Cablegate: Down and Out in Thaksin's Heartland - Touring The

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PP RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHBK #5150/01 2711004
ZNR UUUUU ZZH
P 281004Z SEP 07
FM AMEMBASSY BANGKOK
TO RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 9881
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 4893
RUEHUL/AMEMBASSY SEOUL 3663
RUEHKO/AMEMBASSY TOKYO 9820
RUEHCHI/AMCONSUL CHIANG MAI 4146

UNCLAS SECTION 01 OF 05 BANGKOK 005150

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SENSITIVE
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STATE FOR EAP AND EB
STATE PASS TO USTR
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COMMERCE FOR EAP/MAC/OKSA
SINGAPORE FOR FINATT BAKER

E.O. 12958: N/A
TAGS: ECON EFIN EINV ETRD PGOV TH
SUBJECT: DOWN AND OUT IN THAKSIN'S HEARTLAND - TOURING THE
NORTHEAST ECONOMY

REF: BANGKOK 4943

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1. (SBU) Summary: A tour of the economically depressed
Northeastern region revealed strong sentiment for populist
policies of former PM Thaksin and his disbanded Thai Rak Thai
(TRT) party amid hopes that the coming December elections
will boost economic growth. Economic conditions, reflecting
those of the rest of the country, showed poor domestic demand
balanced by strong growth in select export sectors. Business
owners said they were likely to remain loyal to former TRT
members in the successor People's Power Party (PPP) because
"they delivered on their promises." However, ex-TRT members
in other independent parties may siphon away PPP support,
especially in Khorat province. The coming Southeast Asia
(SEA) Games in December in Khorat will give the region a
short-term spending boost, but a new government will find
that external economic conditions may make it difficult to
replicate TRT populism, at least in the short term. End
Summary.

2 (SBU) A visit to economic centers in Thailand's Isaan
(Northeast) region revealed a depressed economy that is
fueling dissatisfaction with the current government as voters
yearn for the populist policies of the disbanded Thai Rak
Thai party (TRT). Econoff and FSN traveled to Khon Kaen and
Nakhon Ratchasima ("Khorat" for short) provinces from August
29 to September 1, stopping at village enterprises in
between, to gauge business sentiment in the wake of the
August 19 constitutional referendum. While approved
nationwide, the referendum's performance in the Northeast,
with 17 of 19 provinces voting against, demonstrates a
continued electoral schism that TRT's varied successor
parties hope to exploit in the planned December 23 elections.
The Northeast will elect 136 of the 400 constituency seats
of the next parliament. All but 10 of those seats were won
by TRT in the last elections of 2005. Throughout the region,
officials and business owners said there is widespread apathy
and little substantive discussion about constitutional
reform, but that grassroots voters in some constituencies
reported being given 200 baht (USD 6) by political volunteers
to vote "No" to the August 19 referendum.

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TRT'S POPULISM FONDLY REMEMBERED
--------------------------------

3. (SBU) In a meeting at the Khon Kaen Chamber of Commerce,
the Chamber president and two local business leaders
explained that TRT was the first political party to draft a
coherent economic platform specifically targeting Northeast
voters. While other parties had made campaign promises
before, voters perceived TRT as having done its research and,
more importantly, following through with real programs. The
Chamber listed TRT's achievements, in rank order, as:

-- 1) The 30 baht health care program, which expanded health
treatment for the poor;
-- 2) The "war on drugs" to reduce the spread of the "yaa
baa" (methamphetamine) trade;
-- 3) Village Fund microcredit programs, providing easy
access to credit, as well as seminars on financial
management;
-- 4) The "One Tambon, One Product" (OTOP) scheme to
encourage nationwide marketing of local products ("tambon"
being a subdistrict);
-- 5) Creation of a legal lottery, with proceeds used for
rural student scholarships;
-- 6) Periodic "taxi driver consultations" in Bangkok.

The latter refers to town-hall style meetings organized by
TRT, initially held on a monthly basis, in which former PM
Thaksin himself addressed gatherings of Bangkok's
Northeast-origin taxi drivers to gauge political sentiment in
their home provinces. Low-interest credit programs also made
it easier for drivers to purchase their own taxis, with
earnings often remitted to drivers' families in the Northeast.

BANGKOK 00005150 002.2 OF 005

4. (SBU) The Chamber reps said these programs, taken
together, boosted Northeast residents' self-esteem in
addition to income: "It was as if a wide range of worries had
been lifted - villagers no longer feared going to the
hospital, lottery players no longer feared the police, and
the drug war made people feel safer," notwithstanding
concerns about extrajudicial killings. Today, however,
voters are blaming stagnant economic conditions on the
September 2006 military coup and resultant political
uncertainty. "There is no government stimulus, and people
are listening to statements about the King's Sufficiency
Economy theory, which they think means tightening budgets or,
if you are a creditor, slowing down loans but collecting
debts." One Chamber rep said, surprisingly, that a reduction
in corruption, evident since the coup, was also having a
negative impact. "Bribers aren't offering money, because
they don't know who's going to be in power next, and
officials aren't taking bribes because they fear getting
caught," he said. The result: A slowdown in
government-funded programs, including infrastructure
projects, with a more deliberate and lengthy procurement
approval process.

