The Roles of Foreign Minister in the Next Government

The Roles of Foreign Minister in the Next Government

Dr Kriengsak Chareonwongsak

Senior Fellow, Harvard University’s Center for Business and Government

If one were to ask the question as to which Minister would face the toughest job in the next government in rebuilding foreign confidence towards Thailand, which is one of the most pressing problems, especially the lack of confidence in Thailand’s economic outlook and direction that has caused some investors to shy away from investing here and others to relocate their investment overseas, what would the answer be?  

Several people might think the answer would be one of the economic ministers. But I am inclined to view that the Foreign Minister would have an equally tough job. This is because the lack of confidence problem is mainly about the psychological perception by foreign countries towards Thailand—something that the Foreign Ministry should understand better than other Ministries. 

Besides, the lack of confidence is not only limited to the economic dimension. It is undeniable that economic woes constitute the hottest issues at the moment, particularly the erroneous perception about the sufficiency economy policy, the problem of nominee shareholding, and the 30 per cent foreign reserve requirement. But the lack of confidence is also caused by other problems; namely compulsory licensing, violence in the three southern provinces, and political conflicts, among others.     

One question that follows is: what kind of roles should the new Foreign Minister take on?

With a closer look, one would find that the lack of foreign confidence is caused by serious doubts about the government’s policy and capability to manage problems, be it policy direction or the inconsistent policy approach. Foreigners also think the government does not understand the cause of the problems, or is slow to respond to those problems. These perceptions cause serious doubts about the government’s ability to manage.  

Under a more positive light, the government’s policy and measures to solve problems may be well-intended and based on good principles. But the failure to clearly convey or communicate those policy measures has inadvertently sent the unfriendly signals to foreign investors. It so happens, too, that different government agencies give out different or conflicting information that causes confusion and the gap of understanding between the government and foreign investors.   

The job of foreign public relations undertaken by the government will therefore need to be carried out in a more integrated manner, with the Foreign Ministry doing the government’s PR work with foreigners through participation by and consultation with other Ministries in order to achieve a more pro-active or aggressive PR objective.

The Foreign Ministry should therefore work more closely in parallel with other Ministries in planning policy communication. Such a practice will enable foreigners to better understand government policy, allow the government to explain the rationales behind those policies before they are officially announced, and allow for better preparation for solving any problems of miscommunication that may arise. 

In Cabinet meetings, the Foreign Minister should play a role in reflecting foreign perception about issues with potential impact on the confidence of foreign countries. He or she should work more closely with economic ministers to fine-tune economic policy decisions and communication, while taking into account the potential impacts on foreign perception.

As such, the Foreign Minister should have an excellent understanding about the works of economic ministries. This will help ensure that economic policy formulation takes into account foreign perception, as well as improving communications to make sure that foreign countries understand and have confidence in Thailand’s direction and outlook.  

I am of the view that the new Foreign Minister should have a role in ensuring that government policy direction is characterized by transparency and good governance, fairness to both Thais and foreigners, and stability, so that foreign investors can predict the policy direction and have confidence in the consistency of policy. It is also important that policy outlook does not lean towards any anti-foreign investment direction. 

Apart from that, the Foreign Minister should use more public relations strategies overseas, for examples, by coordinating with and making foreign government agencies display confidence towards Thailand, identifying and rallying support from countries that support Thailand’s policy approach to certain issues, seeking recognition from international organizations for the policy approach, or finding ways to make foreign investors in Thailand display more confidence towards the Thai economy. 

          Apart from a good knowledge in diplomacy, another favorable trait of the new Foreign Minister is that he or she should be a good communicator and public relations expert with multi-disciplinary knowledge, particularly about the economy. Most importantly, he or she should have extensive connections and networks overseas, have good relations with fellow diplomats, as well as with journalists and the foreign investors in Thailand.

