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One and a half year after the coup, the military regime is still in power. Elections are again delayed and stability is preserved through repression. In the meantime, the economy is performing disappointingly with tourism being the only bright spot.

Strengths (+) and weaknesses (-)

(+)      Well-diversified and competitive economic base

The Thai economy comprises various large and strong sectors, which increase its resilience to external and domestic shocks.

(+)      Strong external position

Thanks to stable current account surpluses, Thailand has ample and increasing foreign exchange reserves that cover about 7 months of imports. Foreign debt and associated payments are low.

(-)       Ongoing political instability

Politically, Thailand’s population remains deeply divided between the country’s urban administrative and military elite (Yellow Shirts) and the mainly rural less affluent classes (Red Shirts). After months of protests, the military intervened and placed the country under military control in May 2014.

(-)       Low income levels and marked income inequality across regions

Thailand’s GDP per capita of USD 6,022 is relatively low and the unequal income distribution between rural and urban areas contributes to lingering tensions between the elite and the less-affluent parts of the population. 

Key developments

1. Stability through repression

The military regime continues to rule Thailand through repression. Although this policy has brought stability in the short-run, it does not solve the underlying structural problem. Thailand’s political environment is deeply polarized between the Royalist, urban administrative and military elite (Yellow Shirts) and the poorer rural population (Red Shirts). Although, the junta abandoned martial law in March this year, the interim constitution still gives the military almost unlimited power in case of “any threats against public order, national security, the monarchy, national economy or sovereignty of the country”. Since the junta came to power, the amount of lèse-majesté charges increased dramatically. In Thailand, insulting the royal family is punishable by long prison sentences. It looks like the government uses these charges to warn opponents to not openly criticize the current regime. To reduce the power of the Red Shirts, the junta has begun a negligence trial against former PM Yingluck Shinawatra and has revoked the two Thai passports of former PM Thaksin Shinawatra, who lives in exile. In response to the economic slowdown (see key development 3), PM General Prayuth reshuffled his cabinet in August 2015. To raise support in the rural areas, he installed Dr Somkid, former Finance Minister in Thaksin’s government, to lead the economic team. His plans include the extension of subsidies to farmers and a subsidization of loans to the poorest people. These populist policies are clearly aimed at raising the popular support of the government in rural areas.                  

2. Elections unlikely to be held in 2016

It is widely expected that the elections will be delayed further than the currently proposed date, September 2016. This date was already a postponement of half a year compared to the original timeline laid out in the ‘roadmap to democracy’. The military will probably try to remain in power until the passing of King Bhumibol, whose health is precarious. The succession will likely be turbulent. The Crown Prince, Maha Vajiralong, lacks the support of the military and is said to be befriended with former PM Thaksin Shinawatra. A renewed power conflict between the army, the Yellow Shirts and the Red Shirts cannot be excluded. Before general elections, a constitutional referendum will be held on 10 January 2016. It is still unclear what the ballot questions will be. The cabinet might e.g. add a question on whether the current government should remain in power for longer. Even if the draft constitution is accepted, the military will remain powerful. The proposed constitution includes non-democratic elements, such as an upper house that consists for 2/3 of unelected members and that the prime minister can be appointed by the parliament.  

3. Economic performance is still among the weakest in the region

The Thai economy is still performing below its potential. Economic growth disappointed in both the first quarter (3.0% y-o-y) and the second quarter of 2015 (2.8% y-o-y) (figure 1). Going forward, growth will likely sluggish. The remain economic weakness is broad-based, with only the tourism sector performing well. Domestically, private consumption growth is sluggish and is expected to remain so. Thai households are among the most leveraged of the region (consumer debt is estimated at about 80% of GDP). Also the depreciation of the Thai Baht in the past year will weigh on households’ purchasing power. Private investment growth is still very modest and will likely not improve soon given the uncertainty over the political outlook.  On the other hand, public investment and government consumption are increasing fast. The current government plans to reactivate economic growth by increased public spending. It wants to increase subsidies to farmers, extend cheap loans to low-income earners and accelerate infrastructure investment plans. An improvement of the country’s infrastructure will likely be positive for Thailand’s competitiveness. Another bright spot for the Thai economy is the tourism sector, which contributed 2.7%-point y-o-y to GDP growth during the first two quarters of 2015. Tourism arrivals showed a strong increase over the last year (figure 2). 

