In Thailand, a Leader Feels the Heat

The tough-talking Prime Minister has delivered heady growth. But he'd be wise to take note of growing opposition to his iron-fisted rule

By Frederik Balfour

Fall is traditionally a pleasant season in Thailand, as monsoon rains begin tapering off and temperatures start to cool. Yet October has been anything but salubrious for Prime Minister Thaksin Shinawatra. With national elections looming (they must take place no later than Feb. 6), the former telecom tycoon has been buffeted by a series of problems -- the resurgence of bird flu, more Muslim-separatist violence in the country's south, recurrent drug trafficking, and even a recalcitrant central bank governor.

True to form, Thaksin has responded with his trademark decisiveness -- as one might expect of a strong-willed CEO. After Thailand confirmed the first probable case of human-to-human transmission of the deadly H5N1 avian flu virus in late September, Thaksin set a goal, declaring Thailand would rid itself of the problem by the end of October.

MUSLIM INSURGENTS.

  Never mind that the World Health Organization has warned this might be an impossible dream. On Oct. 3, an 11th Thai victim died from the flu, bring to 31 the total number of deaths in Asia so far this year. Keeping with the goal, Thaksin has said he would sack a Deputy Prime Minister overseeing the problem and the Health Minister if they don't deliver results.

On Oct. 6, he removed Agricultural Minister Somsak Thepsutin, just days after axing Deputy Health Minister Anutin Charnvirakul. Yet despite the tough talk, Thaksin's decision to keep Anutin's boss, Health Minister Sudarat Keyuraphan, has been widely criticized as giving in to politics. Sudarat is the deputy leader of Thakins's Thai Rak Thai party and heads its election campaign in Bangkok, one of the Prime Minister's weakest support bases. In July, his party suffered a huge loss when the opposition won Bangkok's all-important governorship.

Thaksin also appointed a new Defense Minister to quell violence in the predominantly Muslim south, vowing to personally spearhead the effort. More than 360 people have been killed in unrest so far this year, with six new deaths coming on the day before the announcement. Thaksin's inability to control the problem is becoming increasingly apparent.

MOUNTING ANXIETY.

  Most disturbing to his critics, however, is Thaksin's recent promise to redouble his efforts in the war against drugs. The PM has been roundly criticized for endorsing a vigilante-style approach to the problem. From February to May, 2003, Human Rights Watch claims that some 2,275 suspected Thai drug dealers were shot dead, the victims of apparent extrajudicial executions by police. Promising "brutal measures," Thaksin said on Oct. 3 that drug dealers and traffickers must be sent "to meet the guardian of hell."

Sounds almost like gangster guff -- and hardly comforting to international ears. Thailand relies heavily on some 11 million tourists a year who visit its pristine beaches and temples, but this year's bird-flu scare and continued violence in the south are giving them pause. Thaksin's increasingly implausible claim that he can deliver results on a fixed timetable is doing little to allay those concerns.

Meanwhile, "Thaksinomics" -- a combination of government pump-priming and populism that has delivered growth rates of between 5% and 7% in the past three years -- is losing some of its luster. The government recently revised downward its growth projection for this year, to between 6% and 6.5%, from 8% at the beginning of the year. Farm incomes in August dropped an alarming 7.7% year-over-year, threatening to erode Thaksin's support in rural Thailand, where 80% of the population lives.

WORTH HEEDING.

  The underpinnings of Thailand's recent prosperity are also coming into question. State-owned Krung Thai Bank had to reclassify about $1.1 billion worth of doubtful loans, doubling its level of nonperforming loans to 12.3% as of the end of June, up from 7.7% at the end of March. Much of the bank's lending in the past three years has underwritten government-directed investments at a time when commercial banks were more cautious about their loan portfolios in the wake of the Asian currency crisis. This prompted Bank of Thailand Governor Pridiyathorn Devakula to resist a government reappointment of Viroj Nualkhair as Krung Thai's president.

Although Thailand's central bankers traditionally have marched to their own tune, Pridiyathorn's show of resolve in the face of government pressure to crack down is a rarity these days. "Thaksin is one of the strongest PMs we have had for years, and standing up to him is a gutsy thing to do," says Andrew Stotz, head of research at Macquarie Securities in Thailand. Thaksin's tough-mindedness has its merits, but the savviest chief executives are also wise to listen to critics from time to time, too.

Balfour is a Hong-Kong based correspondent for BusinessWeek