The Battle for Thailand

By Walden Bello, May 25, 2010 http://www.fpif.org/articles/the_battle_for_thailand

Nearly a week after the event, Thailand is still stunned by the military assault on the Red Shirt encampment in the tourist center of the capital city of Bangkok on May 19. The Thai government is treating captured Red Shirt leaders and militants like they're from an occupied country. No doubt about it: A state of civil war exists in this country, and civil wars are never pretty.

The last few weeks have hardened the Bangkok middle class in its view that the Red Shirts are "terrorists" in the pocket of ousted Prime Minister Thaksin Shinawatra. At the same time, they have convinced the lower classes that their electoral majority counts for nothing. "Pro-Thaksin" versus "Anti-Thaksin": This simplified discourse actually veils what is — to borrow Mao's words — a class war with Thai characteristics.

Epic Tragedy
No doubt there will be stories told about the eight weeks of the "Bangkok Commune." As in all epic tragedies, truth will be entangled with myth. But one thing will be clear: The government's decision to order the Thai military against civilian protesters can never be justified.

The casualties are still being counted. Government sources say some 52 people were killed in the week ending on May 19. Bodies are, however, still turning up, including about nine that rescue workers discovered on Friday at the massive Central World shopping mall at the Rajprasong Intersection, which was torched by protesters. The final count is likely to be much higher. One soldier, for instance, claims to have counted 25 dead bodies on May 20, as he went with his unit on a room-to-room operation to flush out suspected Red Shirt protesters in the Siam Square area.

Red Shirt sympathizers accuse the military of indiscriminate shooting. They point to six people, including two medical personnel, shot by high-powered rifles outside the temple Wat Pathum Wanaram, where thousands of Red-Shirt supporters took refuge. A report by Thai academic Pipob Udomittipong documented in painstaking detail a military unit's unprovoked firing at a medic's van near the Red-Shirt stronghold at Lumpini Park, a few days before the May 19 assault.

While the Red Shirts count their dead, the Bangkok middle classes dwell on the 39 establishments and buildings that were burned down on May 19. The anti-Red Shirt Bangkok Post editorialized: "City residents will rebuild and prove that the collective good is a force greater than the terrorists who laid waste to our homes and businesses."

Class War
The local and domestic media have portrayed the Red Shirts as a lower-class peasant rabble invading Bangkok from the country's impoverished northeast. This is a distortion. Some Red Shirts estimate that the masses that made up the Red Shirt demonstrators and sympathizers during the two-month-long mobilization were 70 percent from Bangkok and surrounding provinces, and 30 percent from the northeast, north, and other rural areas. Those who resisted the armed assaults at key Red Shirt fortifications and refused the Red Shirt leadership's advice to disperse peacefully before the military operation were mainly young people from Bangkok's lower-class districts, such as Klong Toey.

There is a strong class element in the struggle between the Red Shirts and the Yellow Shirts, which together form the government's mass base. Taxi drivers are mainly a Red Shirt lot, and in the aftermath of May 19 they're eager to blast the government and the Bangkok rich and middle classes to anyone willing to listen. Given the way that the Red Shirts and hundreds of their lower-class sympathizers not only in Bangkok but throughout Thailand have been attacked, arrested, and imprisoned in the last week, there is no reason to doubt the words of one driver that, "when the curfew is lifted, Thailand will witness deeds that have not been seen before in this country."

Who Ordered Whom?
Prime Minister Abhisit Vejajeva ordered the assault. But the question is: Who gave Abhisit, who responds to powerful figures within the Thai elite, the green light? The army command apparently didn't favor an assault on civilians and neither did the police, who largely favored the Red Shirts. General Prem Tinsulanonda, known as "Prem" to many Red Shirt partisans, is the most influential figure in the Royal Privy Council. Some Red Shirts may well believe that Prem, whom they see as a master of intrigue, is the villain of the piece. But what other Red Shirts mean by "Prem" includes others in positions of great authority.

Any suggestion that the King Bhumibol Adulyadej had something to do with the crackdown would be vehemently disputed by highly respected politician Anand Panyarachun. Anand said that, in his experience as prime minister, King Bhumibol always observed the constitutional rules of the game. He only provided advice "on request" and left it up to the political players to decide what to do. 'This is what happened in May 1992, when he brought Chamlong and Suchinda [the warring leaders] together and said it would be desirable for them to do what was in the best interest of the people," Anand says. "He never specifies what is to be done."

