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BANGKOK – Given the powerful vested interests involved and a general antipathy towards privatization of state assets among the Thai populace, many were surprised by the government’s decision to allow Thai Airways International (THAI), the national carrier, to go bankrupt rather than lend a lifeline.
The landmark decision is potentially good news for shaking up the kingdom’s remaining 57 state-owned enterprises (SOEs), many of which are known for their loss-making, inefficient and corrupt ways.
The question now is whether former army commander Prime Minister Prayut Chan-ocha’s coalition government can muster the political will to push for SOE reform after his first attempt wholly failed under his previous coup-installed regime that ruled from 2014-19.
THAI lost its SOE status on May 22 when the Finance Ministry sold a 3.17% stake of its previous 51% holding in the national carrier to the Vayupak Mutual Fund, a state-backed fund set up in 2003 to manage and rehabilitate distressed assets left over from the 1997-98 Asian financial crisis.
With less than 49% state ownership, THAI is no longer officially an SOE and thus not bound to SOE regulations or labor union contracts, a necessary step towards full privatization and rehabilitation.
Despite signs that the Transport Ministry, which has traditionally controlled THAI along with the Thai Air Force, might still be trying to steer the rehabilitation plan, ultimately it will be up to the Bankruptcy Court and, more importantly, THAI’s chief creditors, to approve the plan.
Some 70% of THAI’s estimated 245 billion baht (US$7.7 billion) debt is owed to foreign entities including large foreign banks.
The lack of a public outcry over THAI’s demise surprised many observers and analysts and is likely a reflection of the kingdom’s dire economic straits, with analysts predicting anywhere between a 5-10% contraction in 2020, and a general weariness of THAI’s long-running financial malaise.
THAI has suffered from a pandemic-driven collapse of tourism, representing as much as 20% of gross domestic product (GDP) in Thailand, but the flagship carrier was already wracking up losses in 2017-19 while tourism receipts were running high.
“I think it’s a good move (the privatization) and could probably set a precedent for other state-owned enterprises that are not performing well,” said Kirida Bhaopichitr, director of the Economic Intelligence Service at the Thailand Development Research Institute (TDRI), a Bangkok-based private think tank. “Now that public sentiment is going this way it’s not as difficult to talk about privatization,” she added.
Privatization has been a political “taboo” in the minds of many Thais since the partial listing of PTT Corporation – the national energy giant – on the Stock Exchange of Thailand (SET) in December 2001 under the Thai Rak Thai Party-led government headed by billionaire businessman Thaksin Shinawatra.
The partial 30% privatization was marred by widespread reports that members of Thaksin’s inner circle were given preferential access to substantial IPO stock allocations through nominees and offshore vehicles.
The issuance sold out in minutes, leaving many retail level investors who queued up to buy shares empty-handed while politically connected investors made off with the lion’s share of the offering. PTT has since become a prize of the SET, often ranking as the top stock on the bourse in terms of valuation.
PTT’s suspect listing soured public sentiment on privatization generally, especially among the anti-Thaksin groups that eventually coalesced to overthrow his populist regime. Notably, there have been no privatizations in Thailand since.
Instead, Thailand’s SOE sector has grown by leaps and bounds since 2001, and with it claims of political interference and corruption.
SOE assets grew from 4.7 trillion baht ($147.2 billion) in 2004 to 14.9 trillion baht ($467.5 billion) in 2016, while their total revenues jumped from 1.5 trillion baht to 5.1 trillion baht in the same period, according to Banyong Pongpanich, chairman of the executive committee of Kiatnakin Phatra and one of the key participants in Prayut’s SOE Reform initiative launched in 2014.
At the same time, between 2004 to 2014, Thailand’s civil service grew from 2.1 million to more than 3.2 million with an annual compensation budget of 1.1 trillion baht, or 7.2% of GDP – the highest in Southeast Asia.
“The government’s role, size and power all expanded in all areas,” Banyong said in a recent interview. He argues that the country has grown its least efficient sector, namely the public sector, over the past two decades and blamed the state’s expansion for Thailand’s comparatively slow economic growth in the fast-growing region.
Thailand’s SOEs, critics say, are not only inefficient but also corruption-prone. Not least among them is THAI.
THAI agents and employees were implicated for accepting bribes from Rolls Royce to secure purchases of its T800 engines between 1991 to 2005, revelations made public after a four-year investigation by Britain’s Serious Fraud Office in January 2017.
The flag carrier’s purchase of two gas-guzzling A340-500 aircrafts in the early 2000s was cited by former THAI President and respected technocrat Piyavasti Amranand (2009 to 2012) as an example of political meddling in the airline’s purchasing process by the then-ruling Thai Rak Thai Party.
Ex-premier Thakin’s former party, now reincarnated as the opposition Peua Thai Party, was hardly the only political entity to exploit Thailand’s SOE network, a political practice which ex-Finance Minister Korn Chatikavanij describes as endemic to Thai democracy’s coalition party system.
In the post-election period, winning parties commonly divvy up the various ministries and their associated SOEs. For instance, THAI, although formerly 51% owned by the Finance Ministry has always traditionally fallen under the policy control of the Transport Ministry and the Air Force, which appoint the top management and board of directors and thus exert control over purchases and perks.
“Even worse is the Ministry of Energy, which has a pitiful budget of 1 billion baht, and yet is considered a Grade A ministry in negotiations to form a government,” Korn said in an interview with Asia Times. “Why? Because whoever gets the Ministry of Energy controls PTT, and PTT has a budget of over 2 trillion baht ($62 billion).”