Figure 1: Economic recovery remains muted

The bombings of 17 August 2015 could, however, quickly reverse this trend if the attacks turn out not to be one-off incidents or if it causes political instability to rise again. Finally, exports of goods is a drag to the economy, it subtracted 1.9%-point of economic growth in 15H1. The Thai export sector struggles due to weak global demand and the production of products that are becoming technologically obsolete.

The weak domestic demand is reflected in low inflation figures. The headline inflation figure has been negative since the start of the year (-1.1% in 2015Q2), but this is mainly due to a large negative contribution of raw food & energy. Core inflation is also muted, though, (0.9% in 2015Q2) and below the lower bound of the inflation target (2.5% ± 1.5%). The central bank already lowered the policy rate twice during 2015 (current rate: 1.5%). Whether more monetary easing will be beneficial for the Thai economy in the long run is questionable given the already high private indebtedness.

Figure 2: Tourist arrivals growing strongly

Factsheet of Thailand 

Background information

Thailand ranks among the more developed economies of South-East Asia and, thanks to its attractive business climate, has become a major destination for foreign investment in the region. Even though the country’s nominal GDP per capita at PPP of roughly USD 16,000 is still relatively low, the Thai economy is highly diversified. While tourism constitutes a major source of foreign exchange earnings, the country’s strong manufacturing sector generates an oftentimes sizeable structural trade surplus. Thailand’s external position is strong, as foreign debt remains relatively low at about 35% of GDP and foreign exchange reserves covered about 200% of debt service costs in 2014.

In contrast to its relatively strong economic base, Thailand’s social situation is tense, as economic development could not bridge a marked divide in incomes between the rural and urban population. On the political stage, this problem has led to the creation of two major political camps. The so-called Yellow Shirts supports the royalist administrative and military elite. The less-affluent Red Shirts mostly support former Prime Minister Thaksin Shinawatra, who was ousted in 2006, and his sister and former Prime Minister Yingluck Shinawatra. Both camps tend to stage mass protests, which negatively affect the economy. After various coups since 1932, the country’s military has been known to intervene if deemed necessary. It did so again in May 2014 after 6 months of protests by the Yellow shirt movement.

The endorsement of the coup by the widely-revered 87-year old King Bhumibol, an important figure of reconciliation in Thai society, gives the military government some legitimization in the eyes of many Thais. However, there is a lingering risk of sizeable unrest unless the current administration succeeds in re-igniting economic growth and preparing democratic elections, which are currently scheduled for late 2016.

Economic indicators of Thailand

Keys features of Thailand ’s regulatory reform

The Royal Thai Governments (RTG) believes one key factor that has hindered economic and social development has been regulatory inflation. Having considered the European experience of such problems in 1970s, the RTG has developed policies to avert the problem. In 1988, it issued the Rule of the Office of the Prime Minister on Matters to be considered by the Council of Ministers, which requires the concerned government agencies to conduct social and economic impact assessment as well as public consultation on all regulatory proposals.

In 1991, the Law Reform Commission (LRC) was established by the Council of State Act (No. 3), B.E. 2534 as the organisation that reforms laws for the RTG. The LRC has the powers and duties to reform all existing laws and regulations to make them responsive to contemporary economic and social contexts, as well as to develop laws needed for the future.

In 2000, the Prime Minister established the Law Reform for Development of Thailand (LRDT) to assist the LRC. A year later, LRDT proposed the adoption of the Regulatory Checklist in an attempt to prevent further influx of unnecessary legislation. The Regulatory Checklist became a significant tool of the Office of Secretariat of the Council of Ministers. It was later annexed as part of the Royal Decree on Matters, to be considered by the Council of Ministers of 2005.