Whatever the role of the king in the recent tragedy — if indeed he had any role at all —the Thai public is now engaged in a more explicit discussion of the role of the monarchy, something that used to be shrouded with vague allusions.

Democracy and its Discontents
How did Thailand get to this point? Perhaps the place to begin is May 1992, when the dictatorship of General Suchinda Kraprayoon gave way to a new era of democratic governance. Between 1992 and 1997, elections produced three coalitions. But these coalitions were parliamentary formations dominated by traditional party bosses and elites who delivered command votes, particularly in the rural areas, through their control of economic and bureaucratic sources of wealth. Little was done to address the social grievances of the urban and rural poor.

As parliamentary democracy lost its luster the economy barreled along, with the Bangkok metropolitan area rapidly integrated into the global economy, via financial and production networks. The 10 percent GDP growth rate between 1985 and 1995 — the highest in the world, according to the World Bank — seemed impressive. But it masked deepening inequalities: between Bangkok and the rest of the country, between the city and the countryside, among social classes. Between 1988 and 1994 — the height of the boom that made Thailand Asia's "fifth tiger" — the portion of household income going to the top 20 percent of the population rose from 54 percent to 57.5 percent, while that going to the lowest 20 percent fell from 4.6 percent to 4 percent. In the 1960s, the income of the agricultural worker was one-sixth that of workers in other sectors; by the early 1990s, it was down to one-twelfth. Poverty became, as one economist said, "almost entirely a rural phenomenon."

When the bottom fell off the Thai economy during the Asian financial crisis of 1997-98, the rural poor were suddenly joined in the ranks of the marginalized by almost one million Thais, a great many of them members of the urban working classes. And as globalization went awry, parliamentary democracy fell into severe disrepute as Thai governments seemed powerless to protect the people they were elected to serve from the International Monetary Fund (IMF). In return for providing a $72 billion fund to pay off the country's foreign creditors, the IMF imposed a very severe "reform" program that consisted of radically cutting expenditures, decreeing many corporations bankrupt, liberalizing foreign investment laws, and privatizing state enterprises.

When the government of Chaovalit Yongchaiyudh hesitated to adopt these measures, the IMF pressed for a change in government. The second Chuan Leekpai government complied fully with the Fund, and for the next three years Thailand had a government accountable not to the people but to a foreign institution. Not surprisingly, the government lost much of its credibility as the IMF's demand-reducing measures plunged the country into recession and stagnation.

The Two Faces of Thaksin
It was at in these straitened circumstances that Thaksin Shinawatra, a talented manager, adept political entrepreneur, and extremely effective communicator, achieved ascendancy. As a businessman, Thaksin had benefited from globalization owing to his firms' monopolistic position in private telecommunications, one of the economy's most globalized sectors. Yet he sensed that the financial crisis catalyzed popular fears about free-market globalization, smoldering resentment at the urban and rural elites that seemed to be cornering the country's wealth, and anger at the international financial institutions. On becoming prime minister in 2001, Thaksin made a number of dazzling moves. He paid off the country's IMF loan and kicked the Fund out of Thailand, initiated a universal health care system that allowed people to be treated for the equivalent of a dollar, imposed a moratorium on the payment of farmers' debts, and created a one-million-baht fund for each village that villagers could invest however they wanted.

This side of Thaksin won him a mass following among the country's poor, marginalized, and economically precarious sectors. But there was another side to Thaksin, the side that most of his urban and rural poor followers chose to ignore. Thaksin literally bought his political allies, constructing in the process a potent but subservient parliamentary coalition. He used his office to enhance his wealth and that of his cronies. He failed to distinguish public interest from private gain.

Thaksin appeared to have created the formula for a long stay in power supported by an electoral majority. But then he overreached. In January 2006, his family sold its controlling stake in telecom conglomerate Shin Corporation for $1.87 billion to a Singapore government front called Temasek Holdings. Before the sale, Thaksin had made sure the Revenue Department would interpret or modify the rules to exempt him from paying taxes. This brought the enraged Bangkok middle class into the streets to demand his ouster. Feeling mortally threatened by Thaksin's effort to redraw the landscape of Thai politics, the Thai establishment jumped onto the anti-corruption bandwagon. Unable to break Thaksin's parliamentary majority or to achieve a critical mass on the streets to sweep him from power, the establishment pushed the military to oust Thaksin in September 2006.

