Thailand's finance minister, Prodiyathorn Devakula, said the new rules were meant merely to "close loopholes." But that's not how foreign business leaders saw it last week, when he briefed them in Bangkok on plans to revise the country's investment restrictions. They viewed the move as starkly protectionist, according to one participant. In the tense discussion that followed, the visitors peppered the minister with pointed questions, warning that the measures could be challenged at the World Trade Organization. "There's a fundamental philosophical gap," said the source. "It became obvious we were getting nowhere."
When Thai generals toppled the elected government of Thaksin Shinawatra last Sept. 19, they did so in the name of halting the turmoil that had gripped the country for the last year. But though the daily street demonstrations may have ended, the euphoria that followed Thaksin's fall has now been replaced with a sense of profound confusion. The return to normalcy promised by the junta leaders has failed to materialize, and policy blunders, persistent coup rumors and a recent spate of unsolved bombings have heightened uncertainty.
The problem may be that the generals are simply inept and their Western-trained technocrats past their prime. But a close look at the economic agenda of Surayud Chulanont, Thailand's interim prime minister, suggests something else is at work. Since his appointment last October, the former general has introduced measures to halt the Westernization of Thai society, downsize the role foreigners play in the economy and maximize "happiness," not growth, as he put it. Surayud's blueprint draws inspiration from the country's highest authority: 79-year-old King Bhumibol Adulyadej, the world's longest-reigning monarch. His Highness has long advocated "sufficiency" in Thai life, meaning humility, simplicity and living within one's means. Others have a different name for it: "Buddhist economics."
The king's theory rejects the overheated, speculative growth that made Bangkok a boomtown 10 years ago but came to a crashing halt during the 1997-98 Asian financial crisis. And it casts Thaksin's bold development initiatives as dangerous adventurism. "Thaksinomics" offered the rural poor a shot at upward mobility through low-interest loans, low-cost medical care and policies that encouraged farmyard capitalism--measures, coup leaders argue, that set up Thailand for another debt crisis. Sufficiency, by contrast, advocates three related tenets--moderation, rationalism and "self-immunity"--to buffer Thailand from the shocks of globalization. Outlined in "Sufficiency Economy and Human Development," a study published last week by the United Nations Development Program in collaboration with senior Thai economists, "it is the modus operandi for [the] government's efforts to promote human development," as Surayud wrote in the foreword.
Little wonder foreign investors in Thailand are sensing a "philosophical gap." Increasingly, they seem to be falling victim to a major assault on Thaksin's policies and, by extension, the export-led growth model that has driven most East Asian economies since the 1960s. Sufficiency proponents include conservative generals uncomfortable with one-person, one-vote democracy; nationalists eager to reduce the role of foreign businesses in Thai markets; and the Bangkok elite, which is unhappy with the way Thaksin mobilized poor farmers into a sturdy electoral base. By linking new policies to the monarch, who under Thai law is inviolate, these powerful groups have managed to ward off virtually all debate. "Sufficiency is multilayered: it's a philosophy, a way of life, a potential policy platform and context for the [Sept. 19] coup" says political scientist Thitinan Pongsudhirak, director of the Institute of Security and International Studies at Bangkok's Chulalongkorn University. "But the government's effort to convert it from concept to policy has been very problematic."
King Bhumibol has long advocated agrarian reform. In his New Theory, articulated in the early 1990s, he espoused "the bucolic peasant life," writes Peter Handley in his new biography of the monarch, "The King Never Smiles." During the 1997 financial crisis, the king famously chided those who "thought Thailand would become a little tiger, then a bigger tiger," declaring, "being a tiger is not important," and "we have to take a careful step backwards."
