In 2023, Thailand experienced significant political changes, but the economy remained moribund. In May, elections for the 500 seats in the House of Representatives produced an unexpected victory for the reformist Move Forward Party with 151 seats, but not a parliamentary majority.
In second place with 141 seats was the populist Pheu Thai Party. Its leadership includes Paetongtarn Shinawatra, daughter of former prime minister Thaksin Shinawatra, who was then in exile. The Move Forward Party’s electoral success, based heavily on its support among younger Thai voters, surprised most observers because its reform-oriented agenda potentially threatens the position of the country’s elite.
Manoeuvring within the unelected 250-member senate blocked the Move Forward Party from forming government. A coalition led by the Pheu Thai Party, which includes parties representing the outgoing military-backed government, was able to form a majority government. Srettha Thavisin, a real estate tycoon and not an elected member of parliament, was nominated by the Pheu Thai Party as prime minister and was appointed in August 2023.
These political events occurred in the context of continued slow economic growth dating back to the Asian Financial Crisis of 1997–1999. Real GDP growth for 2023 was estimated at 2.5 per cent, the lowest in Southeast Asia after Myanmar. Projections for 2024 and beyond suggest similarly weak growth.
In 2023, inflation remained below 1 per cent and although unemployment was not an issue, continued low real wages certainly were. The Pheu Thai Party’s election campaign promises included a cash handout to all Thai citizens and a large increase in the minimum wage.
Shortly after taking office, the election promise of a cash handout became a key policy objective, taking the form of a ‘digital wallet’ of 10,000 Thai baht (US$286) to each Thai citizen, restricted to purchases within the recipient’s area of residence. This injection of liquidity was to be financed by government borrowing of 500 billion baht (US$14 billion).
The ‘digital wallet’ initiative may have temporary redistributive benefits. Lawyers have argued that such huge government borrowing would only be legal if the current situation was deemed to be a ‘temporary crisis’. A more basic question is whether a demand stimulus makes economic sense, given Thailand’s circumstances.
Current policy reflects a misunderstanding of Thailand’s central economic problem. The reason for the continued slow rate of economic growth since the Asian Financial Crisis has not been a deficiency of aggregate demand. During the COVID-19 lockdown period in 2020–2021, reasonable Keynesian arguments of this kind were made to justify a temporary demand stimulus. That stimulus did indeed occur, as it should.
In 2023, this was no longer the case. Thailand’s current economic problem is not unused economic capacity, including unemployment, caused by a temporary deficiency of demand. The temporary demand stimulus represented by the ‘digital wallet’ program is a policy response to a demand deficiency problem that does not exist.
Thailand’s economic problems lie on the supply side. Slow growth in output is the legacy of sustained low growth of productive capacity over the decades since the Asian Financial Crisis, especially since around 2006. Its central cause has been low rates of private investment and inadequate productivity-raising forms of public investment and economic reform. The level of private investment as a share of GDP has been far below that seen in the decades preceding the 1997–1999 Asian Financial Crisis and is lower than in comparable Southeast Asian countries. Thai businesses have not been confident enough to invest in their own productive capacity.
The Pheu Thai Party’s election promise of a large increase in the minimum wage was popular with its supporters but has been met with predictable opposition from business groups. The new government has radically reduced the promised magnitude of the increase. An increase will still occur and may be justified by moderate increases in the cost of living. But this populist policy does nothing to address the economic cause of continuing low real wages among less-skilled Thai workers — their low productivity.
Recent data on literacy, numeracy and foreign language competence among young Thai people ranks them towards the bottom of Southeast Asian countries. The archaic features of Thailand’s public education system, leading to poor learning outcomes, are a partial cause of this long-term productivity problem. Although Thai education experts have pointed to this problem for decades, successive governments have consistently found it too difficult to address.
Politically expedient, short-term policies that ignore the necessity for long-term productivity-raising reform have been Thailand’s ongoing policy failure. This is clear in the agenda of the current populist government. But regrettably, with some exceptions, it has been the underlying story for at least two decades, whether the governments were democratically elected or not.
In addition to education reforms, Thailand needs to reform trade policy, competition policy and to implement reductions in the cost of businesses’ regulatory compliance. The slow growth of private investment in productive capacity and low real wages of Thai workers have been a consequence of the absence of those reforms.
Peter Warr is John Crawford Professor of Agricultural Economics Emeritus at the Crawford School of Public Policy, The Australian National University.
This article is part of an EAF special feature series on 2023 in review and the year ahead.