The concept of monkeys jumping and Economic development

The concept of monkeys jumping and Economic development

Prof. Dr. Kriengsak Chareonwongsak

Senior Fellow, Harvard Univerisity’s Center for Business and Government

       Conducting research at Harvard University, has allowed me to become acquainted with Prof. Ricardo Hausmann, former Minister of Planning for Venezuela, who is teaching at Harvard’s Kennedy School of Government. I had a chance to be intrigued by a Hausmann’s course titled “Why Are So Many Countries Poor, Volatile, and Unequal?”

       This question is fascinating because it highlights the current disjunction between economic fact and economic theory.

       Economic theory holds that if each country trades with other countries in the products that they have a comparative advantage, every country should prosper and progress in development.

       However, although most countries in the world are opening themselves in greater ways to international trade, in reality, many countries are still poor (this does not include the impacts from unfair trade and monopolies in those countries.)

      In addition, the answer to this question also implies how to set an effective policy for economic development.

     Professor Hausmann answered this question using “the concept of monkeys jumping,”[MSOffice1]  which he developed after studying the data of different countries worldwide. This concept basically states that international trade boosts a country’s development only when that country can produce high value products. But the process of transforming a country’s structure to produce high value products may be easy or difficult depending on what products the country used to produce previously.

     Structural transformation of a country’s production from low value products to high value products is like a monkey trying to jump from a less abundant tree to a more abundant tree.  

          Each monkey will try to jump to the more abundant tree but if the distance between the trees is too far, the monkey will be restricted and unable to jump to the more abundant trees. Likewise, countries are restricted from structural transformation of their production because producing each product requires different capitals and capabilities.

          The monkey that is close to an abundant tree does not have to use much strength to jump to that tree, like some countries that can transform their production structure quickly because they start with advantageous products that can “jump” easily to higher value products. Examples of these countries include those that produce electronic products and capital goods.

          Whereas the economic structures of some countries make it more difficult for them to “jump to” produce high value products. Examples of these countries are those that produce agricultural products, raw materials, crude oil, etc. These countries are like the monkeys far from abundant trees, monkeys that have to use more strength to jump further.

          The interesting issue highlighted by this concept is how Thailand should transform its economic structure at this time in order to produce higher value products. Many are hoping that Thailand’s transformation will follow  market mechanisms like it did in the USA, Hong Kong, and Singapore. Others think the government should intervene by dictating the direction for industrial development, such as the governments did in Japan, South Korea, and Taiwan.

          The experiences of countries have highlighted the various advantages and disadvantages of each choice. What we know is that those who have chosen to follow market mechanisms have needed to wait for a long time and have had to pay dearly until they have found out and transformed their production structure to the new industries.

          We also know that government intervention will transform production structures more quickly, but this strategy may distort the economic system, affect other industries, and possibly risk supporting the wrong industries due to sloppy study or conflicts of interest in policy making. These can lead to misuse of the budget; they may also garner support for industries that still can’t compete in the global marketplace.

          In this case, Professor Hausmann thinks the government should play a role in the structural transformation because the development of capability and technology for new industries will not happen by itself due to the “spill over” effect within those and nearby industries.

          The spill over effect implies that other firms can gain the benefit from the capability or technology development without costs, while those who develop them must bear all the costs. This is what the economists call “positive externality.” Consequently, no one wants to develop that capability or technology. In this case, the government should support the structural transformation to help the production sector “jump” to higher value industries.

          In my opinion, the government must seriously study on what industries do the government should support, so it can set the best direction for Thailand’s economic development and promote the right industries that will allow Thailand to jump far. This is the only way to ensure that all people in our nation will gain long term benefit, rather than allowing a handful of powerbrokers to receive the most benefit.

Reaching the Limit with a Government We Fail to Trust

Reaching the Limit with a Government We Fail to Trust

Dr. Kriengsak Chareonwongsak

                                                                                     Democrat Executive Committee

          It is now known that government income collection for May 2006 is 3,349 million baht below target, thus signaling the danger of economic slowdown for the second half of 2006, with failure to reach targeted income collection a real risk.

          In addition, on the political horizon, looming scenes of continued strong conflict hint to the possibility of no election at all on October 15, 2006, which would result in delayed Budget consideration for 2007, and continued economic slowdown until the beginning of 2007 as investment funds cannot be withdrawn from 2007’s budget in the last quarter of 2006.

