Well. Continuing on our economic thread here at the blog I decided to think out loud a little about the current environment in Thailand just to see what everyone else thinks. Seems to me that although the baht is strong, the stock market is up and high-end condos and beach houses are selling in droves - the basic underlying Thai economy that runs on rice and tourists is not fairing all that well. Or maybe I just think too much?
If you read the papers, local and international, you continually get a range of headlines that in one glance look good but on further reading tend not too reveal too much. Like this one:
Thai Baht not need to be too strong
What does that mean really? Yes. A weaker baht would be good indeed but the way it is worded seems to have little in common with the subsequent article. The article hints at problems with local exporters dealing with the stronng baht, coupled with potential drops in tourism due to Thailand being more expensive and so on.
Foreign investors unfazed by problems in Thailand
Sure. Luxury condos and the stock market is popping. Makes sense. It crashed like a bad windows blue screen of death when the Bank of Thailand implemented the new reserve rules and big money came back in to take advantage of the drop. Luxury condos are always selling in large cities and beach side resorts. Always have. Always will. Over the last 5 years the global rich have added wealth like never before. Just look at the rise of private equity to see how there is just too much money to go around.
Are these really the barometers of Thailand doing well? Last time I checked Thailand’s rich, some 5% of the population, account for over 90% of the wealth. So let’s face it. These people are never really short of cash and are the people buying property and stocks around the clock or for sure when they see a dip. Stock market speculators in New York, many who have never been to Thailand, just look at a Bloomberg terminal to decide when to buy and sell and for the most part don’t care about local issues.
So what are the local signs of things going well or not?
From political darkness, economic optimism
To be sure, the economic recovery hasn’t yet shown up in the statistics. Private consumption, private investment and new bank lending are either stagnant or contracting. Consumer confidence fell for a seventh straight month in May, dragging local sentiment to its lowest level since February 2002. The crucial construction sector continues to contract.
Leave it to the A times to shed some light on things. Domestic consumption is way down. Some Thai banks are beginning to see their non performing loan levels reach similar heights that occurred prior to the 97 crash. Talking to an exec at Bangkok Bank recently over some beers he mentioned that unlike 97 though - it is not just houses and construction loans but also cars, trucks and motorbikes. Most of those truck driving around Isaan, unless you bought it for your girlfriend, are all bought with loans that lately, due to a bad export climate, are not being paid back. What will the banks due with a bunch of used truck from Isaan? Sell them in Bangkok? Not likely since the rich Thais don’t drive trucks and tend never to touch used cars.
Talking to lawyer friend who works for a big property developer - he explained that many of the local complexes being built for normal to middle class Thais have a very interesting trick for making it look like their condos are spoken for. They swap inventory with another large developer so both developers can make it seem like they are selling condos so then the new buyers feel good that they are buying a building that is mostly sold out. Nice one.
I reckon that under the surface things are not too good. Let’s be clear. If you derive no source of income from Thailand then none of this hardly matters but I reckon that the strong baht makes the holidaying a little more expensive than it used to be. I still believe that Thailand largely depends on a lot of cheap exports and a lot of moneyed tourists to keep the low income Thais fed and in check. Right now I believe that is not happening.
Most travel agents will tell u that bookings are down more than normal. Seems like hotels have plenty of rooms. Police chiefs will tell you that their take from the bars is down because business is down. Crime is also up, both petty thefts and organized crime. Let’s face it, when tourism is down the trickle down effect is quite huge. Taxi drivers, food stands, street vendors, bar, restaurants and the working girls feel it. So when families are hurting some people resort to crime to get by. Except for a few spots in town most owners of tourist related establishments say this low season is down and came right off the backs of not a very good high season.
A local bar owner, has many places, was telling me that he knows things are bad when office girls are calling his wife for a job in the bar. Are these bargirls? No, they are girls with husbands or boyfriends who work tourist related jobs who are currently out of work. So the girls are looking for some way to supplement their income to feed their kids and take care of mom and dad.
I am optimistic that it turns around. Just not sure how it will. Funny thing is that the Democratic party used to be the most corrupt out there but just did it in a much less dramatic fashion than you know who. I think Thailand needs tourism more than they like to admit and I think the visa laws will lighten up and the closing times will get more consistent with the new government. Hard to say what the baht will do but my guess is that if it gets much stronger there will be some serious issues for local exporters to deal with.
It is Thailand after all so maybe none of this is that cut and dry. I personally would not mind enough of a basic crash in Thailand to send a wake up call to the powers that be that they need to fix things. Think it might happen?
