Five years on, Thailand crawls out of crisis as it struggles to reform

Five years after Thailand floated the baht and triggered a disastrous regional economic crisis, analysts say plenty has been achieved, but to make the most of the current recovery reforms must go on.

As a recovery fuelled by consumer spending and an ambitious government stimulus package kicks in, economic growth predictions for 2002 have been boosted to up to four percent, a far cry from 1997 when the economy contracted by around eight percent.

Still, not everyone is enjoying the nascent upturn.

"Things were much better then," says language-school owner Tanimnan Janluan of the pre-crash days.

"I could charge students more and make money more easily. Five years ago most of my students were sent here by Japanese companies. Now they are Japanese students looking for jobs and they don’t want to pay as much."

And analysts are warning that growing optimism must not hinder reforms that the crisis period showed were crucial.

"There is not that much appetite left for reform — people are saying the economy is recovering well and we should take advantage of that," says Supawud Saichua, head of research at Merrill Lynch Phatra Securities.

"You have seen Thailand do some of the right things, but some of the things that have been too tough we have not tackled yet," he adds.

Nevertheless, Supawud says Thailand has tackled key reforms over the past five years — beginning with the baht itself.

"The most important thing was that the baht was floated, and that gave Thailand a more flexible exchange rate so we could adjust it rather than defend it by losing a lot of money," he said.

The decision by the central bank on July 2, 1997 to abandon the fixed exchange rate regime in place since 1986, in favour of a managed float, represented a de facto devaluation that drove the currency down 15-20 percent in a single day.

From 25-26 baht to the dollar where it had hovered for a decade, it now sits at about 42 to the greenback, after making handsome gains in recent months.

Thailand’s travails helped expose the deep deficiences in the so-called "tiger economies" and caused a crisis of confidence that swept the region.

Indonesia, South Korea, Thailand, the Philippines and Malaysia were most affected by the turmoil which prompted massive International Monetary Fund bailouts. Thailand accepted one totalling 17.2 billion dollars.

But things are now — cautiously — looking up.

"One of the main problems was there was too much investment, but over the past five years we have used up that excess capacity," says Supawud.

Prudential banking requirements have also become tougher, he says.

Banks have "instituted new credit standards and are looking to be much more concerned about cash flow, whereas before they were only concerned about collateral value," he says, adding that the banking sector has now probably recognised some two-thirds to three-quarters of its losses.

Corporates have downsized their assets and improved their debt-to-equity ratios from around 2.5 in pre-crisis times to 1.5, Supawud adds.

Thanawat Patchimkul, head of research at DBS Vickers Securities, agrees that the economy has improved.

"Sometimes it’s so gradual that we don’t notice it, but if we compare this time to right after the floating of the baht, we’re stronger," he says.

International reserves are up from 27.0 billion at the end of 1997 to 35.8 billion dollars, and outstanding non-performing loans (NPLs) have dropped from a peak of 45 percent to just over 10 percent.

Thanawat also says the structure of the country’s external debt — both public and private — has improved, with substantially more becoming long term.

"Even though we have had difficulties in the past few years, we are still paying off the external debt," he said.

But remaining reforms are still needed, and corporate governance in particular must be improved, according to Thanawat.

"Governance has improved quite a lot since the crisis but in the eyes of foreign investors it might not be enough," he says.

Manufacturers must also improve their productivity, and financial institutions need to increase their competitiveness, he says.

Many say that high public debt — which has exploded from 35.3 percent at the end of 1997 to 53.5 percent — must be carefully monitored.

"We have already reached the ceiling of public debt that the Thai economy can bear," Chulalongkorn economics lecturer Sompop Manarangsan says. "I don’t think the Thai government has much room for pursuing this sort of fiscal stimulus any longer."

Amendments to financial laws that proved woefully inadequate during the crisis, such as bankruptcy and foreclosure laws, are also yet to be passed.

"The last government tried very hard to have these laws amended but they still got stuck," says Sompop.