          As it plays a caretaker role, this government is limited in its implementation of financial policies. If it were a government that people trust, it would, moreover, have other measures to use besides the injection of budget into the economic system. However, since it does not have the people’s trust, the government is limited in its use of other equipment to stimulate the economy.

          A government may conceptually play with the people’s expectations. If trust is placed in a government’s policy announcements, people will modify their behaviour accordingly and the government will achieve its economic target before even embarking on policy implementation.

          For example, when the government announced its investment plans for mass transportation infrastructure, many people believed that the government really would conduct that project and investors and others found ways to invest in it. Thus, the economy grew even though the government did not conduct such a project. 

          Or, when the Bank of Thailand announced it would control the inflation rate, entrepreneurs and others could anticipate the Bank of Thailand’s use of high interest policy during periods of high inflation.  Consequently, the public prepared in advance by decreasing expenses and investment, which lowered Thailand’s inflation pressure, though the Bank of Thailand had done nothing about it up to that point.  

          However, this government’s past behaviour has been self-discrediting, as has the behaviour of other government organizations looking after economic policies.  Most obviously, the government announced many policies, but did not carry them out, for example, its Nakornnayok new city project, the regional center energy trading project and the construction project for skytrain route changes, none of which have been carried out, though announced as large-scale projects. Therefore, investors and others who were preparing to invest in these projects have suffered loss.

          A further point is the government’s lack of transparency, with its doubtful behaviour making it unworthy of trust, and leading the public to suspect complex layers of corruption and benefits behind the running of these huge projects. Thus, people fail to believe in government honesty when it comes to investment projects, and instead worry that such projects will be unsuccessful due to public opposition.

         The government also signals messages that conflict with those of the Bank of Thailand, especially where the Finance Ministry expresses disagreement over the Bank of Thailand’s policy of increasing rate. Society therefore believes that the government’s financial policies conflict with those of the Bank of Thailand, possibly resulting in inefficient financial policy management and the Bank of Thailand being unable to control or mange the inflation rate according to plan.  

        The government’s policy-setting behaviour has always been very erratic, along with its lack of transparency and lack of unity amongst other government organizations. Thus, people tend to distrust the policy announcements of this government. For example, though the government announced the construction of three skytrain routes, many do not believe that it can or will do so. Thus, investors and others dare not move in the direction of government policy as announced, and there is no economic stimulation due to the people’s lack of confidence. All that remains is to wait and see.

        It has been suggested that the government clarify its project policies, as to when, how and what policies it will pursue, also giving the completion date for each project. The government should, moreover, reveal its financial status to assure the public of sufficient budget to run these projects and assure the government’s sure completion of them.   

       As far as Mega Projects go, the government should study carefully, let the people participate sufficiently, and then use academic standards to measure operational priorities before carrying these out transparently through clear project bidding procedures, all the while revealing the contract details. The Prime Minister and other politicians should also be barred from presiding on the committee boards of those considering any submitted bids.

       Despite limits placed upon the Caretaker Government’s financial policy options, if the government did display trustworthy behaviour by sending proper economic signals and setting clear, stable policy in place, it would not find it difficult to drive the economy, as it now does.

  

Extended Monopoly Game

Extended Monopoly Game

Dr.Kriengsak Chareonwongsak

                                      President of the Social Science Association of Thailand 

Kriengsak@kriengsak.com, hhtp:www.kriengsak.com

In 1934, during America’s Great Depression, a game was created by a then unemployed tycoon, Charles B. Darrow, and became a best seller, drawing on certain strategic business ideas from that period. This seventy-year-old game is known as “The Monopoly Game.” 

In Monopoly, each player’s objective is to purchase properties and build as many houses and hotels as possible on them in order to “squeeze” rent payments from any other player landing on their property squares in the course of play, the goal being to bankrupt such opponents. A banker, who keep players rule-bound, control the game.

Nowadays, a Thai innovator has developed an “Extended Monopoly Game” version,  having the same objective in mind, to bankrupt all opponents, but involving shrewder game strategies towards that end.