Legislation, policy and principles

There are three basic principles of regulatory reform in Thailand. The first principle is to simplify or reduce the number of outdated legislations that are still enforced by using the regulatory checklists and incentivising government agencies to review all existing legislation under their administration. The second principle is to improve the quality of both new and existing legislations in terms of their effectiveness and simplicity in enforcement. The final, and the most significant, principle is the concept of increased participation of all stakeholders in the legislation drafting process in order to minimise any unwanted or unintended effects of legislation.

Objectives of regulatory reform

The main objective of regulatory reform is to increase effectiveness in enforcement and predictability of legislation. In order to achieve these objectives, a regulatory checklist has been introduced by RGT to ensure the readiness of government agencies when proposing new legislation and requiring the use of appropriate mechanisms for the measurement of their effectiveness.

Mechanisms and institutions to oversee regulatory reform Institutions

Overall institutional framework

With the disbandment of the LRDT in 2006, the LRC under the Office of the Council of State is now the principal agency responsible for regulatory reform. The LRC’s work in regulatory reform is primarily focused on research in various sectors of legislation with the aim of improving the quality of the legislation. However, with the introduction of the Constitution of the Kingdom of Thailand 2007, a new independent body must be established to conduct reform in judicial process. Consequently, the bill for establishment of the new independent body for judicial process reform has been drafted by an independent committee and is now under the consideration of the parliament.

Key policy decision-making bodies

While the Council of Ministers is a traditional body with the power to make decisions and determine policies related to legislation, over the last decade the private sector has also gained an increasing role in the decision-making process through the Public-Private Joint Committee (PPJC) which acts as an expert advisory body that reports directly to the RGT. Moreover, government agencies often retain experts from the private sector to participate in formation of policies that result in introduction of new legislation or to be involved in taskforces responsible for implementing policies.

Awareness and support

The need for regulatory reform has been recognised by the RTG and the private sector. Since 1997, the private sector, particularly exporters and small-medium enterprises, has consistently voiced its concern over the rapid increase in legislative compliance costs and called for both regulatory reform and deregulation in order to enhance the level of business competitiveness. Only a few government agencies have yet to demonstrate a willingness to commit to regulatory reform policy. Thus, incentive programmes could be established for government agencies to meet reform targets.

Transparency and predictability

For the past decade, various legislations such as the Administrative Procedure Act B.E. 2539 (1996), Official Information Act B.E. 2540 (1997) and Act for Establishment of Administrative Court B.E. 2542 (1999) have been introduced by RGT to create transparency in government administration and excising of power of government agencies. As more decisions have been granted by the Administrative Court, the transparency and predictability in the administration of legislation by government agencies have also been increased.

Improving the quality of regulation

Regulatory tools, systems and processes for improving the quality of new regulations
(Flow)

At present, there is a requirement set by section 57 of the Constitution of the Kingdom of Thailand, B.E. 2550 and by the Regulatory Checklist that a government agency proposing a new legislation/regulation, particularly a legislation/regulation that has significant impact on the public, to conduct public consultation. Moreover, the Royal Decree on Matters to be considered by the Council of Ministers of 2005 requires proposed new legislation submitted to the Cabinet to be accompanied by a review, incorporating the results of public consultation. With public consultation, it is believed that the negative impacts of new legislation can be minimised and the quality of new legislation will be improved by addressing the issues that have been raised during public consultation process.

Regulatory tools, system, and processes for improving the quality of existing regulations
(Stock)

Since 2005, the RTG has required all government agencies to review the existing laws and regulations under their responsibility and produce and submit an annual development plan. Under the plan, each agency must clearly state which laws or regulations under its administration that it intends to remove or modify. This annual development plan is one of the key performance indicators of each agency. In this regard, the process has become a key tool for improving the quality of existing regulations.

Future challenges and lessons learned in promoting regulatory reform

The primary obstacle to any reform programme that involves the public sector is the ambivalent attitude of officials. Appropriate understanding of the need for and benefits to be gained from regulatory reform must be asserted and appreciated in order to gain full co-operation among government agencies.