Nevertheless, compared to other countries who have suffered massive crises such as Argentina, analysts believe Thailand has struggled through relatively unscathed.

"We’ve come through the crisis very, very well … There was no violence on the streets and that demonstrates the country’s political, social and economic strength," Merrill Lynch’s Supawud says.

"We should capitalise on that and move forward."

Venice of the East fights its own watery future

The criss-crossing canals that once earned Bangkok the moniker "Venice of the East" have long gone, but the city still draws one comparison with its famed Italian cousin: it too is sinking.

"Bangkok is sinking at varying rates throughout the city… The settlement rate can be more than 12 centimetres per year in the worst areas of Bangkok," says structural engineer Geoffrey Warnes.

Venice has sunk around 23 centimetres (9 inches) over the last century, studies estimate.

Built on the swampish banks of the Chao Phraya River, Bangkok’s top layer of soft clay soil is an engineer’s budgetary nightmare.

"Bangkok has some of the worst clay in the world," says Vithaya Punmongkol, a civil engineer working with the Mass Rapid Transit Authority of Thailand, which is currently constructing a subway system for Bangkok and her 10 million people.

The first 15 metres "is of the most concern to us because it cannot bear much of a load from above", he says.

The subway and its stations, therefore, are being built 20 metres underground, he explains, compared to subways built on more stable ground only going down ten to 15 metres.

"It costs more, of course," he says. "The deeper you go, the more expensive it is."

The challenges can be just as great above ground.

The problem set in around 20 years ago: As Bangkok’s population exploded, buildings shot up and pumps went to work searching for groundwater in lieu of a piped water supply.

"The geotechnical conditions upon which Bangkok is founded are the main reason for settlement. However, artesian water withdrawal exacerbates the situation," structural engineer Warnes adds.

Somkid Buapeng, chief of the groundwater technical and planning section of the Department of Mineral Resources says authorities soon recognised the problem of subsidence could be traced mostly to groundwater pumping.

"After we knew it was due to overpumping we started the mitigation of land subsidence by controlling the amount of groundwater pumping," Somkid says.

Today, Somkid says, the department does not allow pumping where piped water supply is distributed. In the areas where the problem has been brought under control, subsidence occurs at just under one centimetre per year.

However the pumping persists. According to the Ministry of Industry, some 2.2 million cubic metres of water is pumped from the depths of Bangkok each day, allowing the soil above to gradually depress into the earth below.

Flooding that brings Bangkok’s concreted canals back to life and the chaotic city to a standstill is the result.

Teeradej Tangpraprutgul, deputy director of the Bangkok Metropolitan Administration’s drainage and sewerage department, explains that Bangkok’s average land level is about one metre above sea level.

"But given high tides and the rainy season, the water levels of the Chao Phraya can be about 1.7 to two metres (above sea level). During a very high tide, the level can be 2.1 metres," Teeradej says.

The city is fighting back.

"We have many flood protection facilities according to a masterplan. So if rain is in normal range, 60 millimetres per hour, we can protect the city. But sometimes it happens to be 100 millimetres or more than that, which isn’t normal … but we are pretty sure we can drain the water within two hours," Teeradej says, adding that in 1983 some areas remained flooded for two months.

Long-term Bangkok resident Aaron Frankel says the city’s fight has bred some success.

"I remember when I was in high school, having to ride a bicycle down the street to get there as there were no other vehicles that could," he says.

"Flooding has gotten way better … In a strong storm now it will go up for four, five, maybe six inches, which is a pain — it splashes you and you have to take off your shoes off to walk through it — but it’s not as bad as it was," he says.

The protection comes at a cost. The Technical Service Centre of Chulalongkorn University estimates that in 1998 flood control cost the BMA a stunning 20 billion baht (476 million dollars), although Teeradej says this seems on the high side and may have included capital works.

The centre estimates that the annual cost for maintenance and repair of structural damage to buildings due to subsidence was more than two billion baht (47 million dollars) for 1998, while the cost of filling land before construction was about 13 billion baht (305 million dollars) per year.