Never fear though. This is still the crazy Thailand we are all used to -
Father of benz driver warns he will take legal action
Some of you may be following the story of the son of a former Miss Thailand. A few days back he was driving his father’s Benz and had a run in with a bus driver. After some arguing over a driving issue they continued on their way. Later, while the bus was stopped with passengers getting on and off, the son used his Benz to ram into the bus killing one person and injuring many. So now the Father is saying he will legally take action against people who damaged his car while his son was busy ramming into them. The mother, former Miss Thailand, will attend one of the funerals but the father won’t. The son is in the hospital dealing with his thrombosis which was brought on by his leg locking up on the accelerator. I am sure the father will go after Mercedes for the thrombosis issue claiming the throttle was too difficult to push for long periods of time while ramming pedestrians.
Classic Thailand folks.
Pilfered baggage, taxi touts, tourist cheats, polluted resorts, overcharging, crime, coups, terrorism, tsunamis, poor service, corruption, bird flu, VISA restrictions.
Not good for business.
View all comments by Tomy Yum
An interesting assessment and I would have to agree with most of it. I felt it strongly over the past year in Phuket, that there was a negative undercurrent beneath the surface economy the papers are reporting. Like water being sucked away beneath an airport built on landfill….something pretty bad will have to happen before the Thais take notice.
The papers most likely have their hands tied as far as printing economic gloom and doom. The gov’t wouldn’t like that so much. That would explain why editors are trying to put a cheery spin on negative stories by tacking on an incongruous headline.
Reading between the lines is an essential talent for anyone doing business in Thailand.
View all comments by Mr Lucky
“doing business in thailand”
that’s funny
View all comments by Jack Dawson
Mr Lucky - great points.
Jack - what’s so funny?
View all comments by smitty
Mr. Lucky got it right about reading between the lines. I read the Post everyday and the longer I live here the more I can read between the lines of the stories that pop up. Lately it’s been heavy, really heavy, optimism from the current Govt. However, there have also been stories like “Japan looking at cheaper SE Asian cities to do business in” that appeared this week.
Bottom line, Thailand is becoming expensive for the tourist and foreign investor. Combine that with Visa changes and instability and Vietnam, Malaysia, etc. start looking like better alternatives.
Still, I don’t think we want it too organized and safe around here with a glowing outlook for the future. It wouldn’t be Thailand. Let’s hope it gets a little bit better though.
View all comments by pmmp
Smitty,
Spot On…excellant comments sumed up in laymans terms, good research on supporting articles, easliy readable between the lines.
Another crash is looming, I expect by years end when many Thai exporters will have completed their order books and many will find little or no new orders, lay-offs will begin and rightly said this will send a tsunami into the local loan business.
Tourism is a major revenue for Thailand, rightly said the fall in numbers is showing, you can find excellant hideaway resorts on Samui for less than 4500baht a night, which normally sell for double this time of year, even the Arab numbers are down accordingly to local Dubai travel agents.
Another major contibution is the “sleeping tiger no longer sleeps” looking at export prices, China is eating into Thailand slowly but surely and this will only add to economic worries.
I do not beleive there’s movement in the property markets either, your comments regarding “doubling inventories” makes sense and has thrown some light some issues I’m presently looking into.
Its Thailand & shit happens daily - “never mind” but I forcast November “the ringing of bells”
PS: Suggest a round of drinks at the ‘Dukes’ Sunday 22nd 1700hrs onwards, introductions, chat, wine, women & song!
View all comments by laocowboy
LC - we need like some online market making site to use to put up a wager I think…
China is clearly and issue but many times I feel like Thailand has brought many of their own problems by turning tourists away, making arcane visa and work permit laws and just plain ineptness.
I guess we shall see what happens…
the 22nd eh?
View all comments by smitty
All are welcome. Looking forward to my first Lao:
China, I beleive will become an economic nightmare for many Asian countries & for some in the West, export wise you cannot compete unless its high tech.
There was a report from BBC the other day about China sending representitives around the world acquiring interest into the raw material markets, openly & covertly, it ended with a frightening scenario of China controlling or partially, 42% of the worlds raw materials in 10yrs based on current capital & export performances.
Christ, even Scotch whisky is being labled “Produce of China” how the fcuk they work that out beats me?
The problem with Thailand is exaxctly that, Themselves!!
View all comments by laocowboy
Just some comments
“Last time I checked Thailand’s rich, some 5% of the population, account for over 90% of the wealth.”
What is the source of this?
