Bangkok Knights

July 14, 1999

Who are they? Two Newsweek writers, one at least a long-time resident ofthe City of Angels (literal translation of Grung Thep, the Thai capital's official Thai name), who say in the magazine's current issue that the Thai economy is in a shambles and the only growth industries are sex and golf.

We shall not dispute that. Contrary to loads of foreign fund managers orthe IMF who are pouring money into the country for their own peculiar reasons, we have often enough stated on these pages that whatever signs of recovery such gurus or the Royal Thai government may be divining, the economy remains dead in the water, with more downside than upside in the offing.

But what came over those two journalists and the Newsweek editors that they would wreck an otherwise perfectly fine and insightful story by hypocritically dissing Bangkok's nightlife and inexpensive golfing pleasures?

Hey, now, guys, you know it, we know it, everyone with any Asia experience has known it for decades: Bangkok is fun. Tokyo can be if you (or your company)can afford it; ditto Seoul. KL is just sort of waking up; Hong Kong died years back. Singapore? God forbid, unless you think Harry's Bar is the be all and end all of entertainment.

So, what's the point, Messrs. Newsweek? Remember that olds aying, it takes one to know one? You don't know or like Crown Royaland Cosmo, or Thermae when it gets too late for anything else? That wasn't one of you there not too long ago with a pretty girl wrapped around you?

But perhaps it was the Newsweek editors, advised by some clever marketing person, who saw the publicity advantage of having Prime Minister ChuanLeekpai complain about the sex industry references. The Thai prime minister's office can always be counted on to take the bait and fallfor such a ploy.

The Thai economy has three basic problems that stand in the way of in-depth recovery and will require a good deal of time - years, not months - toresolve.

* Its central nervous system, the financial sector, is in serious disarrayand largely disconnected from the real-sector body. The processes of financial intermediation have broken down and will not be fixed until some $70 billion in non-performing loans are restructured or written off.

* Its industrial structure (as the Newsweek piece accurately points out) is trapped ''in the middle'' between lower-wage, lower-technology China,Vietnam and Indonesia and higher-tech South Korea and Malaysia. As aresult, exports - which constitute 40 percent of GDP - are in the doldrums.

* Its educational system is antiquated and blocks introduction of higher technologies while massive regional economic imbalances pull down overall economic progress.

Other factors aside, it's the latter points, lack of education and hugeregional income discrepancies, that play a large role in the economic attraction exercised by the Bangkok sex industry.

In 1996, before the baht devaluation, GDP per capita for the Whole kingdom stood at 76,600 baht (about $3,000). But in the most populous (one third ofpopulation total) and most impoverished region of Thailand, the mainly rural Northeast, GDP per capita was only 26,600 baht ($1,000), with the poorestprovinces like Buriram, Roi Et or Yasothon (at 21,800, 21,700 and 20,000 baht, respectively) falling well below even that. Meanwhile, GDP per capita in Bangkok and vicinity was 225,743 baht, or nearly ten times the Northeast average.

Concomitant with such economic misery, partly accounting for it and partly caused by it, educational standards in the Northeast are abysmally low: many children drop out after grade 4; few make it beyond grade 6. Then theywork in the low-yield rice fields for a while before, at age 15 to 18, Bangkok beckons. After a brief stint in a low-paying textile plant or department store job, then likely with one or two children and husbands long gone, Northeastern girls in large numbers end up in massage parlors or the numerous Bangkok pink zones. The boys take full- or part-time construction or assembly-line jobs - or did when those were still to be had; others drive taxis, tuk-tuks, or motorcycle taxis. Few of those girls or boys would likely choose such employment if their education or economic conditions provided them with a realistic choice.

Thailand must address its banking sytem, industrial structure, social infrastructure and regional-imbalance problems simultaneously if the economy is to get back on a sustainable growth track. It cannot expect to restructure bad debt without restructuring industry and defining new future income streams and modes of wealth creation. It cannot create the latter without a far better education system and more skilled manpower to suppor thigher-technology manufacturing and service industries. And it cannot produce more highly skilled manpower while over half of the population remains trapped in rural poverty.

On the other hand, Newsweek's intrepid journos' barbs notwithstanding, we doubt that the foreign investors now beginning to return to Thailand have sex and golf first and foremost on their minds.

Much of last years $9 billion in foreign capital inflows is accounted for by the buying up of distressed assets and banks' recapitalization exercises. But that's not bad for starters. The question now is how acombination of public policy and private sector initiative will allocatethe capital resources, foreign and domestic, that are once again becoming available.The challenges are easy to define; management of policy execution isanother matter. Thailand will come back, but not tomorrow and not with atiger's roar as in the late 1980s and early '90s.

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