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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
Main Qs: what is the new form? is it
success?, why?
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.
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’
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.
Slow pace of crisis solution (Chuan
Government)


Political weaknesses (lack of
autonomy) of the gov’t, due to pre1997 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
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
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
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
Slow pace of crisis solution; contraction of FIs’ loan till 2002 
slow econ recovery
NPLs of Financial Institutions
1999
2000
2001
Unit: Million Baht, %
2002
2003
2004
2005
2006
1998
484,905
2,674,533
2,094,425
45.02
38.93
863,663
17.73
Source: BOT
477,405
771,126
641,883
592,171
10.41
15.65
12.70
10.73
477,071
8.19
8.16
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
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,
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
 Outcome
of reform 10
years after
Excess liquidities continues
Growth rates of Deposits & Credits (%)
ิ
ื่ และเงินฝากของธนาคารพาณิชย์
การขยายต ัวสนเช
อ
40
30
10
ปี
-20
ิ เชอ
ื่
สน
เงิน ฝาก
49
25
48
25
47
25
46
25
45
25
44
25
43
25
42
25
41
25
40
25
39
25
38
25
37
25
36
25
35
25
-10
34
0
25
ร้อยละ
20
Imbalances in capitals and credits allocations
1988 – 2000
2001 - 31 May 2007
Sector
GDP
security
credit
GDP
bonds
security
credit
Manu, Export, Import
31.6
16.9
36.7
34.6
3.9
21.4
27.6
Services, Consumer
Products, Utilities
20.0
10.4
22.4
22.8
16.7
38.0
29.7
Wholesale, Retail
16.5
2.0
16.7
15.1
7.1
0.4
16.2
FIs, Constructions, Real
Estate
12.1
67.3
21.1
9.3
72.4
40.0
24.1
Agricultures
10.2
-
2.5
10.1
-
-
2.1
Mine
4.1
3.5
0.6
2.8
-
0.1
0.4
Defense
3.0
-
-
4.5
-
-
-
Housing
2.5
-
-
0.8
-
-
-
100.0
100.0
100.0
100.0
100.0
100.0
100.0
รวมทั้งหมด
Investment & output still lower than the pre boom period
1959-1986
1987-1996
1997-1998
1999-2006
Output
(growth %)
8.3
9.5
-5.9
5
Investment
(growth %)
11.1
15.1
-32.4
7.6
Private
(growth %)
9.8
15.9
-41.4
11.9
Government
(growth %)
17.4
14.1
-9.3
9.6
Investment (% of
GDP)
26.3
29.1
27.7
21.2
Private (% of
GDP)
19.4
21.5
17.4
14.6
Government (%
of GDP)
6.8
7.7
10.4
6.5
Most investments are replacement, not new investment

Share of Replacement to Total Private Investment (%)
1986-1996
36.4
1997-1999
2000-2005
97.3
82.4
Productivity growth is lower than others
GDP per person employed (1980=100)
450
400
350
300
China
Indonesia
250
Korea, Republic of
M alaysia
Taiwan, China
200
Thailand
Viet Nam
150
100
50
0
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
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