Further evidence of subsidence can be seen in the extra steps — or the lack of them — leading up to skyscrapers and pedestrian bridges where the ground has literally slipped away as foundations have safely held firm.

Jim Bhandhumkomol, deputy director general of the BMA’s Public Works Department, describes the situation as "quite serious".

"It is quite a serious problem because it (the unstable soil) can create very large differential settlement in structures, as you can notice from approaches to bridges," he says.

Re-laying the approaches to some 500 bridges in the Bangkok road system every two to three years is one of the maintenance jobs subsidence creates, Jim says.

And he doesn’t expect the maintenance to ease up anytime soon.

"It will take years before the subsidence can be significantly reduced. It’s quite a big problem to solve."

New Asian regional forum to launch amid scepticism of usefulness

Thirteen Asian foreign ministers are to gather Tuesday evening to launch the inaugural Asian Cooperation Dialogue (ACD), a brainchild of Prime Minister Thaksin Shinawatra that sceptics fear will prove to be just another regional talking shop.

The Thai premier has invited foreign ministers from 17 other Asian countries to attend the dinner at his holiday residence in Cha-Am, a seaside resort town 150 kilometres (93 miles) south of the capital.

Some 13 foreign ministers have confirmed their attendance at the historic talks — including Japan, China, South Korea and Singapore — while four will be sending other ministers.

Myanmar, with whom Thailand’s relations are currently strained due to tension along their common border, reportedly declined its invitation.

The real substance of the ACD is scheduled for Wednesday, with a half-day of free-form talks aimed, the government says, at strengthening cooperation among Asian countries.

"We want to strengthen cooperation among Asian people. Secondly, (we want to) eradicate poverty, and (examine) how to increase or enhance the potential of Asia," government spokesman Yongyut Tiyapairat said over the weekend.

"We have much more than half the population of the world and much more than half the world’s reserve funds. How should we manage our high potential?"

The ACD will be unlike other regional groupings as it exclusively involves all Asian countries, Yongyuth said.

"This is the first time the whole of Asia will talk," he said.

"It’s not about politics. It’s only about social and economic (issues), much more than security or politics."

The only concrete outcome from the ACD is expected to be a statement issued by Thailand following the talks, reports said.

Academics and the local press are unsure that such a casual session of chatting, which pointedly excludes issues of controversy, will be worth the effort at all.

Political scientist Khien Theeravit told the Nation newspaper that Thailand doesn’t need to spend millions of taxpayers’ baht on a dialogue that has no clear objective and overlaps existing regional mechanisms.

"Fine, we can take it for granted that everybody likes to have cooperation, but what kind of cooperation, and how to make it benefit all?"

A Bangkok Post editorial Tuesday also questioned how a forum with no agenda could succeed.

"The premier hopes it will establish his first foreign policy triumph. But many wonder how a high-level talkfest with no agenda can succeed," the paper said.

"If the dialogue issues a general, meaningless statement, this week’s first meeting of the group is likely to be the last," it concluded.

Thaksin’s diplomatic experience is also being called into question.

"It is ironic that Mr Thaksin is promoting — or launching — his foreign policy reputation on the basis of an international meeting," the Post editorial said, pointing to Thaksin’s complaints about United Nations "interference" in Myanmar’s problems and Thailand’s lack of participation in groupings such as the Association of Southeast Nations (ASEAN) Regional Forum, the Asia-Europe meeting APEC.

The 17 countries invited by Thailand include the 10 grouped under ASEAN, which are Brunei, Burma, Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Vietnam, along with China, Japan, South Korea, India, Pakistan, Bangladesh, Qatar and Bahrain.

All countries who have responded are sending foreign ministers, except Brunei, India, Indonesia and Pakistan.

Japanese tourists taste real Thai bullets

Japanese tourists have discovered that Thai holidays can be about more than just cheap shopping and snoozing on tropical beaches: shooting guns at Thai military ranges has become a popular new diversion.