Using the GINI coefficient, income inequality in Thailand is almost identical to the US, .42 vs .41. (0 is perfect equality, 1 is perfect inequality)
http://en.wikipedia.org/wiki/List_of_countries_by_income_equality
“the basic underlying Thai economy that runs on rice and tourists”
Agriculture accounts for 10% of GDP, and tourism about 5%. Don’t forget about the other 85%! Agriculture does employ a lot of people though.
http://en.wikipedia.org/wiki/Economy_of_Thailand
“I personally would not mind enough of a basic crash in Thailand to send a wake up call to the powers that be that they need to fix things.”
I am not sure what you mean by this sentence, but I hope you are not suggesting that Thailand needs a crash to fix problems.
View all comments by Christoffer Larsson
Hey Chris. Good retort.
I probably did not explain myself well enough. Having read a few books on Thai history, economy and current affairs one trend I have deduced is that Thailand has a huge off the books underground economy so most of the public figures don’t tell the real tale. Also I have heard elsewhere that this GINI number for Thailand is not at all universally accepted.
A former piece in the IHT mentioned this:
Not even the Thai economic miracle of recent decades could spare the country from one of the world’s highest income inequalities — the wealthiest 20 percent of Thais earn an estimated 60 percent of the nation’s income and the poorest 20 percent earn less than 5 percent.
From here:
http://www.iht.com/articles/2007/01/31/opinion/edweiss.php
So I did say the wrong figure but my feeling is still that the rich run the place, seem to care little about the poor and the problem appears to be getting worse.
I think a lot of the poor and lower class in around the major cities have come to depend on tourism due to Thailand’s lame education system and poor entrepreneurial climate. Tourism is down. These people are feeling it.
Do I mean to I say I want a crash? No. Do I think the cause and effect of Thailand’s current lack of direction from the government will create some sort of bottoming out that may force them to rethink their policies. I do. Of course all of this is just my opinion and I could be way off.
I do appreciate the banter though and for your opinions to the contrary. Makes for a good blog.
View all comments by smitty
All Thailand needs to do is bring back its tv advertising campaign “AMAZING THAILAND”, cos it sure as hell still amazes me! Imagine being in some 7/11 in the back end of Bangkok(Samutsakorn), & the sexy 7/11 girl asks me for my number! No, I am no Leornado Dicaprio! F**K the Economy, give me some raw biology!
View all comments by A
A to the Oh - as long as the chick who is asking is hot just give out my number instead. I’ll close it…
View all comments by smitty
This week a lady I met through my job, showed me a picture of her 18 year old daughter, said she speaks good English and has an English boyfriend. She said the English boyfriend is currently in London, and, although the daughter lives in Phuket, she is currently in Bangkok.
Mom gives me daughter’s phone number and tells me I should call her this week.
Leonardo di Caprio?… nope. The only movies star I resemble is Homer Simpson!
View all comments by werewolf
WW - Nice. I wonder how the sex trade has so many willing participants - could it be the mother’s encourage their daughters. Amazing Thailand.
View all comments by smitty
Seems to me this is a sign of things to come:
http://www.bangkokpost.net/News/12Jul2007_news01.php
“Fury over factory’s shock closure
Jobless workers blockroad to Suvarnabhumi
PENCHAN CHAROENSUTHIPAN, SUTHIWIT CHAYUTWORAKAN & ARANEE JAIIMSIN
The shock closure of a textile factory sparked an uproar yesterday as the Garment Labour Federation accused the firm of relocating to a neighbouring country to cut costs at the expense of about 5,000 workers who were immediately made jobless.”
The baht is killing exporters, China is cheaper and the yuan is artificially low. The post tries to make it sound like it is just this company having issues but I don’t buy it. I think the lower rung of the Thai economy exports, tourism and rice is hurting. The tourism board mentioned today that the expected numbers for tourists this year will not come close to their goal.
View all comments by smitty
Yes, it is interesting how the gov has the post telling us things are wonderful here. I’m finally understanding why the thais love the king so much, he is the only thing protecting them from the politicians.And the most heroic public figure , I understand now and hope he lives much longer.
Realtors sure seem different than 2 years ago, wonder why? At 8.9 % under performing loans vs, Singapor’s 1-2% when will the car dealers stop selling anyone who can show 12000 baht per month going into thier bank account and can put 10 % down.?…I’ve heard it is similar for home loans…
I’ve had several of the real reason we are here ladies ask me if the Falang will leave as they know thier fellow countrymen don’t think all that highly of them and uneployment compensation doesn’t exist.
wasn’t it 1996 when the baht was at 25 to the dollar and 1997 when it was 57 to the buck?
