Thailand’s 2016 economy: ‘China Factor’ versus ‘Somkid Factor’

“This government isn’t here to pump up GDP growth numbers. We are here to launch reform. If you want a higher GDP growth figure, wait for the next government.”

He had preceded this with another statement to the effect that if all that people wanted was an impressive GDP growth rate, it wouldn’t be too difficult a task. “We could push up the figure just by injecting funds into certain projects. But that wouldn’t be a responsible move. Nor is it sustainable,” he said.

In other words, Somkid isn’t into the game of using the “new normal” to explain why the forecast for this year’s economic growth for Thailand would be in the tune of 3.5 per cent, compared to last year’s 2.8 per cent.

It is, of course, a dangerous game to make predictions about GDP growth, especially in a year that promises economic turbulence around the world. And Somkid probably realises that, with 18 months to go before the deadline for this government’s term, there is no way he could boost the macro-economic numbers to any satisfactory level.

A day later, when I sat down with Bank of Thailand Governor Veerathai Santiprapob, he was less evasive about the GDP numbers. But he took pains to point out that the world economy is facing such a high degree of unpredictability this year that it is almost impossible to make any forecasts without a high risk of being wrong.

The “China Factor”, of course, looms large on the horizon. Amid China’s economic slowdown and a volatile exchange regime, as well as the uncertain outcome of US presidential elections, experts would do well to hedge their predictions with all kinds of “what-if” conditions.

Is a “hard landing” for China part of the Thai central bank’s worst-case-scenario projections? Veerathai didn’t deny that any professional forecaster would have to take into consideration all possible scenarios.

“But most Chinese officials I have met have given me assurances that they have sufficient tools to handle the situation,” the central bank governor said. The lower economic growth rate was very much part of the original plan, according to Chinese officials. And the “new normal” was becoming the keyword in the international scheme of things.

But should we accept a 3.5 per cent growth rate as Thailand’s “new normal”?

Veerathai thinks we can do better – and we shouldn’t just take it for granted that this is the highest level the country’s economy can reach in the next few years. He suggested that 4.5-5 per cent may sound somewhat better as the “new normal”.

But don’t try to engage Somkid in this numbers game. He has been too busy telling anyone who is interested in his grand vision for a “New Thailand”, to get involved in a debate on just what the country’s “new normal” should be.

The biggest enemy of governing is, naturally, unreasonably high public expectations. The most challenging task is therefore to project a positive image of the work in progress so as to counter those unrealistic expectations.

“I am not too worried about the last six months of the year,” Somkid declared to a packed audience, “because by then the fruits of government investment in infrastructure and injection of funds to the grass-roots level will be apparent.”

The first six months of 2016 poses the big challenge, he admitted, citing the global economic turbulence, China’s slowdown, and falling prices of agricultural commodities that will inevitably affect Thailand’s farming population.

Obviously, the short-term outlook is discouraging, if not grim. That’s probably why the deputy premier insists that it’s all about “reform” and not “immediate turn-around”. So, what gets the popcorn popping in his head is likely the challenge of getting the public to believe that he really “means business”.

There is little doubt he has been pushing his team of economic ministers hard. Somkid has been burning the midnight oil since he took office a few months ago. His agenda is packed full with projects that must be launched regardless of whether results will be seen in the next year and a half.

“I don’t know whether the next government will take up things from where we leave off. But we have to build the foundation to boost the country’s economic health, raise our competitiveness, and create a firm foundation for the agricultural sector,” Somkid said.

He has engaged the owners of Thailand’s biggest conglomerates, naming them to committees to improve the country’s economy, education, logistics, communications and other sectors, and asking them to help the small and medium-sized enterprises to survive. He has pushed for the establishment of “clusters” of economic activities to boost economic strength – and the setting up of 10 “special economic zones” along the country’s borders to strengthen rural investment and cross-border trade and investment. Start-ups are being promoted with glaring publicity as part of the Big Plan to get things going.

How the buzz of activity and apparent excitement among business leaders will translate into real action and results remains to be seen. Will the technocrats deliver the necessary coordination to get things done according to plan? That’s a big question that may never be resolved.

But the self-proclaimed “Somkid Factor” is no doubt the most obvious marketing strategy for the moment – a factor that seems to have effectively been “de-coupled” from the controversy raging over certain clauses in the new draft constitution.

Can the implementation of economic reform remain detached from mainstream politics for long, or will the upcoming election bring back “business as usual”? This is among the most intriguing questions of all.