In the old version of Monopoly, each player accumulates as much property as possible in order to bankrupt his or her opponents. In the extended version of Monopoly, a player after bankrupting his or her opponents can then accrue their property, because in this version of the game, the player can usurp the “banker’s authority” and change the game’s rules.

For example, for the player to profit from a hospital business, then as “banker” he or she can launch a “Thirty baht for all illnesses” programme, while at the same time allocating very limited budget for it to government hospitals. With only poor services offered by government hospital interns, eventually those who can afford it will use a private hospital, which the player had bought previously.

For the player to seize an aviation business, then as banker, he or she can command the national airlines to close profitable flights, in preference for the player’s own low-cost flight substitutes. 

In the old Monopoly Game version, if a player buys properties and buildings and depletes his or her cash, he or she must throw the dice until a complete board circuit is made and a $200 salary secured, along with the right to buy more properties or buildings. However, in Extended Monopoly, a player need not wait for his round of the board to receive a salary, but can exchange his or her stock into cash, and then turn it into capital for new and more profitable business. Moreover, the player can change as much stock as desired into cash, whether valued at 100 million, 1,000 million or maybe 73,000 million baht, since as game banker he has already changed the rules to allow foreigner investors to buy stock at a rate not exceeding 50% (where previously the rate was only up to 25%). Moreover, the player needs pay no tax on the deal.   

With little change to this situation; say, if no parent forces the game to finish so that the children will do their homework, then the player’s continued manner of dealing will invade new and more profitable business interests and in next to no time mean that he possesses almost every property on the board.  

Dear reader, do you know who “the player” is?

Public TV in Thailand

Public TV in Thailand

Prof. Dr Kriengsak Chareonwongsak

Senior Fellow, Harvard Univerisity’s Center for Business and Government

                                                                                                                                                                                                                                                                                                                                                                                                                                    

The rising popularity of the Thai Public Broadcasting Service (TPBS) opens our eyes to new possibilities for television broadcasting in Thailand. This station was established so all groups of people can participate.

Right from TPBS’s inception, its unique objectives have meant it has faced numerous difficulties. However, here are some suggestions that will make this new TV station truly television that belongs to the people.

Administering the station: Because this station is public, its income is capped at 2 billion baht per year. Therefore, the station’s board and administrative committees must work closely together to budget for staff salaries, station administration, program creation, program purchasing, technology and network fees, etc.

A team under the leadership of a Vice President Finance should monitor expenses and conduct quarterly reviews, so spending is both transparent and wise.

Managing the programming: Programs should include news, education, art, culture, music, miscellany, etc. An evaluation matrix can consider factors such as program length, style, and audience response. Prime time should be given to programs offering the most benefit to the most people.

Programs can be created for specific groups, such as the handicapped, youth, the elderly, the hill tribe peoples, or people with different religious persuasions. The Program Director should constantly evaluate which programs would best create a balanced selection for all sectors of society.

In addition, some programs should aim to inspire good works, helping to create a Thai society in which people really care for one another.

Evaluating the producers and the programs: Quality programs must be selected in a fair, free market process to prevent monopolization by any organization or group.

Inexperienced freelance producers should be given opportunity to vet their programs too, but the selection process should screen for quality to allow the station to promote new, imaginative shows that can benefit Thai society.

However, these new programs must be evaluated every time they are broadcast to achieve the highest levels of quality, public benefit, and entertainment.

Establishing public participation. Participation is one of democracy’s hallmarks. Therefore, the Council of Audience Members (TBBS Article 45) should be derived from people representing all of Thailand’s regions and people groups. The Council of Audience Members should be composed of a maximum of 50 people, who will bring the opinions of the people to
TBBS boards.

TPBS must also be open to suggestions, criticisms, and opinions from the general public. As the public is involved in shaping station policy, they will become more willing to financially support the station. Establishing these types of feedback loops will also help to guarantee that the station is owned, run, and shaped by the people of Thailand.

