Southeast Asia After the Crisis: Thailand’s Successful Reforms

Five years after the 1992 prodemocracy uprising that ended military rule, Thailand’s young democracy found itself in deep trouble. In a desperate attempt to avert economic crisis, the government announced on 2 July 1997 the flotation of the national currency, the baht. This step came too late. Waves of speculative attacks caused the baht to go into a tailspin, damaging the economy and eroding public confidence in the government. Since the country’s foreign-exchange reserves had become depleted in the attempt to prop up the baht, the government was compelled to ask for an IMF bailout. Although the worst is now over, the financial crisis has led to a high unemployment rate, protests from farmers, an increased crime rate, a widening gap between city and countryside, an increased school dropout rate, the proliferation of illicit drug use, and the exploitation of the vulnerable, especially women and children.

Yet people have not lost faith in democracy. The crisis demonstrated that nepotism, cronyism, and corruption were still entrenched in the public and private sectors. To prevent such a crisis in the future, a system has to be established in which these practices are not allowed to flourish. The people understand that the sort of “good-governance” reforms that are required are not possible except in a democracy.

The government of Prime Minister Chuan Leekpai has taken measures to reform the military establishment, the civil service, state enterprises, and financial institutions. It has introduced a number of economic reform bills, including new bankruptcy and foreclosure legislation to enforce debt restructuring and a bill to make it easier to privatize state enterprises. It has recently adopted a national good-governance agenda that will provide the main thrust for public-sector reform. In addition to reforming financial institutions, this agenda includes enhancing the independence of regulatory agencies and putting together a legal framework that will ensure social justice.

Although the economy has not yet fully recovered, one can make a case that democracy has survived the crisis and is now working in Thailand. The military has been forced out of the political arena. Political parties, despite their continuing fragility, now dominate the political scene. More importantly, prodemocracy groups have kept up the pressure on the government, getting proreform politicians elected. A new constitution has been adopted, one of the most democratic the country has had since 1932, and for the first time, the people were allowed to participate in the drafting process. Thais are continuing to adhere to democratic norms and practices in resolving political problems.

Let us now examine more carefully the conditions that made this possible.

Economic Growth and Democratization

The democratization process in Thailand was driven by economic growth. In the 1980s, Thailand achieved rapid economic progress through market mechanisms, experiencing double-digit annual growth rates in 1988 and 1989. That achievement could be attributed to the shift to an export-led growth strategy, as reflected in Prime Minister Gen. Prem Tinsulanond’s export-promotion campaigns and his devaluation of the baht in 1984. Diversification of exports to include a wider range of manufactured goods was also encouraged, marking a significant structural change in the Thai economy, which had once been predominantly agricultural. As a result, exports grew by 17.8 percent in 1985, and manufactured exports increased considerably in the latter half of the decade. ¹ Economic readjustments in 1985 and 1986 sought to restore economic stability, making Thailand more competitive in world markets and increasing productivity. These readjustments included a tighter budget ceiling, a cautious external debt policy, tight monetary and fiscal discipline, and increased efficiency in tax collection. Major campaigns were launched to boost tourism, resulting in a sharp increase in income from tourism from 37 billion baht in 1986 to 50 billion baht in 1987. ²

The economic success was fostered by the political stability of the “quasi-democracy” led by General Prem, who was appointed prime minister in 1980. General Prem, who was noted for his personal integrity, maintained this stability by preserving a balance between the military and the political parties. The continuity provided by his eight-year [End...