Ammar (2011) is an excellent overview of the Thai economy after 1997, the pivotal financial crisis. The rise and fall of Prime Minister Thaksin and the ensuing conflicts between the yellow shirts and the red shirts are all mysteries to most foreigners. Even more mysterious is the resilience of the Thai economy, despite the seeming instability, and sometimes utter chaos, of Thai politics.
There are two notable assertions in Ammar's paper. First, Ammar identifies the Chuan–Tarrin policy as a cause for the rise of Mr Thaksin. Fiscal policy was not aggressive enough (more spending was required). Investment and growth rates were low compared to their precrisis levels. Banks' bad loans were left to be resolved by the market. These mistakes led to voter dissatisfaction and Mr Thaksin won a landslide victory in 2001. Second, Ammar positively views Thaksin as a man with national vision, who proposed a set of popular economic policies, and had enough assets to attract followers. A natural question is whether those populist policies were fiscally too costly.
First, let us examine the Chuan–Tarrin policy. Was the economic policy adopted by the Chuan government, 1997–2001, not popular because it was too austere and/or too market-oriented? Was the unpopularity of this economic policy a main driving force of the mass shift of voters to Thai Rak Thai, led by Mr Thaksin? Ammar seems to believe that the economic policy by then Finance Minister Tarrin was too austere: the approach to dealing with bad loans was “too conservative,” and the fiscal deficits were too small to stimulate the economy. The gross domestic product did not recover its precrisis level until the first quarter of 2002.
To blame Prime Minister Chuan and Finance Minister Tarrin for not adopting a more stimulating policy is half misleading. The initial set of policies was constrained by the International Monetary Fund (IMF) program, in which any policy change had to be debated and approved by the IMF. If the policies were too tight, half of the blame should go to the IMF.1 The low postcrisis growth and investment rates were observed not just in Thailand, but were a common phenomenon for all the crisis-hit countries. The Thailand Asset Management Company (TAMC) was created by Thaksin, but the Asset Management Companies set up by banks were available under the Chuan–Tarrin regime. Whether the national approach (TAMC), or the banks' own efforts, or a market-based approach is better is debatable. Ammar thinks that the national approach is better.
The Thai recovery after 1998 was no worse than that in other Association of Southeast Asian Nations (ASEAN) countries. Given that the drop in the growth rate from 1996 to 1998 was so large (second to Indonesia), the recovery was bound to be slow. Thailand's recovery (the difference of the average growth rates for 1999–2002 and for 1993–1996) was better than the recoveries in Indonesia, Malaysia, and Singapore. In fact, Malaysia implemented a much larger fiscal stimulus in 1998–1999, but its recovery was slow. Right after the crisis of 1997, the financial institutions in Thailand were damaged, and even the fiscal stimulus has a lower multiplier effect with a broken financial system. In the end, I do not think that the Chuan–Tarrin policy was as damaging to the recovery of the Thai economy as Ammar insists.
Now let us look at the Thaksin policies. Were the various economic policies of PM Thaksin fundamentally and fiscally sound? Were they a form of populism that would not have been sustainable in the long run? Or were they a kinder and gentler package of economic policies that can be regarded as good income redistribution?
Ammar describes and assesses Thaksin's three policies: Universal Health Care (the 30-baht scheme); the agricultural debt moratorium; and the one million baht per village program. Universal Health Care is given high marks for its social value with little cost (an incremental cost of less than 1% of the total government budget). However, Ammar reveals that much of cost was shifted to hospitals, which had to draw down their reserves. Ammar cites a study that finds that the stimulus effect of the agricultural debt moratorium was rather small. The SME Bank was established in 2003, and its loan portfolio turned out to have a high ratio of non-performing loans. Ammar also cites a study that finds that the one million baht per village program was probably the costliest program, yet it had no impact on household income or expenditure, or on poverty. Ammar describes that the fund was financed by borrowing from the Government Savings Bank. I interpret Ammar's assessment of the popular Thaksin policies as being that they were fiscally unsustainable policies, with the true cost to the government being camouflaged for the first 2–3 years.