Recent news of the Thaksin government’s protectionism is greatly exaggerated. During the run-up to the January 2001 election, and just after he took power, the Thai prime minister played the protectionism card with much fanfare in his populist and nationalist drive to win votes and enhance his mandate. But after three months in office, some of the government’s policy actions have begun to diverge from its nationalist rhetoric. What might otherwise be the government’s profligate and xenophobic policy platform is being constrained by market forces. As the market continues to impose discipline on the populist administration in the months ahead, government policies will become increasingly market- and investor-friendly, though nationalist and protectionist flames will not be doused anytime soon.

When it came into office, the Thaksin government promised a wide array of legal changes designed to protect local interests at the expense of foreigners’. These legal promises ran the gamut from restrictions on foreign investment and businesses to the abrogation of foreigners’ rights to own condos. The initial thrust of the Thai Rak Thai-led coalition was, essentially, to scale back most of the reforms the previous Chuan government had enacted. But as the economic recovery showed signs of sputtering during the past few weeks, Thaksin and his crew appear to have rethought and regrouped.

A different set of priorities

True, they still spray plenty of anti-foreigner words around to fan vested interests and exploit the widespread economic insecurity during this post-crisis transition. On closer scrutiny, however, their actions are beginning to reflect a different set of priorities. Quiet news items, such as Thaksin’s responsiveness last month to a complaint of unfair trading by the multinational Kimberly Clark, are instructive. So is his emphatic promise from the Tourism Workshop in late April to make Thailand more visitor-friendly by eradicating the industry’s entrenched mafia who prey on foreign tourists.

In bigger terms, Thaksin has indicated that the Board of Investment should beef up its incentives programs to lure foreign direct investment (FDI). His government has capped public debt at 60% from the current 57%, hardly a move to spend its way into a much-feared fiscal crisis. When his adviser, Pansak Vinyarat, entertained the idea of Malaysia-style “capital controls” last month, Thaksin swiftly extinguished the wild suggestion. Most prominent of all was his abrupt U-turn on his inward-looking speech at a UN-sponsored gathering in Bangkok three weeks ago. During the days following his tirade against the openness of the US and Japanese economies, he was forced to recant for fear of frightening off foreign investors.

Big talk begins to lose steam

Slowly but surely, the government’s big talk of protectionism and interventionism has begun to lose steam. It should still be a concern, but it need not be feared as much as the early Thaksin rhetoric might have led us to believe. With GDP growth now re-calibrated to just 2% to 3% for 2001, macroeconomic realities have compelled the government to backtrack. It needs a soft landing in the US and an upturn in Japan to sustain Thai export growth, the primary locomotive of the economic recovery. As the local credit system is still being restructured, both FDI and portfolio inflows are desperately needed. Without capital infusions from aboard, the battered Thai stock market is unlikely to perk up on a sustained basis. Foreign money will also be necessary for Thaksin’s privatization programs.

The bottom line is that Thailand needs foreign investment badly and quickly. Thaksin and his team might not openly admit this, but they know it and are getting around to doing something about it. Market forces, in short, will increasingly check the Thaksin administration’s populist and protectionist temptations. In truth, what Thaksin would like to do is paradoxical – to tell Thais he dislikes foreign investors and to tell foreign investors he loves them. Thanks to his masterly manipulation of the media, he may be able to strike a balance between the two constituencies. However, the risk is that Thaksin will be trapped by his own cleverness. The hordes of local interests he has promised to shield from foreign competition, such as rural retailers, have resisted liberalization and greater competition. If these upcountry retailers march on Bangkok to pressure Thaksin into fulfilling his pledges, their group will only be among the first in a long queue.

The writer is a lecturer in the Department of International Relations, Faculty of Political Science, Chulalongkorn University.