The SOEs’ annual budget is close to 5 trillion baht ($157 billion), twice that of the national budget, and yet SOE spending is not subject to the same close parliamentary scrutiny as the government’s, Korn said.
Prayut’s previous coup-installed regime attempted to sever the nexus between politicians and SOEs by setting up a new “Holding Company” to be managed by ten private sector professionals which would select the boards of the 12 “incorporated” SOEs, including THAI, PTT, Krung Thai Bank and others. State-owned shares would have been transferred to the holding company.
Under the same plan, launched in 2014, the boards of the remaining 46 non-incorporated SOEs would have been appointed by a “Super Board”, headed by the prime minister, but also including representatives from the State Enterprise Policy Office (SEPO), ministries and the private sector.
The reform scheme’s objective, headed by well-known technocrats such as former Bank of Thailand Governor Prasarn Traiatvorakul, current BOT Governor Veerathai Santiprabhob and bankers Banyong and Kasikorn Bank chairman emeritus Bantoon Lamsam, was to separate policy makers from regulators and operators to make them more efficient, business-oriented and less prone to political interference.
The process, however, fizzled out in the end due to a lack of political support from ministers who stood to lose power through the reform, Korn claims. A law was passed in 2019, but minus the Holding Company and Super Board clauses. The bickering among coalition partners for perceived as Grade A ministries after the 2019 election showed that nothing had changed.
“One of the disappointments with the previous government, when they had absolute power, was over the SOE issue, because it was one of the key issues that they themselves raised six years ago as a key area for reform,” Korn said.
Most past military-run Thai governments have billed themselves as “caretaker regimes” prior to new elections being held. Some, such as the coup-installed 1991-1992 administration of former prime minister Anand Panyarachun, a respected former diplomat and businessman, are fondly remembered for pushing through reforms and deregulation that would be hard to accomplish under Thailand’s typical coalition governments.
When Prayut’s regime of top brass and technocrats first came into power after the May 2014 coup, there were analogous hopes that his regime might pursue a similar reform path, not least because the former army commander had dictatorial powers through Article 44 of the military-drafted constitution.
“Many harked back to the 1991-1992 period when an earlier coup government installed a technocratic cabinet that instituted a raft of reforms, including the value-added tax and breakup of a telephone concession monopoly,” said Thitinan Pongsudhirak, a political science professor at Chulalongkorn University and director of the Institute of Security and International Studies (ISIS).
“But it soon became clear that this junta was in for the long haul. Reforms were not only put on the back-burner but abandoned altogether. Instead, there has been a deliberate turning back of the clock to privilege and prioritize the interests of the military and broader bureaucracy,” Thitinan said.
Prayut’s ruling Pracharat Party contested the 2019 election and emerged victorious, under somewhat dubious circumstances. One year into his second term, there has been no talk of resurrecting his previous SOE reform drive.
“As time went by it became clear that they (Prayut’s coup government) didn’t have the political will or any real desire to push through with genuine reform, which is a pity but not entirely surprising because the mindset you need in order to see the potential benefits of SOE reform is the same mindset you to need to see the benefits of market mechanisms and transparency and for competition,” Korn, a former deputy leader of the Democrat Party who recently established his own party, said.
“And that’s contrary to the centralization of power which is the default mindset of any military government,” the ex-finance minister and former investment banker said.
Apart from THAI’s notorious inefficiency and waste, Korn is critical of SOEs “creep” into the private sector. PTT, for instance, has expressed interest in bidding on private power plants through a subsidiary in Thailand and runs the Amazon coffee shop chain, the largest in Southeast Asia, in part because they are all positioned at PTT petrol stations.
“It is impossible to explain why it is of national importance for PTT to suddenly open coffee shops to compete with the people,” Korn said. “The constitutions have been very explicit, since the 1997 charter up to the current one, on barring state enterprises from competing with the private sector.”
Other SOEs that directly compete with the private sector include TOT and CAT, Thailand’s two state telecom companies that once monopolized domestic and international call services, respectively, but are now seen to be surviving off “rents” for concessions farmed out to private sector players such as DTAC, AIS and TRUE to provide mobile phone and digital services.
“You use AIS, you use TRUE, so you don’t complain, but TOT does nothing. And the productivity of TOT staff is 1/11 of AIS staff,” claimed Banyong. But unless these SOE giants run into THAI-style financial crises, it is unlikely they will face the same fate as the national carrier.
A potential catalyst for change would be Thailand’s entry into a new Free Trade Agreement with the European Union or the Comprehensive and Progressive Agreement for Trans Pacific Partnership (CPTPP), the FTA launched by former US President Barack Obama but ditched by current President Donald Trump.
Such FTAs include requirements for signatories to provide a level playing field between SOEs and the private sector. One step in the right direction, some analysts say, has been the recent passage of an amended Competition Act, which also covers SOEs.
“In the Competition Act, in terms of SOEs, there has been improvements in terms of limiting the influence of SOEs more clearly,” said Kiatipong Ariyapruchya, senior county economist at the World Bank.
“But for other guidelines, like what exactly for the SOEs are the protected industries, it’s not as clear as it could be. There remains still a lot to be done on the SOE front,” he noted.
But with the Thai government preoccupied with tackling the Covid-19 pandemic, analysts say it is doubtful that they will find the time or will-power to get serious about SOE reform any time soon.
“It seems that the government is now fighting fires rather than looking at reforms, but they should be because they’ve got to think about the post-Covid world as well,” TDRI’s Kirida said. “For businesses, they are already preparing for the post-Covid world but the Thai government is not at that stage yet.”