September 21st, 2006

Voted for Dean

Roots of the Coup: Thailand and the IMF

A few of you are too young to remember it, but Thailand made world-wide news not that long ago: the 1997 Asian Financial Crisis. I've struggled hard without how to simplify this down without simplifying it too far down. Some of you who care about this kind of thing will be inclined to pick nits with the following explanation, but it's my opinion that the nitpicks I foresee you raising add no clarity to the discussion, nor are they important. And that's what the comments links are for, anyway. The most important thing for me is not to include every niggling detail and every disputed opinion and every external influence, but to summarize not just what this has to do with Thailand but what this has to do with you. So here goes.

During the early 1990s, Thai banks and other companies saw the possibility of carving out a moderately successful niche for Thailand as, in essence, the strike breakers for South Korea and Taiwan and China. That is to say, Thailand positioned itself as a second-tier outsource for manufacturing, a place where Chinese companies and South Korean and Taiwanese companies whose laborers were starting to feel entitled to a real living wage could shut down one or more local production lines, send those production lines to Thailand, and thereby send a warning shot to their own workers. Malaysia and Indonesia were doing roughly the same thing. At the time, the advice they were receiving from everywhere in the world said that if they wanted to be able to borrow the money to build the infrastructure to do this, they had to take certain steps that would reassure government and private investors in the US, Europe, China, and Japan -- not least of which to "peg" their currency to the US dollar. After all, if I were a wealthy investor who loaned them millions of baht, and they were to "run the printing presses" and devalue the baht, the money they paid me back might be worth only half of what I loaned them and I'd lose money. Sounds sensible, so far, right?

The problem is that during the mid 1990s, nearly all of the government and private money that was raised for these purposes got stolen. Thailand in particular became one of the world's poster children for the disease of "kleptocracy," rule by thieves. So a group of private investors, both because they were offended by this and because they saw a way to make a quick buck off of it, staged an economic attack on the baht in the world's currency exchanges. Virtually every government in the developed world, and virtually every bank in the developed world, had a vested interest in the baht staying stable; they all fought back. But the economic gunslingers succeeded in provoking a moral panic among private investors, and the private investors had more money in the game than all the governments and all the banks combined, so they won, and in 1997 the baht collapsed in value. All Thai economic assets were suddenly worth half of what they'd been worth the year before. Every Thai company that owed money to foreigners now had to pay back twice as much per month as they had paid a year before. The whole country's economy collapsed.

Enter the International Monetary Fund. The IMF is a coordinating agency for governments and banks and other investors that specializes in country-wide bailouts and rescues of smaller countries, where a few tens or hundreds of billions of dollars in new loans might actually make a difference as to whether they're going to make it or not. But the IMF really, really wants to be able to reassure its investors that they're not just making things worse by pouring money down a rat hole. So, they demand that any government that wants IMF money has to voluntarily agree to a Structural Adjustment Package, a set of laws and policies that they have to change to ones that the IMF apparently sincerely believes will produce a healthy economy that will some day be able to pay back these loans. Unfortunately, those policies are based almost entirely on the myth of The New Capitalist Man -- they require that all government agencies be hamstrung or shut down, that the schools and clinics all close and the roads stop being repaired, that all law enforcement over companies foreign and domestic cease, that all local assets be sold to wealthy companies elsewhere in the world to "manage" with no obligation to actually provide local service or obey local laws.

The net effect of an IMF SAP is that the IMF holds countries down while rich guys from wealthier countries gang-rape them to death; the campaign contributions that net them the privilege of participating in the "privatization" are their tickets to the gang-rape. The IMF chains countries to rocks and hooks them up to life support so that vultures from wealthier countries can swoop down every day and eat their liver. No country has ever actually escaped from grinding poverty without violating the terms of their SAP. Nor do I think it's a coincidence that every country that gets blackmailed into an IMF Structural Adjustment Plan very shortly thereafter ends up losing one or more states in a local civil war against Marxist or Islamist or Islamic Socialist rebels, and I'll tell you why. Like the US Republican Party and everything else related to the myth of the New Capitalist Man, the IMF couldn't be doing a better job of discrediting the idea of democratic free-market capitalism if they were being run by Marxist and Islamist infiltrators. We run the serious risk here in the early 21st century of seeing the idea of people having a say in their own governance, able to own their own businesses, and running their lives without the government telling them how they have to live, completely discredited. We run the risk that people will conclude that democratic capitalism is just a polite euphemism for rapacious hereditary oligarchical kleptocracy. (And not just people in the 3rd world.) So, unsurprisingly, one of the big issues right now in Thailand is an Islamic separatist terror campaign that began during the IMF bailout.

