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

Weak State and Political Economy of Thailand: Ten Years after the Crisis. Apichat Satitniramai 25/2/2008. Introduction. Crisis destroyed old mode of K accumulation; Bankers ’ Capitalism — capital (credits) allocation and Investment coordination Re-form = building a new form of accumulation

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

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  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. Main Arguments • 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’

  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. Chuan’s gov’t mkt-led app. outcome • 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

  9. Chuan’s gov’t 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’) > restructuring  reentry NPLs

  10. Slow pace of crisis solution; contraction of FIs’ loan till 2002  slow econ recovery NPLs of Financial InstitutionsUnit: Million Baht, % Source: BOT

  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. Unable to build new mode of K accumulation (Thaksin Gov’t) 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,

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

  14. Outcome of reform 10 years after

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

  16. Imbalances in capitals and credits allocations

  17. 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 constitution’s agenda is to produce weak government • slower economic growth than pre-boom period

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