Blank cheque for Thai PM to turn economy 'Japanese'

BANGKOK - Thaksin Shinawatra has a lot of currency - literally. Thailand's businessman turned Prime Minister is a billionaire. Forbes magazine ranks his family as this nation's second richest.

Now Thaksin has another kind of currency: political. The 55-year-old was re-elected in a landslide this week and his Thai Rak Thai party did so well that the opposition may as well shut up and go away.

The results offered few immediate clues for investors wondering what Thaksin's strengthened position means for Southeast Asia's second-biggest economy. Yet they're part of a troubling trend pundits have yet to recognise: Thailand is becoming Japanese.

On the surface, that may sound grand. Japan is an unusually wealthy and secure nation, one that's about as egalitarian as they come. Given Thailand's history of economic instability, it would seem this nation of 63 million could do far worse than follow that model.

Japan is also a model of political inefficiency, excessive debt accumulation and largess rarely seen in modern history. For better or worse, Thaksin is doing some Japanesque things investors may not appreciate over time. Here are four examples:

* Thailand is becoming a one-party state. Now that his party holds an unprecedented number of Parliament's seats, Thaksin is free to take his "CEO style" of governing to the next level. Thaksin's philosophy is that democracy is but a means to an end.

"To us that is quite alarming because if one were to view democracy as a means to achieve power then there can be no safeguard as to how that power is used," says Buranaj Smutharaks, a member of Parliament for the opposition Democrat Party.

Investors have reason to worry that one of Asia's most vibrant economies will regress. Rather than embrace greater transparency, accountability and the rule of law, Thailand is going the authoritarian route.

Thaksin's history - self-made, larger-than-life billionaire - makes him Asia's answer to Silvio Berlusconi, a tycoon who leveraged his business success to become Prime Minister of Italy.

Thaksin, like Berlusconi, has also been accused of using public office to advance his private business interests.

Of course, investors may argue that such an outcome isn't as disastrous as it seems. Just look at the success of economies such as Malaysia and Singapore, they'll say. Still, Thailand has the potential to be a beacon of democracy in Southeast Asia, and yesterday's election was a setback.

"The Thaksin Administration is particularly vulnerable to allegations of cronyism partly because the Cabinet includes a high number of people with business interests or connections," the Economist Intelligence Unit Ltd said in a recent report.

* Today's economic policies are increasing debt. Thaksin's strategy of boosting growth, or "Thaksinomics", is little more than old-fashioned, debt-financed pump-priming dressed up as something new and revolutionary. While Thailand's debt is nothing like Japan's, Bangkok's moves to lean on banks to extend credit have led to high levels of household debt and left the financial system vulnerable.

* Ambiguity about foreign direct investment. Just as Japan claims it wants to attract more foreign capital and does little to do it, Thailand is sending mixed signals. The Government has promoted Thai self-reliance to a fault, even going so far as limiting foreign involvement in privatisation efforts.

Thaksin's heavy-handed approach to quelling drug use and an upsurge in violence in Thailand's Muslim-majority southern provinces has also turned off some investors. Foreign investment in Thailand fell 97 per cent to $133 million in the first three-quarters of 2004.

Thailand's 6 per cent growth and Thaksin's hands-on response to the tsunami helped Thai stocks recover from last year's 13 per cent decline. The California Public Employees' Retirement System, or Calpers, may also resume investment in Thai stocks after a three-year lapse. Still, Thailand is getting far less long-term investment than it needs.

* Taking the central bank for granted. Debt-addicted Japan uses its central bank as little more than a monetary drug dealer; politicians lean on it to print yen so they don't have to make tough decisions.

In Bangkok, speculation is rife that Bank of Thailand Governor Pridiyathorn Devakula will be shown the door now that Thaksin has won a powerful mandate. While Thaksin denies he's going to sack Pridiyathorn, the men bumped heads over who should be allowed to run Krung Thai Bank, a bank intimately involved in his lending programmes.

Trouble is, Pridiyathorn is highly respected for making politically unpopular decisions. He raised interest rates 75 basis points between August and December to slow inflation.

The Nation newspaper has warned: "Thailand stands at a crossroads", and that voters should be wary of giving Thaksin a "blank cheque" to run the economy for another four years. Now Thaksin has that cheque, investors should tread carefully.

- BLOOMBERG