Next: Thaksin Sinawatra and "Thaksinomics"
Brad @ Burning Man

"Thaksinomics" and the Thai Coup

If you grew up in a capitalist country like the US, you probably grew up hearing the phrase "a real Horatio Alger story" used as synonymous with "rags to riches." Everyone assumes that the plot of a Horatio Alger novel involves some hero who starts with nothing, and by dint of hard work and virtue with no help from anybody else achieves great wealth and status. Yep. Ironically, that's not what Horatio Alger actually wrote. The series of novels that earned him his fame were about a CEO who started out in life as a begger and itinerant boot-polisher; his nickname provides the first book in the series, Ragged Dick, its title. So, how did Ragged Dick earn his wealth and status? Well, he may have been born a poor orphan, but he was an uncommonly handsome one. That got him a lucky break, entirely from his looks. He then used hard work and virtue to claw his way up to ... lower middle class. But that was high enough to briefly come to the attention of the boss's daughter, who married him for his good looks, and thereby Ragged Dick was handed the family's assets and respectability and fame and position and power on a silver platter.

Apparently "Thaksin Shinawatra" is Thai for "Ragged Dick."

The recently overthrown elected Prime Minister of Thailand started out as a poor peasant. By dint of hard work and study, he clawed his way into a position in the police force, and by merit he earned the right to travel to the US to study criminology. When he returned he ... no, not continued his rise through merit and hard work, he married the daughter of one of the commanding generals of the police force, during the kleptocracy period, and thereby gained access to government assets and other privileges. What followed this was a series of "riches to rags" stories that puts George W. Bush to shame. We mock the current US President for being one of the only people in history dumb enough to actually lose money on a major league baseball team? Thaksin Shinawatra lost money on telecom monopolies. Repeatedly. That, my friend, takes truly legendary amounts of skill as a screwup. He also used his family position to dabble in politics, but didn't amount to much there either, and was out of office and temporarily retired from politics during the 1997 Asian Financial Crisis I wrote about yesterday.

The International Monetary Fund's "Structural Adjustment Program" for Thailand seems to have been some kind of a wakeup call for him; it's almost impossible to reconcile the post-IMF Thaksin with the pre-IMF Thaksin. It's as if Warren Harding were to suddenly wake up one day as Nelson Mandela, as if Jeffrey Skilling were to wake up one morning and find he'd morphed into Robert Rubin. He founded a new political party called Thais Love Thais (Thai Rak Thai, or TRT) whose platform was 100% in opposition to the parts of the standard boilerplate IMF SAP that require loan recipient countries to stop providing basically any government services. His party won a huge majority in the first elections after the IMF bailout, and apparently the new Thai government immediately set about ignoring what they'd agreed to with the IMF. Instead of tightening credit, Thaksin set up a combination of government lending programs, and micro-lending banks paid for out of his own family fortune, to provide small business loans in every province in Thailand. Instead of cutting all government services, he built new roads in the poorer provinces, provided every school in Thailand with more up to date textbooks and set up Thailand's first ever European-style universal health care program including discounted anti-viral drugs for people with HIV or AIDS. Instead of deregulating all business local and foreign, he set up a variety of auditing programs to prevent a return to the kind of corruption that had bankrupted Thailand in 1996 to 1997, including a final appeals group that reported only to the King, not the elected Prime Minister. The newspapers, and eventually his own party, adopted the nickname "Thaksinomics" for his programs.

Anybody who "knows anything" about economics would have told you the result was inevitable. More government services and more lending equals more debt that the government can't pay off, equals more taxes, equals fewer jobs. More government services also means more government jobs means more corruption and theft. Any "expert" in developing an economy after a collapse would have predicted that Thaksinomics would have been an unmitigated disaster. Instead, it ended up massively improving Thailand's workforce and infrastructure, and thereby reassuring Japanese and Chinese investors who ended up moving yet more manufacturing operations to Thailand. Poverty levels dropped by 40%, and Thailand paid off its IMF loans in full two years early, back in 2004. But the urban elite, especially those who'd been appointed or trained by the IMF, "knew" that those kinds of stimulus programs can't work. They "know" that reducing rural poverty can only result in inflation and wreck the country's economy. They "know" that no matter how many Thais thought he saved the country from ruin, Thaksin Shinawatra was clearly destroying it in the long run.

So they went looking for some way to tarnish his popularity so they could either vote him out or, failing that, overthrow him. The first thing they tried was, rather apparently, a propaganda campaign of pure, unadulterated slander. Thaksin responded the way anybody trained in America would respond: he filed libel suits against the people who published the slanders. And won, including in an appeal to a court independent of his government, which issued orders that the media stop broadcasting and publishing the slanders. But Thaksin's opponents were able to turn that lemon into lemonade; they started a whispering campaign that the court was crooked, and set out to persuade people (both Thais and us in the west) that those libel and slander suits were a Soviet-style censorship campaign aimed at covering up corruption and suppressing democratic opposition. But this wasn't getting them what they wanted; they ended up pulling all of their opposition parties out of the last election in a transparently dishonest "boycott" when they realized that Thaksin was still going to win re-election. And there it would have remained ... had Thaksin not given them the perfect opportunity, himself.

