Stuck in the Dumps

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DAVID LIEBHOLD BangkokMichael Wansley's killer was clearly a professional. Riding on the back of a motorcycle near the town of Nakhon Sawan, 210 km north of Bangkok, the gunman pulled alongside a van in which the Australian auditor was sitting and fired an 11-mm pistol through the vehicle's middle window. Eight bullets found their mark, and none of the five other people in the van was injured. Wansley, 58, was on his way to an indebted sugar mill that his international accounting firm, Deloitte Touche Tohmatsu, was helping to restructure on behalf of creditors.

Although the assassin remains at large (three alleged accomplices were arrested last week), the March 10 killing appears to be part of the fierce battle raging between debtors and creditors in Thailand, a country drowning in bad debt. I think Mr. Wansley probably discovered something, says Banthoon Lamsam, president of the Thai Bankers' Association, who notes that debtors sometimes resort to hiding assets or squirreling away funds that should remain within a company. When it comes to sharing a smaller cake, things can get very emotional.

What happened to Thailand's recovery? For months, analysts have been predicting that Thailand would be the first Asian country to pull out of the region-wide financial crisis, just as it had been the first to crumble. The government of Prime Minister Chuan Leekpai has been diligently following the prescriptions of the International Monetary Fund and has succeeded in stabilizing the currency, bringing down interest rates and increasing the current account surplus. But there is little good news on the horizon, and Wansley's killing only adds to the gloom. The economy shrank 8% in 1998, and many analysts expect further contraction this year. Nearly half of all loans are now non-performing, and bankruptcies are on the rise. Says former Finance Minister Virabongsa Ramangkura: Our country could be headed into deeper recession.

Is the government to blame? Critics say Bangkok is obsessed with financial-sector reform, ignoring the decimation of the population's spending power. Instead of closing down companies that can't service their debt, critics charge, the government should be spending on public works programs, putting money in people's pockets and allowing businesses to recover and start repaying their obligations. Chuan's government is aware of the problem: last week it gave final approval to a $1.45 billion stimulus package from Japan's Miyazawa fund and the World Bank. But that won't go nearly far enough, says Senator Sawat Horungroeng. The government should put at least another 300 billion to 400 billion baht [$8 billion to $10.6 billion] into the economy, he says, adding that the funds could come from Thailand's banks, which are sitting on more than $80 billion in deposits. That would lead to more jobs and more spending power.

Thailand's economic data paint a dismal picture--almost two years after the collapse of the baht triggered a region-wide recession. Exports have remained flat, despite the currency's massive depreciation against the dollar, and so has domestic demand. With 46% of loans categorized as non-performing and half of manufacturing capacity going unused, prospects are slim for fresh investment in pretty much any industry. An estimated 3 million Thais are now out of work--9.4% of the work force--and there is not enough land to go around in the drought-stricken countryside. The government predicts economic growth of 1% this year, though many independent economists are skeptical. If we can get minus 2% or minus 3% this year, that will be good, says Graham Catterwell, former managing director of Deutsche Morgan Grenfell in Bangkok.

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Amid all of the economic gloom, there was at least some good news earlier this month when Thailand's Senate--after more than a year of deliberation--passed laws on bankruptcy and mortgage foreclosure. On paper, at least, the legislation will allow banks to move more quickly against debtors, while reducing defendants' ability to drag out proceedings through appeals. The legislation represents a major victory for the Chuan government, which came to power in November 1997 on promises of economic reform. Now we can go into high gear in clearing up bad debts in the Thai banking system, declared a jubilant Minister of Finance Tarrin Nimmanahaeminda.

But Thailand's smaller debtors fear the laws will be used to crush viable businesses. Consider Thanin Asawaphiset, 52, a jewelry manufacturer who employed 100 people before the crisis. As exports declined in 1996, he was enticed by the now-defunct Mahanakon Bank to take out a mortgage and buy a seven-story building in downtown Bangkok. Now Thanin's debt exceeds $500,000 and he is stuck with a building no one wants to buy. The creditors are closing in, eyeing not only the building, but also his jewelry workshop (which now employs just 14 staff) and his home. Thanin has adapted his production to new market conditions and is doing a brisk trade in cheap, copper-based jewelry. He says profit margins are close to 100%, and he is ready to take on more staff and start exporting again--if only the banks would give him six or seven months' breathing room. It was my own folly to buy that building, he concedes, but I am angry with the banks for not giving me another chance. I have been a good customer for 30 years.

Over the long term, Thailand needs to reinvent how it does business. Even when the financial system finally returns to health, the country will probably never again achieve the rapid growth rates of the past two decades. But Bangkok has been slow to develop strategies other than trying to revive exports and foreign investment--which critics say simply isn't enough. If Thailand insists on following the old model, it will be in a losing position, warns development economist Kamal Malhotra, co-director of Focus on the Global South, an independent Bangkok think tank. It can no longer compete with China, Vietnam and India in labor-intensive industries. Moreover, Thailand's education system has failed to produce a work force that can compete in high-tech industries with the likes of South Korea or Taiwan. As of 1997, only 17% of Thais had graduated from high school, and drop-out rates have been increasing. Thailand has 260 engineers per 1 million people, compared with 2,500 in Korea. Even government economists concede that the country's whole development strategy needs a rethink. We have to look at what our strengths are, says Kobsak Chutikul, director-general of economic affairs at Thailand's Foreign Ministry. We'll have to go back to the farms, modernize the agricultural sector and develop tourism. We're not going to be a Germany, but we might be a Spain.

Thailand's major bright spot: serious social unrest appears unlikely any time soon. The country has no history of ethnic conflict, and popular pressure for political reform--a key element in the recent disturbances in Indonesia and Malaysia--has eased since the democratization process got under way before the economic crisis hit. The Kingdom is also fortunate to be among only five countries in the world that are net exporters of food, which has helped hold down the price of staples. At the psychological level, the boom of the mid-'90s was brief enough to prevent Thais from becoming hooked on luxuries. It was only a short period when we felt we were seriously wealthy, says Korn Chatikavanji, president of Jardine Fleming Thanakom Securities in Bangkok. For most people the adjustment back is not a big deal.

Many Thais believe their traditional culture will help preserve harmony, even as economic hardship increases the potential for conflict. Says Kobsak: Thai people seem to accept their fate--a kind of Buddhist position that you can't blame anyone else for your own karma. Still, as the tragic fate of Michael Wansley illustrates, there can be exceptions.

With reporting by Kim Gooi/Bangkok

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