We should encourage TPBS, Thailand’s first public TV station. Giving careful thought to the administration, programming, evaluation processes, and public’s participation will ensure that this station will become a quality option for all television viewers in our nation.

Residential areas … A big-city problem

Residential areas … A big-city problem

            Dr Kriengsak Chareonwongsak

Senior Fellow, Harvard University’s Center for Business and Government

              Shelter is one of the four basic requirements for living, an important necessity especially in a big city such as Bangkok. Having a secure place to live ensures human life security. It would be very difficult if we had to live with the uncertainty of different accommodation arrangements day by day.

              In Bangkok’s urban area, full of skyscrapers and thousands of village communities, people still face the problem of insecure accommodation. Whenever their rental contracts expire, they are evicted; or else they squat illegally having no ownership permission. This is happening, for example, in the Klong Toey, Sathorn and Yannawa areas. Most people living in these areas exist hand to mouth and cannot afford to buy their own homes.

              In some areas, people are forced to move from their homes at the whim of the owner who may seek other benefits from the area. The owner may thus fail to renew rental contracts with these poor people, as has occurred for example, in the Klong Sarn community of Yannawa district. Other communities are also in line for a close down in the near future as well, such as one community behind the Esso gas station in the Klong Toey district, slated to close at some stage between August and October, 2008.

              On the other hand, some areas are not considered slum areas, but areas of historic value, going back in time more than eighty years. Very old houses and ancient architecture is highly valued for tradition’s sake. For example, the Wang-Lhi community in Bangrak district is such a place, which the Fine Arts Department has agreed to preserve, due to its high value and historical importance. However, as the owner wanted to use this area in order to gain some other benefits, no matter how hard the people in that community tried to fight by legal means, finally, they had to move out in deference to a legal judicial sentencing. This brought the community to an end, last May, 2008.

              This situation is very challenging to the Bangkok Governor. However, the restoration of such problem areas requires delicate resolution in many ways, resulting both in gains and losses. Thus, it is difficult to find a solution. Short term measures are immediately necessary, as are long term measures taken for permanent problem solution. In addition, policies are necessary to ensure that people can continue to live in their motherland. Such policies include the decentralization of income and civilization to other parts of Thailand. Such measures can thus prevent migration into the big city, which is the main cause of this problem. 

Economic Decoupling (1): Concept

Economic Decoupling (1): Concept

Dr.Kriengsak Chareonwongsak

Senior Fellow, Harvard Univerisity

          From the Subprime crisis to Lehman’s bankruptcy, economic instability has triggered apprehension as to its possible effect on Thailand’s economy.

          Conventional International Economics is based on the concept of a world economy that is at this time profoundly interdependent. This being so, an economic crisis in one country will affect others through export and import, and when a country faces an economic crisis, which by definition means a decline in national income, it will inevitably reduce import from other countries. Moreover, if the crisis takes place in a big country, such as the USA, which is a major trade partner of the rest of the world, a decrease in US import will therefore sharply decrease other countries’ export, ultimately leading to economic slumps all over the world.

          A chapter in Thai history may corroborate the above theory. During the 1930’s, the Great Depression in USA affected Siamese fiscal balance so severely that a political revolution followed.

          Surprisingly, amidst the current globalization trend is the fresh idea of Economic Decoupling, which refutes the traditional theory that a crisis in US will unnecessarily affect other countries.

          Supporters of Economic Decoupling suggest that intraregional trade is now becoming more and more significant and that some populated countries such as China and India –possibly including Russia and Brazil –now enjoy high economic growth rates.

          Therefore, USA may not be “Big Brother” any more, and should the US economy collapse, the rest of world may not experience such harsh, crippling results.

          However, there is opposition to Economic Decoupling in that, although export to USA is on the wane, a substantial quantity of export is intermediate goods, which are imported as materials for other production processes, whereas USA is still a major final goods importer.

          For this reason, though Thailand does not export to USA directly, if Thai exported goods are intermediate goods which become materials for producing final goods consumed by US consumers, then US import reduction will affect Thai export and, finally, the Thai economy.

          Next time, we will analyze some data to see how that theory is substantiated.