The 1997 economic crash and the crisis of Thai democracy

Giles Ji Ungpakorn

The period leading up to the 1997 economic crisis was a period in which the Thai economy grew at a phenomenal rate. Average GDP growth rates reached 8% and on occasions the annual rate was in double figures. The main beneficiaries, naturally, were the rich. Between 1975 and 1988 the richest 20% of the population increased their share of national wealth from 43% to 55.4%, while the share controlled by the poorest 20% dropped from 6% to 4.5%.

The economic crisis was a shock to everyone for no one had predicted it. Once the crisis broke, political scapegoats were quickly found in order to protect the status-quo. The more neo-liberal sections of the big business community, who had always harboured a dislike for the “populist” and “unreliable” New Aspiration Party (NAP), quickly suggested the idea that the crisis was all the fault of Prime Minister Chawalit Yongjaiyut’s government.

Once Chawalit resigned, his government was replaced by a Democrat Party-led coalition under Chuan Leekpai. The new finance minister, Tarrin Nimmanhaemind, was regarded as a reliable “bankers’ man”. This suggestion was born out by the fact that the government quickly moved to nationalise the private debts of 56 failed banks and finance companies.

The same enthusiasm for the use of public finances was not shown towards helping the poor and the unemployed who were worst hit by the crisis. The government passed a bill allowing it to withhold state contribution to the private sector employees’ Social Insurance Fund and repeatedly delayed the implementation of an unemployment benefit scheme. The World Bank estimated that in early 1999 the unemployment figure was 2.6 million or 8% of the workforce. Figures quoted by academics varied from 1.5 million to 4 million. However, a much more reliable indicator of the effect of the crisis on jobs was the “quality of employment”. According to one survey carried out for the National Economic & Social Development Board, there was a 12.6% decline in earnings rates and a 4.4% decline in hours of employment in the first half of 1998. These were the main factors behind a fall in real incomes of 19.2% over this period.

Over-capacity and falling rates of return, the cause of the crisis, were not merely confined to the well-publicised real estate sector, which happened to be the initial trigger for the crash. The declining rate of Thai industrial exports was an important factor which led to the run on the baht, and this was due to over-production of export products on a global scale.

In the general election of January 2001, Taksin’s Thai Rak Thai Party (TRT) won a landslide victory. The election victory was in response to the previous Democrat Party government policy which had totally ignored the plight of the rural and urban poor. TRT also made 3 important promises to the electorate. These were (1) a promise to introduce a Universal Health Care Scheme for all citizens, (2) a promise to provide a 1 million baht loan to each village in order to stimulate economic activity and (3) a promise to introduce a debt moratorium for poor peasants. They kept these promises and built a strong supporter base among the majority of the population.

The policies of TRT arose from a number of factors, mainly the 1997 economic crisis and the influence of both big-business and some ex-student activists from the 1970s within the party. The “Taksin wing” of big-business believed that there was an urgent need to modernise the economy and turn the electorate into stake-holders in society.

It is this mass support for Taksin’s party that set the stage for the present political crisis. The middle class, the military and other sections of the conservative elites only tolerated democracy in the past when there was no competition for concrete policies at elections and when they could all eat their share of rich pickings at the economic table. Taksin’s political dominance upset the apple-cart.

Therefore the junta’s current claims to be reforming Thai democracy are the exact opposite of the truth. What they want is to turn the clock back and reduce the democratic space.