Man without a plan.

Photographer: PORNCHAI KITTIWONGSAKUL/AFP/Getty Images

Thailand's Generals Don't Have an Economic Plan

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Militaries tend to justify coups d'etat by making assurances of political competence: The previous government failed the people, and military technocrats will now restore order, cleanse the system and get big things done.

The generals who seized power in Thailand in May 2014, however, have essentially abdicated that argument. To be sure, Prayuth Chan-Ocha and his fellow officers pledged to restore political calm, end corruption and bring happiness to tens of millions not benefiting from $373 billion of annual output. But 440 days on, Prayuth's regime has only made things worse.

Thailand's growth is the slowest among developing nations, its exports may contract 4 percent this year and Bangkok is the only major Asian stock market experiencing outflows. The currency is down 7 percent in six months. Thailand's new regime has learned the hard way that running Southeast Asia's second-biggest economy isn't as easy its officials once thought.

Prayuth's main problem is that he lacks an economic strategy. He and his team are so preoccupied micro-managing small-scale public order issues (like banning alcohol sales near schools) that they're neglecting the big picture.

Thailand, long a manufacturing powerhouse, needs a serious fiscal jolt. Factory output has fallen every month but one since March 2013, while exports have declined every month this year. The only thing the junta is doing about it is offering spin.

In a series of speeches, military leader-turned-Prime Minister Prayuth has claimed the country's declining gross domestic product is the product of his valiant corruption crackdown (and partly weak exports, too). "It’s because some people spend money from illegal businesses and money from fraud," he said June 5. "Now the government has come to set things right, causing that money to disappear."

But average Thais trying to eke out a living tell another story. As documented by my Bloomberg colleague Chris Blake on July 1, bribes demanded by public officials and the mafia are increasing under the junta, particularly in Bangkok’s red-light districts. “Thailand’s shadow economy ranks globally among the highest,” says economist Friedrich Schneider, author of "Hiding in the Shadows: The Growth of the Underground Economy." He estimates Thailand’s shadow economy was 40.9 percent of real GDP in 2014, including some illegal sectors such as gambling and small weapons, but largely excluding drugs.

Prayuth would be wise to reshuffle his cabinet, half of which is comprised of military personnel with little experience in their portfolios. That would relieve some of the social pressure bubbling around his regime. The country's already elevated levels of household debt are rising as growth and wages stagnate. In the first quarter alone, outstanding household debt from commercial banks alone jumped 7.2 percent.

But Prayuth all but admitted on July 27 that he doesn't understand the basics of modern political leadership when he said he won’t be pressured to make changes "just because somebody is at fault or because of social pressure." Speculation had been rife that Prayuth might tap Somkid Jatusripitak, who was deputy prime minister and finance minister in the government of former premier Thaksin Shinawatra. But it's hard to see how he could do that given that the coup was aimed at running Thaksin and his sister, former Prime Minister Yingluck Shinawatra, out of politics forever.

Prayuth's first step should be to accelerate the government's $54 billion spending plans for roads, mass transit and other projects. Absent those improvements in infrastructure, Thailand won't be able to keep foreign automobile manufacturers in the country, and thus retain its reputation as the "Detroit of Asia." And with the Philippines already lobbying Toyota and other auto giants to relocate their Thai factories, Prayuth doesn't have any time to lose.

Prayuth also must set a clear timetable for relinquishing power. That's a necessary first step to restoring confidence in the economy; investors tend to look askance at permanent military takeovers. Yet the junta hasn't even finalized a new constitution it says is required to allow Thais to cast ballots again. It is increasingly apparent that its talk of reform before elections is just a delaying tactic. The public would be forgiven for concluding the coup wasn't about improving the lives of average Thais but grabbing power for power's sake.

When you seize power, though, it's best to have a plan. The chronic drift and uncertainty of the last 14 months is breeding a lack of trust from the trading floors of New York to the night markets of Bangkok. It's undermining growth, deepening poverty and increasing the odds Thailand will experience a lost decade. And as the government's economic argument loses force, the only authority it will have left is its force of arms.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author on this story:
William Pesek at wpesek@bloomberg.net

To contact the editor on this story:
Cameron Abadi at cabadi2@bloomberg.net