5. (SBU) In a subsequent meeting with the Bank of Thailand's
(BOT) Northeast office staff, the regional director confirmed
that local voters view the coming elections as a chance to
"pay back" former TRT politicians who provided benefits that
were perceived as "real and touchable." He said the regional
economy has slowed down, in line with national conditions,
due to slack domestic consumption and investment. On the
brighter side, agricultural revenues remain strong due to
healthy world crop prices, and border trade with neighboring
Laos grew 13 percent in the first half of 2007. Electronic
goods exports are also strong (particularly hard disk
drives), while real estate and housing market was slumping.
The BOT's staff forecast real Gross Regional Product to be
3.5 to 4.0 percent for the year, not far off from projected
national GDP figures of 4.0 to 4.3 percent.

6. (SBU) The BOT said campaign spending on the elections is
widely expected to provide a short-term boost to the
Northeast economy, with medium term prospects dependent on
how the election results are received. About 1.5 billion
baht (over USD 40 million) is expected to be spent on
campaign activities from late September through December 23,
which would equal or exceed the RTG's regional budget for the
same period. Businesses benefiting from this largesse
include printing shops (for campaign posters), automobile and
sound system rental companies, food and beverage services,
photo shops and entertainment venues. Voters will also
benefit from varying amounts of direct cash handouts,
depending on the government's ability or willingness to clamp
down on the practice. The BOT director noted that the BOT
and commercial banks are finding it more difficult to trace
funds devoted to vote-buying. "Politicans are smarter these
days," he said. "They bring the money in suitcases from
Bangkok instead of using local bank accounts."

--------------------------------------------- ---------
BUSINESS-ORIENTED KHORAT - POSSIBLE WEAK POINT FOR PPP
--------------------------------------------- ---------

7. (SBU) Besides the elections, residents of Khorat
anticipate a sizeable fiscal boost from hosting the Southeast
Asian (SEA) Games for the first time on December 6-11. The
SEA Games, a biannual competition between 11 countries, is
normally been held in capital cities such as Kuala Lumpur,
Jakarta, Hanoi and Bangkok. Khorat will be the first
non-capital city to host the Games since 1995, when it was
held in Chiang Mai, Thailand (although Ho Chi Minh City
co-hosted the Vietnam-based games with Hanoi in 2003). The
city of Khorat will this month complete a new 20,000 seat
stadium, the King's 80th Anniversary Sports Complex, at a
cost of USD 77 million. Khorat expects to received nearly
100,000 visitors during the weeklong event, which kicks off
one day after the King of Thailand's 80th birthday
celebrations.

BANGKOK 00005150 003.2 OF 005

8. (SBU) At a meeting convened by the Khorat Chamber of
Commerce, over 20 business owners gave a mixed picture of the
province's economic performance that was largely dependent on
sector. The most populous province in the Northeast, and
second to Khon Kaen in economic activity, Khorat hosts three
large industrial estates that have contributed to Thailand's
strong export growth in electronics, agrobusiness, metalwork
and services. Eleven U.S. companies have invested over USD
250 million in the province, employing over 13,000 people.
Seagate (hard disk drives) and Cargill (agrobusiness) lead
with a combined USD 25 million of investment, with Seagate
seeking approval on a major expansion, according to the Board
of Investment (BOI) officials at the meeting. Other
export-oriented industries are doing well, with an Australian
two-seat helicopter manufacturing plant expected to begin
operations in 2008.

9. (SBU) Farm and agrobusiness owners, however, complained
about the impact of the appreciating Thai baht on their
profit margins, despite relatively healthy crop prices
overseas. The lower foreign market earnings, when converted
to baht, are reducing liquidity throughout the region, while
political uncertainty is depressing consumption and the
housing market. Business owners said they are less concerned
about the outcome of the December elections than other
provinces. Khorat's stronger industrial base made it less
dependent on populist economic policies at the grassroots
level, and more interested in investor relations.

10. (SBU) With Khorat being one of two Northeast provinces
voting in favor of the new constitution (the other being
Buriram), Chamber reps speculated that it would not be as
loyal to TRT allies as the rest of the Northeast. One
businessman said, "This province will go wherever Suwat
goes." He was referring to Suwat Liptapanlop, the former
Deputy Prime Minister in Thaksin's government who has
recently disassociated himself from TRT, and its successor
People's Power Party (PPP), by resurrecting his old Chart
Pattana party. Now allied with other independent parties,
Suwat's Chart Pattana is expected to oppose PPP efforts to
form the next government. In a demonstration of potential
PPP problems in Khorat, its recently-named leader Samak
Sundaravej was jeered at a September 25 rally by thousands of
spectators who blocked his procession from passing the city's
principal landmark, the Thao Suranaree heroine statue.

