to use Mkt-led approach > state-led app., e.g. NPL transfer pricing between. Private FIs & state own AMC,   Mkt-led app. both for recapitalization & NPLs workout

7. Chuan’s gov’t 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.  Slow NPLs workout Weak bankruptcy law — watered downed by debtors-cum-senators: automatically allows a bankrupt person to regain their normal status after 3 years of the court ’ s 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 Chuan’s gov’t mkt-led app. outcome

9.  Slow NPLs workout FIs lacked of K to absorb losses from NPLs workout: to protect ownership  cosmetic method: rescheduling (min. ‘ haircut ’ ) > restructuring  reentry NPLs Chuan’s gov’t mkt-led app. outcome

10. NPLs of Financial InstitutionsUnit: Million Baht, % 1998 19992000200120022003200420052006 2,674,533 2,094,425 863,663 477,405 771,126 641,883 592,171 477,071 484,905 45.02 38.93 17.73 10.41 15.65 12.70 10.73 8.16 8.19 Source: BOT Slow pace of crisis solution; contraction of FIs ’ loan till 2002  slow econ recovery

11. Unable to build new mode of K accumulation (Thaksin Gov’t)  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 BOT ’ s Governor  FI supervision authority: Gov ’ t proposed new regulatory organization; Financial Services Authority (FSA)  All problematic original laws still intact after 10 years

12. Why did Thaksin ’ s gov ’ t want less independent BOT?  It was a real sector gov ’ t 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, Unable to build new mode of K accumulation (Thaksin Gov’t)

13.  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 gov ’ t Unable to build new mode of K accumulation (Thaksin Gov’t)

14.  Outcome of reform 10 years after

15. Excess liquidities continues Growth rates of Deposits & Credits (%)

16. Imbalances in capitals and credits allocations Sector 1988 – 20002001 - 31 May 2007 GD P securi ty cre d i tGDPbonds securi ty credi t Manu, Export, Import31.616.936.734.63.921.427.6 Services, Consumer Products, Utilities20.010.422.422.816.738.029.7 Wholesale, Retail16.52.016.715.17.10.416.2 FIs, Constructions, Real Estate12.167.321.19.372.440.024.1 Agricultures10.2-2.510.1--2.1 Mine4.13.50.62.8-0.10.4 Defense3.0--4.5--- Housing2.5--0.8--- รวมทั้งหมด 100. 0

17. 1959-19861987-19961997-19981999-2006 Output (growth %) 8.39.5-5.95 Investment (growth %) 11.115.1-32.47.6 Private (growth %) 9.815.9-41.411.9 Government (growth %) 17.414.1-9.39.6 Investment (% of GDP) 26.329.127.721.2 Private (% of GDP) 19.421.517.414.6 Government (% of GDP) 6.87.710.46.5 Investment & output still lower than the pre boom period

18. Most investments are replacement, not new investment  Share of Replacement to Total Private Investment (%) 1986- 1996 1997- 1999 2000- 2005 36.497.382.4

19. Productivity growth is lower than others

20. Future of Thai political economy  19 th September Coup: A royalist led coup against effective government  2007 constitution’s agenda is to produce weak government  slower economic growth than pre-boom period