View all comments by Pattaya Gary
Smitty,
Thanks for good response
I looked up the underground economy for Thailand, and it seems like it is indeed one of the largest in the world, up to 70% of the GDP according to this publication from IMF:
http://www.imf.org/external/pubs/ft/issues/issues30/
Other sources estimate to between 50% to 55%
About inequality, I still don’t think Thailand is that different to other countries at the same level of development. For instance, most countries in Latin America are more unequal, as well as the Philippines and Malaysia in the region. And note that the inaccuracy of the GINI coefficient can go both ways. It depends to a large degree on how the underground economy is distributed.
In general, I think it is very difficult for countries to catch up the West and stay equal. For instance, in Thailand agriculture employs 40-45% of the workforce, while this sector only contribute with 10% to the GDP. It is not possible to subsidize such a large group. New jobs have to be created and productivity in farming must go up. Providing free health care for everybody is a good way to reduce some of the inequality, and it annoys me when they keep calling this a populist idea.
For sure it is the rich people that runs the place, but if they care less for the poor than in other countries, I don’t know. But one thing I have noticed is that rich seems to be skeptical to poor peoples right to vote.
All expats in Thailand seems to know about how bad the education is. Is that because many of them are teachers? I haven’t found any independent source about this. All teachers at Chulalongkorn and Thammasat have PhDs from top universities in the US and Europe, so at least in should be good there. There are surely a lot of plagiarism going on…just like in China…
The current government has been a great fiasco, but it still seems like it hasn’t caused too many negative effects (yet). The greatest threat now is the appreciation of the Baht. I’m not really sure how tackle that, maybe a few more mega projects causing a lot of imports would help???
View all comments by Christoffer Larsson
CL - On the education front. Citing Chula and Thammasat as examples kind of goes with my argument about the gap between the rich and the poor. How many ordinary, put themselves through school, Thais go there? Not many. Those are the elite schools that basically only the rich can afford given how terrible the student loan situation is. I think the gap between the have and the have nots in Thailand is massive. I think the rich work very hard to keep it that way.
The high baht is amazing - especially if you have money in dollars. A month ago withdrawing 20k baht from america would cost me 578 dollars. Now it costs me 601 dollars. It must be killing some Thai exporters.
Not sure how the Thais can fix it since a lot of it is the dollar dropping like a rock. Thanks to bushie.
View all comments by smitty
Smitty,
Chula and Thammasat are both publicly funded universities and tuitions are not especially high. They are certainly not targeting only rich people.
According to the World Bank, the poverty rate in Thailand stands at about 10%. That is not very high for a developing country, and it’s a bit lower than in the US.
You can argue that this number is also not accurate, but be careful of always seeing what you have already decided that you like to see.
View all comments by Christoffer Larsson
I think the education problems are more to do with the initial school education. Those bright enough to be admitted to Chula and Thammasat have already beaten the system, so they’re hardly indicative of the majority.
That majority have already been indoctrinated in the Thai learning methodology (or lack thereof) by the time they get to University age, and it’s too late by then anyway.
It’s kind of like looking at the shambles that education has become in the UK, and saying “Well Oxford and Cambridge are still bastions of intelligence, so what’s the problem?”…
View all comments by Bangkok Bad Boy
CL- We can just agree to disagree. No problem. In and out of Thailand here for 7 years and running businesses here I see a huge gap between rich and poor. Their level of education and opportunity. Watch as Vietnam currently soars past Thailand with proper english education, open FDI rules and a commitment to technology. The joke one of the Thais told me was they would have loved that Intel plant Vietnam got but the minister of technology in Thailand forget to read his email from Paul Otellini. The world bank is a joke - sorry. They get these enormous salaries and do what if I may ask?
I think BBB nailed the education thing. Funny thing is if u talk to some foreign professors working at the Chula like places they will tell u that these good schools still pale in comparison to say a junior college in northern california. We all know the very moneyed Thais tend to get educated overseas rather than Thailand.
I love thailand. That is why I am here but I think under the surface of the malls, the hi so lifestyles and the bar scene - the actual inner workings of the place are suffering. On the poverty front - could u imagine if all forms of prostitution were suddenly illegal? How many girls and families would be out of money? Tons is my guess since this number is hardly tracked and a huge part of the underground economy.
I hope Thailand turns some of this stuff around and preserves their way of life while inching things forward a bit to make suer their people have a chance of things in the future.
View all comments by smitty
Smitty,
I don’t think our differences are that large. The income inequality in Thailand is surely great. I am merely trying to say that this is the case in most of the developing world as well as some developed countries. So I don’t see Thailand standing out in this respect.
I am also trying to say that this is not a very easy problem to tackle, even without rich people fighting to maintain their privileges.
