Local Trumps Global in Thailand
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Ten years after the Asian financial crisis which began with the collapse of the Thai baht on July 1, 1997, Thailand is once again in the forefront of international debates about the pros and cons of globalization. As my research interviews and the experiences of a U-M undergraduate study-tour revealed this summer, the global also has a decided local face.
The baht itself soared to a 10-year high in July, 10 months after a military coup deposed controversial elected Prime Minister Thaksin Shinawatra, and seven months after the Bank of Thailand (where several U-M alumni work in senior positions) first imposed capital controls, only to quickly withdraw them.
The controls were intended to stem the inflow of short-term capital that caused the baht to experience one of the world’s strongest surges in currency value, of nearly 25% against the U.S. dollar in the past year. They precipitated a sharp but short-lived decline in the Thai stock market, which by July had recovered to record highs as foreign money flooded in to buy undervalued stocks in anticipation of the restoration of democracy and the associated recovery of investment.
Thailand was initially chastised by the international financial community for interfering with the free flow of global capital. Yet some foreign investors themselves later voiced sympathy for Thailand and other small open economies vulnerable to sudden and serious adverse effects caused by volatile flows of uncontrolled “hot money.” Economists are increasingly willing to recognize the potential rationality (though not yet the practicality) of certain short-term capital controls, such as Chile successfully implemented in the 1990s before the Asian crisis spilled over into Latin America.
With a floating currency, a persistent current account surplus, and large foreign exchange reserves, Thailand today is not at risk of suffering a financial crisis like that of 1997, after which the country took four years to recover from the resulting sharp plunge in national income and output. But the strong baht is undermining the cost competitiveness of Thailand’s exports, especially those—like labor-intensive apparel and footwear—which compete with China’s. At least one major Thai apparel export manufacturer, Thai Silp, closed down and laid off 5,000 workers during my visit in July, and all the textile manufacturers I interviewed in Thailand and Malaysia supported U.S. government efforts to pressure China to strengthen its undervalued yuan.
The value of these factory jobs to Thai workers was revealed to U-M undergraduates on a June study-tour focused on women, work, and health in Thailand. The 10 students visited and interviewed workers at Nice Apparel Co., a Bangkok supplier of sportswear to Nike for the U.S. market, and at the AA Footwear factory, owned by the family of Kim and Jane Chongsitwatana (recent U-M BSE and BBA graduates), which manufactures shoes under the Dior and Geox labels for the Thai market. Their interviews confirmed what the students had learned in their U-M course on Contemporary Social Issues in Southeast Asia. Contrary to stereotypes prevalent on U.S. college campuses, factory jobs are appreciated by the mostly rural migrant work-force because they give “year-round, fairly stable pay in reliable jobs, allowing workers to save up money for their future and their children’s future and to pay off their debts. These are places where new lives begin, the first small step toward a future outside the fields.” [Reported by freshman Angela Sarb in the study-tour’s web log entitled “SEAS Abroad: Thailand Summer 2007 (http://mblog.lib.umich.edu/seas215thailand07/)].
Thailand is also well known to have some of the best labor standards in the global industry, one of its attractions to global buyers like Nike who increasingly require compliance with global standards. My research suggests that Thailand’s international competitiveness in compliance derives in large measure from local factors, specifically national rather than foreign ownership of its textile and apparel export factories, and the paternalism and conflict-avoidance characteristic of Thai culture.
A contrasting example where Thailand grabbed the headlines on a global “hot issue” illustrates the potential conflict between multinational corporate profits and local consumer welfare. The Thai Ministry of Health exercised its right to issue “compulsory licenses” to make or buy generic anti-AIDS drugs, effectively breaking U.S. patents and making the drugs affordable to local AIDS patients. This action, though allowed by WTO rules on public health grounds, and also undertaken by Brazil, Malaysia and other middle-income countries, was opposed by the patent-holding pharmaceutical companies. Abbott Labs and Merck withdrew several drugs from Thailand until a deal was brokered by former U.S. President Bill Clinton, whose Clinton Foundation joined many other international NGOs and medical communities in supporting the Thai move.