"There are so many Japanese tourists coming to Bangkok — if they want to do some shooting and some sightseeing, then that’s the Thai military’s business," says Akiro Shimura, a former colonel in Japan’s Self-Defence Forces who runs a company offering trips to the ranges.

Firing guns with real bullets can be near-impossible for those outside the police and military in Japan, says Akiro.

"They (the Japanese) don’t know much about the military," he says — Japan has only been permitted to maintain a self-defence force since World War II — but shooting is "very interesting" to them.

Tosaka Kazuhumi, 30, sought out a shooting trip precisely because it’s easier to do in Thailand than back home.

"It’s a good opportunity to do an activity that is difficult to do in Japan," he says, adding that he has already seen various temples and a crocodile farm during his eight-day holiday in Bangkok.

"And as a leisure activity in a foreign country, it’s not too expensive," he says.

Since last July, up to 150 tourists per month have been descending on Akiro’s tiny cluttered office in the basement of one of Bangkok’s largest shopping malls.

It’s an unlikely public relations outlet for Thailand’s military, nestled between a mobile phone shop and a fortune-teller. Replicas of guns mounted on the wall provide the only hint of Shiro Corporation’s services.

Some 70 percent of the tourists who come to wield weapons are Japanese, says Nobuhiro Munakata, one of four workers at the office.

Another 20 percent are other Asians, and the remainder are Europeans. Most are beginners, and nearly all are men.

"But now young Japanese girls like to come too," Nobuhiro says.

Chinese women are also curious about packing heat, he adds. "They will come with their husbands — but they don’t want to shoot."

A sum of 3,000 baht (70 dollars) buys marksmen 50 bullets to shoot on three handguns: a .38 special, Luger 9mm and .45 calibre.

It also includes the return trip to a firing range, a Japanese or English-speaking guide, and one-on-one instruction from a member of the Thai military.

A session kicks off at the office with a mini-lecture.

"All guns are real and the bullets are real," Nobuhiro reminds the class. "Only point the gun at the target … These are professional Thai military men (instructing). Do what they say."

If you do, Nobuhiro reassures, shooting will be "safer than golf or tennis".

Fifteen-minutes drive away at one of the ranges, the plain-clothed Sergeant Major 1st class Wattana Ketkomol gives a demonstration, cleanly shooting a watermelon, Coke can and rapidly-melting block of ice in a cloud of acrid gunsmoke.

"People ask for moving targets like in Hollywood, but we don’t have those," Nobuhiro apologizes.

Instead tourists shoot at standard human silhouette targets.

"We hope that customers can study guns — it’s not just for fun. They can compare the differences between how they fire. They can’t study this from the movies or TV," Nobuhiro says.

Shiro is tapping into a move made by the military units two years ago, says Major General Adisak Kaenkaew, director of the Army Tourist Office which opened in 2001.

"Over the last two years it has been the policy of the government to let tourists … see some parts of some units," says Adisak.

This means plenty of activities — parachuting, abseiling and canoeing — are now available to the public at units across the country, for a fee.

The trend has caught on, Adisak says, but it’s more about public relations than profits.

"We don’t think much about the money — we opened the units because it’s the policy of the government," he says.

Chulachomklao Royal Military Academy in Nakhon Nayok, 107 kilometres northeast of Bangkok — where Shiro hopes to start running new tours soon — was the forerunner of the program, opening in 1998.

It is an outdoorsman’s paradise, their tourist office reckons, with everything from kayaking and golf to bird-watching and camping available.

Most visitors are Thai nationals, but that could change.

Adisak says 40 Japanese high school students are planning a long-term stay with the military, split between the Academy and a camp west of Bangkok.

"It would be the first time we let foreigners inside this unit," says Adisak.

Meanwhile Shiro is also developing a tour to the King’s Guard, which is part of the national cavalry. Horseriding, stable visits and a spell in a stationary tank are on the agenda.

"We’re asking the military police to let the tank move at the moment. But there won’t be any shooting," a downcast Nobuhiro says. "It’s very expensive."