Coup and Continuing Crisis
The military was unable to restabilize the country, partly because of its own mistakes and partly because of Thaksin's recalcitrant mass base. The generals thus soured on direct rule. When the post-coup military-sponsored regime exited, elections brought two pro-Thaksin parliamentary coalitions to power. Frustrated at the polls, the elite middle-class alliance resorted to direct action, the most infamous of which was the anti-Thaksin Yellow Shirts' seizure of the new Suvanaphumi International Airport in December 2008. At the same time, the courts intervened to dissolve the dominant pro-Thaksin party, and Yellow Shirt politicians used coercion to detach some pro-Thaksin members and force them to join a new coalition centered around the minority Democrats, headed by Abhisit.

At that point, Thaksin's followers realized that only by mounting a show of force on the streets like the Yellow Shirts could they restore their political position as the country's majority power. Street warfare in spring 2009, which resulted in the cancellation of the ASEAN Summit in Pattaya, failed to dislodge Abhisit. But it proved to be a valuable dress rehearsal for the massive Red Shirt push that began in the middle of March this year.

Within an Inch of Victory?
To many observers, the Red Shirts were within an inch of victory two weeks ago, when they managed to elicit a five-point reconciliation plan from Abhisit that included dissolving parliament in September and elections in November. The government says hardliners among the Red Shirts sabotaged the agreement by demanding new conditions, aimed at making key government leaders accountable for the 20-plus deaths in an earlier clash that took place on April 10. The Red Shirt leadership, on the other hand, claimed that the haste with which the government took back its offer and ended negotiations showed it had been merely using the negotiations to buy time for the military crackdown, which came on May 19.

The surrender of the Red Shirt leadership and the repatriation of thousands of rural folk to their provinces will certainly not end the Red Shirt challenge. According to one pro-Red Shirt academic, the disaffected military, police, and government personnel that played a prominent role in the recent mobilizations will create a potent underground network that will provide leadership for the next phase of the struggle.

But the main push will come from the people themselves. Thailand, it is clear, will never be the same again. A taxi driver summed up where things stand at this point: "The Bangkok rich think we are stupid people, who can't be trusted with democratic choice. We know what we're doing. So yes, they say Thaksin is corrupt. But he's for us and he's proven it. The Bangkok rich and middle classes see us as their enemy. If they think we're finished, they should think again. This is not the end but the end of the beginning."

FPIF columnist Walden Bello is a member of the House of Representatives of the Philippines and author of A Siamese Tragedy: Development and Disintegration in Modern Thailand (London: Zed, 1998).

Recommended Citation:
Walden Bello, "The Battle for Thailand" (Washington, DC: Foreign Policy In Focus, May 25, 2010)

Blowing Bubbles

Very interesting (and useful to put your money where your mouth is), just in from The Daily Reckoning:


By Puru Saxena
Hong Kong, China

BIG PICTURE - Let's face it; central banks are blowing another asset bubble. As if two burst bubbles in the prior decade are not enough, the money maestros have decided to fuel another speculative orgy.

Let there be no doubt, both the technology and real estate bubbles were spawned by cheap credit and it is now clear that the central banks have learned nothing from those two episodes. Despite the fact that near- zero interest-rates caused the previous mishaps, the central banks are (once again) pursuing a suicidal monetary policy. By keeping interest- rates well below the rate of inflation, the officials are encouraging speculation, thereby sowing the seeds of yet another asset bubble.

At present, the yield curve is steep in most nations and the cost of borrowing is low, so is it any surprise that asset markets are rallying? All over the world, asset prices are inflating again and dangerous excesses are around the corner. Only this time around, the public sector in the West is already over-leveraged and when the next asset bubble bursts, governments will not be able to come to the rescue.

Today, most of the developed world is drowning in debt and various industrialised nations face severe deficits. Moreover, these over- indebted economies are struggling to grow, therefore it is highly unlikely that their stock markets will provide leadership.


Now, given the fact that the developing world is growing much more rapidly, it is highly probable that the emerging market equities will benefit the most from asset inflation.

Apart from sporting superior growth rates, it is worth noting that the developing nations have relatively low debt levels. It is our contention that this combination of strong economic growth and compressed leverage will be sure to catch investors' attention.