The visiting U-M students learned about the challenges faced by People Living With HIV/AIDS (PLWHA), when they visited the Thai AIDS Treatment Action Group (www.ttag.info), a PLWHA-run HIV/AIDS advocacy organization working at both the government policy and grassroots activist levels. Their host was TTAG co-founder and U-M CSEAS MA alumna Karyn Kaplan. TTAG joined worldwide protests this summer against Abbott for withdrawing Kaletra—the first anti-retro-viral drug that does not require refrigeration (particularly useful in tropical countries)—from Thailand following the Thai government’s compulsory license on it.
Thailand’s leadership in HIV/AIDS awareness and prevention is widely recognized, and its success in lowering HIV/AIDS infection rates provides some of the best models and strategies for combating the epidemic in the developing world. The Bill and Melinda Gates Foundation gave its 2007 Global Health Award of $1 million to Dr. Mechai Viravaidya’s NGO, the Population and Community Development Association (PDA), for its work in HIV/AIDS prevention, microfinance and social enterprise projects in village development for the support of PLWHA. Dr. Mechai plans to speak at U-M this November, and to discuss possible graduate student internships and other multi-disciplinary collaborations between PDA and U-M.
Despite the popularity at home and abroad of Thailand’s compulsory licensing action, and partly because of it, at the end of June Thailand lost tariff-free GSP (Generalized Systems of Preference) trade access to the U.S. market for several products including gold jewelry and flat-panel color TV sets with VCRs. This, too, could undermine Thailand’s export competitiveness in these products and cost Thai workers some valuable factory jobs.
Thailand has also caused anxiety among international investors by proposing a Foreign Business Act (FBA) that would disallow the common practice of using local nominees to disguise foreign ownership of businesses in restricted sectors. But the interim military government’s local motivation here is to capitalize on the unpopularity of the Singapore government-linked company Temasek’s February 2006 acquisition of Shin Corp., using this tactic. Shin, a telecommunications company owned by former Prime Minister Thaksin and his family, was viewed as a Thai “crown jewel” in a strategic sector. Its $2 billion tax-free sale to Singapore triggered the months of political protest that culminated in the September 2006 coup which ousted Thaksin (who had himself used nationalistic rhetoric to win votes while in power).
It is unlikely that the FBA, if passed (as seems likely), will usher in an era of enhanced economic nationalism or protectionism in Thailand. The leader of the Democrat Party, Abhisit Vejjaijiva, expected to head the next (elected, coalition) government, says he supports foreign investment, in contrast to recent anti-foreign investor sentiments and policies in China, India, South Korea and some Latin American nations. Rungrit Maneethai, U-M MSE alumnus who accompanied the U-M students throughout their visit to Bangkok and Chiangmai, has joined the Thailand Board of Investments, which continues to work to attract foreign investments. Several Michigan-based companies—Dow Chemical, Ford Motor, General Motors and Guardian Industries—are among the largest foreign investors in Thailand, often referred to as the “Detroit of Asia.” Despite the current controversies, Ford is considering further major investment in Thailand, which it uses as an export base to over 130 countries, particularly for its signature pick-up trucks.
If Thailand’s controversial recent international economic policies (capital controls, compulsory drug licensing, and the Foreign Business Act) are “not as bad” as they might seem on the global stage, the same cannot be said about its domestic politics, which remain unsettled. On their study-tour, the U-M students came close to one of the numerous anti-government protests that raged in Bangkok all summer, and their interviewees were more forthright in political discussions than they might have been in the past. My own meetings in Bangkok with American and Thai U-M alumni in academia and the business sector revealed that all opposed Thaksin—though they were also disappointed with the interim government—and look forward to the restoration of electoral democracy, given that the new constitution has been passed in a national referendum, and new elections scheduled for December 23.
With the 1997 financial crisis an increasingly distant memory, and Thailand as yet remaining relatively untouched by the recent international financial market turmoil rooted in the U.S., among Thai, local politics easily trumps global economics.
Linda Lim, Professor of Strategy and Director, Center for Southeast Asian Studies, visited Thailand for research and alumni meetings in July 2007. The Center is the recipient of a $100,000 gift from the Thai Embassy, initiated by the Thaksin government and effected by the interim government, to establish an endowment to promote Thai Studies at U-M, including student visits and faculty research.