Since the late 1990s, a small group of retired officers, bureaucrats and economists have worked to codify the king's ideas into a unified economic theory--the very one now embodied in the UNDP report and in Thailand's latest five-year development plan. They say it represents a "middle path" between excessive globalization and inwardness, between unbridled capitalism and the welfare state, and between "backwardness and impossible dreams," as the UNDP report puts it. One main aim is to mitigate "the inevitable boom-bust cycles" that haunt many developing economies, says Wisarn Pupphavesta, a senior economist at the Thailand Development Research Institute. "I accept that it goes against neoliberal consumer capitalism," says an economist with close ties to the monarchy. "But we must choose a new way of life."
The UNDP calls sufficiency Thailand's unique response to the threats all globalized countries now face, such as the loss of political sovereignty, overdependence on international markets, environmental degradation and the growing gap between rich and poor. Yet one well-respected Thai economist, asked last week what the theory signified, chuckled nervously and blurted out: "It beats me!" He asked not to be identified for fear of being seen as attacking the king, but explained: "It's a counterpoint to Thaksin's style of things. He was a bit of a tiger type." The generals, he said, had, in contrast, embraced sufficiency with "a puritanical streak."
That would explain Surayud's first act as prime minister: a bungled attempt to raise the drinking age and ban all liquor ads. Soon after, he also halted a national lottery introduced by Thaksin. Then on Dec. 18, Thailand's central bank imposed stringent capital controls to stem the baht's appreciation, triggering a 15 percent drop on the local stock exchange and forcing the generals to partially rescind the controls. The net effect of these missteps has been infectious uncertainty. "I got a call from a member who said his bank in Hong Kong is refusing to make transfers into Thailand," says Judy Benn, executive director of the American Chamber of Commerce in Bangkok. "That was two days ago."
Last week's revision of the 1999 Alien Business Act further frazzled investors. It places new limits on outside participation in the Thai economy and could, according to trade groups in Bangkok, force more than 10,000 foreign investors to divest their Thai holdings or cede control to local partners. The proposed rules are murky--certain industries, such as manufacturing, would be exempt, as would U.S. investors, who are protected by a U.S.-Thai treaty. The fate of Shin Corp., the family conglomerate Thaksin sold to Singapore's Temasek a year ago (setting off the political crisis that ultimately led to the coup), remains uncertain. And there's always a chance that the government could back down yet again.
Still, many observers have concluded that one of Southeast Asia's most attractive economies--which has boasted growth of 5 percent or better since 2000--is now backsliding badly. Since the coup, the Thai Stock Exchange has become one of the world's most sluggish. Even the Thai press is now pushing the limits of new censorship rules to denounce Surayud's policies: the Bangkok Post's lead editorial last Wednesday accused the generals of fiddling with regulations that were "part of the reason why Thailand is what it is today." Entrepreneurs are also unhappy. "They're obviously in the middle of a fundamental change in [their] political structure," says one non-Thai small-business owner, who asks not to be named for fear of reprisal. "It will discourage investment and lower competitiveness. They're mixing business with politics."
The junta's underperformance has also given rise to an unanticipated counterforce: Thaksin nostalgia. Foreign businesses now look fondly on the Thaksin era as one of stability, growth and relatively clean government. The deposed leader's rural supporters remain with him, suggesting he would win an election if it were held tomorrow. And as the generals delay the speedy return to civilian rule they promised after the coup, the pro-democracy forces who once opposed Thaksin are now turning on Surayud and demanding immediate elections.
All of which provokes the question: what was the junta's true agenda when it took power? Repealing the country's 1997 Constitution, which was one of Asia's most democratic, was one likely goal. Thai conservatives are now preparing a replacement, which may keep generals at the helm. Another objective was to derail Thaksinomics and its encouragement of Thailand's rural masses. The alternative is an economic philosophy based on Buddhist tenets that eschews consumer capitalism. "Interpreted conservatively, sufficiency theory serves to reinforce the status quo," observes one local scholar. Perhaps a Thailand divided into a well-heeled urban elite and a permanent rural underclass is the "middle way" the generals have had in mind all along.