India attempted a path of equality for 40 years, but with no economic performance, it still left 85% of the population in poverty. The Philippines invested in excellent education, but with poor job creation, many left for opportunities elsewhere. Vietnam, may be more equal now, but with adoption of market economy policies, you will soon see inequalities rising there too.
I have studied in universities both in Thailand (AIT) and California (UC San Diego), so I am not totally ignorant about the differences.
About open FDI rules, I did my master thesis with the Board of Investment. Their policies are quite sensible, and the current government has not caused any changes. I don’t think investments are down much so far this year. Vietnam is attracting far more FDI, but Thailand does not have the low cost advantage as they do anymore.
Just checked the exchange rate. Th US dollar is now standing at 30 to the Baht (offshore)!!! That is bad news…
View all comments by Christoffer Larsson
“Seeing” difference between rich and poor with the naked eye can be difficult. It depends on how much rich and poor mingle. In my mind, US is deceptive here. If you have a decent job and reasonable coin in the US you will easily end up never ever meeting a poor person. Your job, your neighborhood and your hangouts contain people of the same income group as you. Since Americans mostly commute by car, they lose this most valuable opportunity to “mix”. In Bkk and in many other cities in the world, you bump into people on every rung of the ladder every day. Well, maybe not every rung, but still, you see a bigger cross section with your own eyes. Another thing I found curious is that for example in the LA area, you will find “black” beaches where mostly black people hang out. Not necessarily dirt poor or anything, but they just don’t mingle with the white folks on Venice, St. Monica etc. In Rio de Janeiro, favella kids and rich kids hang out side by side on Ipanema and Copa Cabana. If you go, you will see a more fair cross section of society than in the US.
As another point, I looked up the Gini index for US and Thailand. This is the most common parameter for measuring income disparity and it’s explained on Wikipedia here:
http://en.wikipedia.org/wiki/Gini_coefficient
It turns out, the US Gini index is 40.8 and Thailand is 42. An index of 1 means perfect inequality where 1 person earns everything and 0 is perfect equality where everyone earns the same. To compare, Denmark actually ranks #1 (more equal) with an index of 24.7 and Brazil (considered very inequal) is at 54. You can find the numbers here:
http://en.wikipedia.org/wiki/List_of_countries_by_income_equality
Wikipedia cites UN as the source, so we’ll have to take their word for it or dig deeper.
Now income inequality and fairness are of course two different things. I think it’s pretty obvious that in the US, poorer people have a much better shot at improving their social standing than they do in Thailand. However while US used to excel at this discipline (social mobility) it’s getting worse these days and I think Europe is comparing more favorably now than in the past.
View all comments by Jesper
Jesper - good points. We talked about the Gini index earlier and a lot of people don’t find it highly accurate for 2.5 world countries with large underground economies like Thailand.
hence I had quoted this from the IHT:
Not even the Thai economic miracle of recent decades could spare the country from one of the world’s highest income inequalities — the wealthiest 20 percent of Thais earn an estimated 60 percent of the nation’s income and the poorest 20 percent earn less than 5 percent.
Does not seem to gel at all with the Gini index.
Good points on the Europe and US and the feeling of opportunity. SO true.
View all comments by smitty
Ooops, I don’t know what I was smoking when I missed Christoffer’s post that discussed the Gini index. What a shame that I used the same source. It would have been cool if we at least had different sources and they were in agreement
Statistics are of course of limited value. After all it is well-known that 90% of all statistics are flawed…
To bring it back to your point in the main post. I do agree that rosy articles like “Foreign investors unfazed by problems in Thailand” skips lightly over a lot of the fundamentals. The biggest problem in my mind is that the country doesn’t have solid institutions that protect the average honest citizen. It’s no less corrupt and run by the elite than it has ever been (in a different way than the US is run by the elite). As long as this is the case, you cannot expect the Thais to embrace entrepreneurism, invest savings and take (healthy) risk. All things that are necessary to build a healthy economy based on diverse, domestic ownership and enterprise and not just a few big foreign investments. Foreign investment is great, but it has to be complemented with domestic investment for the country to withstand the ups and downs of the economic cycles.
All in all, good to get the inside observations on this blog. Keep up the good blogging.
View all comments by Jesper
Another interesting editorial on Thailand from the IHT:
http://www.iht.com/articles/2007/07/15/opinion/edbowring.php
I love this quote:
Perhaps the best that can be hoped for is a peaceful return to the unstable and corrupt - but open and freewheeling - multiparty politics of the pre-Thaksin era, and an eventual deal that will allow a chastened and less wealthy Thaksin to return to Thailand and to politics. But the military will need to back off further than its constitution and internal security bills so far suggest.
Those unstable and corrupt times make for some of the best nightlife!
View all comments by smitty