You see, one of those free telecom monopoly giveaways he'd received back in the old kleptocracy days was the license on Thailand's few guaranteed spots for satellites in fixed, geostationary orbits. Because the Thai economy was now booming, for the first time in his life one of Thaksin Shinawatra's personal investments was now actually making money, real money. It got so successful so fast that Thaksin got nervous about the size of the paper fortune he was accumulating, not to mention of being Prime Minister while owning vast numbers of shares in a company in an industry that the government regulates. So to eliminate the conflict of interest, to raise money for the company (Shin Satellite Communications) that it could use to improve service, and probably also to give the pro-globalization people who hated him something to shut them up, he sold his family's personal shares in the company to the highest bidder, without showing any preference in politics or nationality or loyalty, just the way an IMF structural analyst would have told him to. That was his big mistake. The shares sold for $1.8 billion, a vast sum even by our standards but almost Gatesian by Thai standards. It was a Singapore company that bought the shares, which should have delighted the pro-globalization anti-regulation opposition but which looked bad to Thai patriots and nationalists. Worse luck for him, due to a long-standing loophole in the law, it turned out that the $1.8 billion was tax-free. Now, maybe he feels entitled to that money; the telecom licenses were given to him because of his family connections, but he raised the money to put those satellites up there and to run the business until the Thai economy boomed himself. Or maybe he chalks it up to luck. He certainly doesn't feel that he did anything wrong; everything he did was open, above board, transparent, 100% legal, upheld by the courts, and even ratified after the fact by the King. But he can be as right as he wants, and yet still, from a propaganda angle, the deal just stinks. Heck, it stinks to me; one of the things that slowed down my analysis was that I spent a full day digging because I couldn't believe that this deal was honest. To casual appearances, it looks exactly like every other deeply corrupt privatization scam of the last 25 to 30 years.

His opponents started feeling optimistic ... but Thaksin stubbornly stayed ahead in the polls, because there were just plain too many Thais who were voting their own pocketbooks, who knew that Thaksinomics was what was putting the food on their families' tables. So to save the country, to make it safe for globalization, they tried having him assassinated, via car bomb. He survived. Rattled, he knew that their next move would be coup d'etat. So he undertook the standard anti-coup precaution of shuffling military unit membership around, to break up and scatter any coup plots that were already in progress. Unfortunately, this ended up alienating so many new military enemies that it did more harm than good. They were already suspicious that he was too soft on Islamic terrorists, since he was prone to talking about how eventually addressing the sources of their anger by undoing the damage of the IMF SAP in even the Muslim-majority parts of Thailand would do more to end the revolution than brute force. Then came the reshuffling of units, and the military concluded that this would also hurt their ability to fight Islamic terrorists ... so they joined with the pro-IMF, pro-globalization, pro-monopolistic kleptocracy "intellectuals" and, while Thaksin Shinawatra was out of the country for the UN General Assembly session, overthrew him. They appear to have also persuaded the King, either through talk or by force, that no matter what the courts say Thaksin did something bad or wrong in the Shin Satellite sale and in weakening the military, so he's backing the coup plotters.

Lest you show any inclination to give the coup plotters the benefit of the doubt, you shouldn't. The Thai people seem to be, out of nearly universal respect for the King's wishes. But I don't see any way to legitimize a coup that used "press censorship" as a justification only to impose even greater press censorship, that attacked corruption but immediately shut down the police inquiry into the assassination attempt on Prime Minister Thaksin, and that says it seeks to protect democracy from a strongman by outlawing altogether the country's single largest and most popular political party. No, what we have here is a situation exactly akin to what would have happened in the USA if, say, the Republicans had somehow successfully impeached Franklin Roosevelt in the 1930s, probably over his attempt to ram the New Deal through a dubious Supreme Court by expanding it so he could pack it with pro-Roosevelt judges. If they had impeached him, the New Deal would have foundered and the Great Depression would have dragged on. The US would have been too poor and weak and internally disillusioned to fight World War II, and had the Republicans put a Nazi sympathizer like Charles Lindbergh in the White House in 1940 the US might well have sided with the Nazis and the Axis. But even if we hadn't, even if the whole world hadn't gone down the toilet, the loss of the New Deal would certainly have flushed the country's economy the rest of the way down the toilet. Democratic capitalism would have ended up so thoroughly discredited that even if the electorate didn't turn to fascism, they certainly would have turned to socialism or even communism to save them. It would have meant the death of any hope for this country.

Thaksin Shinawatra's overthrow almost certainly doesn't mean the death of hope for the world. It's bad news for the world to see that the lassez faire preachers of the religion of the New Capitalist Man have so much popularity and power that their followers are willing to use slander, attempted assassination, and coup d'etat to stop anyone from proving them wrong. It's troubling to see military force used in such a case even after six years of prosperity showed they were wrong. But the world can probably survive just fine if Thailand sinks back into poverty, neocolonial status, kleptocracy, and an expanding Islamist insurgency that will eventually make a nifty base of operations for al Qaeda in the region. But if my analysis is right, it really sucks for the Thai people ... and bodes ill for the rest of us who are trying to convince the world that the globalists and the Libertarians aren't the true face of free, democratic capitalism; they're the disease that free, democratic, capitalist economies die of. But once they disassemble Thaksinomics if they get away with it, we'll have one less successful democracy that also works for its increasingly prosperous hard working people as well to use as an example.