The next chart highlights the huge discrepancy between the fiscal health of the industrialised and developing nations. As you can see, public debt relative to the economy is already very high and likely to surge in the developed world, whereas this ratio is expected to decline in the developing world. Therefore, over the next decade, we can expect more and more investors to shift their capital from the debt plagued developed nations to the healthy developing economies.

Historically, the developing markets have traded at a valuation discount when compared the developed markets. However, over the coming years, we suspect that the 'risky' developing markets will command a valuation premium relative to the industrialised world. Put simply, when you factor future earnings growth and an expansion in valuations, the developing markets are prime candidates for the next asset bubble.

Since the turn of the millennium, we have favoured the developing countries in Asia and we continue to like China, India and Vietnam. In our view, these economies will prosper for different reasons and their stock markets will reward long-term investors. Now, there can be no doubt that both China and Vietnam have been disappointing over the past few months, but we view the ongoing consolidation as a fabulous buying opportunity.

In addition to the developing nations in Asia, we believe the energy sector is also a worthy candidate for the next asset bubble. In fact, when the realities of 'Peak Oil' dawn in investors' minds, we could witness an outright mania in conventional and alternative energy stocks.

Although we recognise that the developed world faces some serious economic problems, we are positive about asset prices for the next 2-3 years. In our view, monetary policy determines the fate of every asset- class and as long as interest-rates are low, the ongoing bull-market should continue. In fact, history has clearly shown that each bear- market in the past was preceded by a period of significant monetary tightening. In every previous bull-market, rising interest-rates was the straw which broke the camel's back.

Finally, the last chart shows the Fed Funds Rate since 1998 and plots the two most recent US recessions (pink shaded areas on the chart). As you can see, prior to the 2001 recession, the Fed Funds Rate peaked in mid-2000 and it is this monetary tightening which caused the NASDAQ- bust and the 2000-2003 bear-market. Furthermore, prior to the most recent recession, the Fed Funds Rate peaked in mid-2007 and this monetary tightening was responsible for the credit-bust and the 2007- 2009 bear-market.

At present, the Fed Funds Rate is extremely low and if the economic recovery remains intact, then over the following months, interest-rates will rise. In our opinion, the next bear-market will only occur when the Federal Reserve is done raising its benchmark rate for this cycle. Now, given the precarious state of the US economy, we suspect that the Federal Reserve will increase interest-rates in baby-steps and the next monetary tightening cycle should last for at least 2-3 years. If our guesstimate turns out to be correct, the next significant correction in asset prices will occur around 2012-2013 and until then, we intend to enjoy the benefits of cheap money.

Now, before you get excited, we want to caution you that the next bear- market has the potential to be as equally traumatising as the previous one. Remember, when the bear returns in 2-3 years time, governments in the West will be unable to provide more 'stimulus'. By then, their balance-sheets will be in a terrible state and during the next bear- market, sovereign default risk will be the Achilles Heel. So, in the next bear-market, instead of financial institutions going bust, entire nations are likely to default.

Given the ominous scenario outlined above, we want to re-iterate that we have no intention of suffering during the next bear-market. Accordingly, we will endeavour to re-position our clients' capital towards the end of this bull-market, so that we are able to preserve our gains over the full business cycle.

If our assessment is correct, towards the end of this bull-market, we are likely to see the following red flags:

• Rising interest-rates
• Surging inflationary-expectations
• Deterioration in the market's breadth
• Diminishing new highs and expanding new lows
• Increasing credit spreads
• Credit concerns
• Spike in the price of crude oil
• Inverted yield-curve
• Extreme investor optimism

When the above warning lights start to flash in tandem, the next recession/bear-market will be around the corner and we will switch from 'capital growth' to 'capital preservation' mode. However, as we have explained above, this bull-market should continue for the next 2-3 years and as long as the primary trend is up, we will remain fully invested in our preferred growth-producing assets.

Puru Saxena
for The Daily Reckoning
Joel's Note: Puru Saxena publishes Money Matters, a monthly economic report, which highlights extraordinary investment opportunities in all major markets. In addition to the monthly report, subscribers also receive "Weekly Updates" covering the recent market action. Money Matters is available by subscription here.

Puru is also the founder of Puru Saxena Wealth Management, his Hong Kong based firm which manages investment portfolios for individuals and corporate clients. He is a highly showcased investment manager and a regular guest on CNN, BBC World, CNBC, Bloomberg, NDTV and various radio programs.