--------------------------------------------- ----
SMALL RURAL ENTERPRISES: "WORST YEAR IN DECADES"?
--------------------------------------------- ----

11. (SBU) Small villages between Khorat and Khon Kaen,
however, showed that the worse the conditions, the greater
the residents' support for TRT. A visit to the "Thai Silk
Road," a tourist-friendly silk product village outside of
Khon Kaen, revealed row upon row of silk shop goods greeting
scarce customers. The owner of Mae Boonmee Shop, the largest
producer in the village, said 2007 was shaping up to be the
worst year in her over 30 years of business. Tourism and
wholesale orders from the North, in Chiang Mai, and from
Bangkok had completely dried up, she said. "There's no money
in circulation, and orders have been put on hold until after
the elections. Everybody is just waiting for the elections
because of the political uncertainty." Voters, she added,
would remember the good times under TRT and Thaksin, but
would reserve their votes for the local politicians "who
delivered what they promised."

12. (SBU) Another silk shop owner, one of the oldest and
most prominent in the village, proudly said she never took
out a loan from the Million Baht Village Fund program.
"Others did take out loans, but are unable to pay them back,"
she said, adding that "there's little new money being lent
out, and the government is limiting loans to promote their
own ideas, such as encouraging us to switch to fish farming."
In a back room, she proudly showed off a traditional silk
design of her own. "There's only two of these, and the Crown
Prince bought the original for 40,000 baht - our best sale

BANGKOK 00005150 004.2 OF 005

this year."

13. (SBU) In the internationally-known ceramic village of
Dan Kwian, just outside Khorat, owners of fully-stocked
ceramic goods warehouses likewise lamented 2007 as a lost
year in tourist and wholesale earnings. In the back streets,
Econoff did find one enterprising pottery-maker operating a
bustling family-owned business with four large kilns. He
said he made use of the Village Fund to expand his production
line and hire craftsmen. His unique designs, from cartoon
characters to bald eagles perched on ornate trees, are being
exported to Europe to compensate for the lack of business
from Thai tourists.

14. (SBU) At a group meeting with 25 Khorat rice and cassava
farmers organized by the state-owned Bank of Agriculture and
Agricultural Cooperatives (BAAC), farmers expressed dismay at
the poor rains this year, saying they had lost most of their
first corn and rice crops for the two-crop season. They
credited healthy agricultural prices, assisted by government
subsidies, for strong growth in 2005-06 as the region
recovered from drought conditions in 2004. One BAAC official
said rice prices continued to be subsidized by the current
government, although not to the extent that they'd seen under
Thaksin's administration. "Farmers were getting 10,000 baht
per ton under Thaksin. It fell to 8,000 baht/ton immediately
after the coup, but has since risen to 9,000 baht/ton."

15. (SBU) Several misconceptions were evident, however, as
one BAAC "adviser" to the farming group claimed that economic
sanctions against Thailand due to the coup had harmed
agricultural exports. He did not elaborate on the sanctions,
but went on to question Free Trade Agreements that "exclude"
Thailand from selling crops to other trading partners.
Separately, one farmer credited the TRT government with
having created the rain that overcame the 2004 drought. It
did so, he said, by planting rubber trees which "boosted
humidity and caused rain to fall" in the improved 2005
season. Another farmer disagreed, saying that former Prime
Minister Chavalit deserved the credit for having created the
rubber program ten years earlier.

--------------------------------------------- ---
CONDITIONS LESS FAVORABLE FOR A POPULIST REVIVAL
--------------------------------------------- ---

16. (SBU) The PPP is claiming the TRT populist mantle and
professing "to continue what worked before," while the
Democrat Party has unveiled its own suspiciously similar
initiatives to woo Northeast voters (reftel). Critics of
TRT's populist programs, such as Democrat Party leaders,
argue that they were unsustainable in the long term and
benefited from unusually favorable economic conditions from
2001 to 2005. Former TRT MPs, however, say their party
deserves credit for creating those conditions, including
increased real GDP growth (from 2.1 percent in 2001 to 7.1
percent by 2003), rising tax revenues (including a 10 percent
boost in the first year), and a balanced government budget
(in 2003) for the first time since 1997.

17. (SBU) Several economists who criticized the fiscal
ramifications of TRT's populism in 2001 have since admitted
that stronger-than-expected economic growth, combined with
increased tax revenues, gave Thaksin the "fiscal space" to
finance his domestic populist programs while pursuing
liberalized trade. The public debt-to-GDP ratio fell to less
than 40 percent in 2006 compared to 57 percent when TRT
assumed power in 2001, while real GDP growth more than
doubled during TRT's first year in power, rising from 2.1
percent in 2001 to 5.4 percent in 2002 and peaking this
decade (so far) at 7.1 percent in 2003.

18. (SBU) Economists note, however, that Thaksin's early
tenure coincided with a worldwide recovery from the 2001
recession. In 2008, Thai exports are likely to slow due to
the appreciating baht and the sub-prime mortgage fallout
affecting Thailand's largest export market, the United

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States. A recent rash of layoffs in labor-intensive export
industries, such as textiles, is a further drag on
consumption, and the BOT's interest rate cuts (175 basis
points so far this year) have failed to spur domestic demand
amid continued political uncertainty. Unless the elections
unleash a long-awaited increase in consumer and investor
confidence, the next government may not have the same
resources to embark on populist policies that TRT enjoyed in
2001.
ENTWISTLE

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