Workers hit as garage sale of Thailand gears up

September 9, 1998
Issue 

By Eva Cheng

According to an August survey of Thailand's Board of Investment, within five industries — food and beverages, textiles, plastics, automobiles and services — which received special state promotion, 82,000 workers lost their jobs in the year to June 30. This represented a 6.3% reduction, leaving only 1.21 million jobs in those industries.

Job availability in the non-promoted sectors, where the majority of Thai workers were employed, was far bleaker. High redundancy was also found in industries such as electrical and electronic goods, steel and metals, and garments.

More jobs will go as the recession of the Thai economy worsens. Even the generally optimistic International Monetary Fund expects the economy to contract in 1998 by 7-8%. Its May forecast was for a contraction of 4-5.5%.

In its late August review, the IMF now recognises the "worse than expected" drag from the Japanese recession and the new crisis in Russia, which will further hit demand for Thai exports. Given Thailand's high dependence on exports, a contraction of foreign demand can deal a further blow to jobs.

Another 10,000 jobs are expected to evaporate as a result of the government's August 14 order for two banks and five finance companies to be taken over by assigned financial institutions, which will start "streamlining" the merged businesses shortly.

Still more jobs will go as the sweeping privatisation of Thailand's state industries switches to a higher gear.

Pittance for the poor

The Chuan Leekpai government and the IMF claim to be addressing the needs of the majority of the Thai people, who have been hit hard by the economic crisis that started in July 1997. Yet the measures they are pushing give an overriding priority to Thai and foreign capitalists.

In its repeated reviews of the Thai economy since its August 1997 US$17.2 billion "rescue" loan to the Thai government, the IMF has emphasised providing a "social safety net". In its May review, the IMF approved the Chuan government spending "roughly" 0.4% of GDP in this area.

No comparable indication was provided for such spending in its next quarterly review, in late August. However, that report did say that such spending will mainly include: increasing student loans — for schools and universities — by 2.7 billion baht (A$117 million); expanding micro-credit to the unemployed by B300 million ; maintaining public works in water supply, irrigation and infrastructure; and providing free medical treatment and improving rural health care to 3 million more people.

The total expenditure, let alone the breakdown, on the last two categories wasn't provided, making it hard to assess their true benefits. This is especially the case with the plan on free medical provision. As for public works, firms such as construction suppliers and contractors are likely to obtain more benefits than low-income layers.

The quantifiable new social spending by the central government is thus B3 billion (or 0.06% of GDP), a pathetic crumb compared to the planned government borrowing of B500 billion to finance "restructuring" of the financial sector and B300 billion to "strengthen" the capital base of banks and finance companies.

Huge ongoing interest payments will be incurred to service such borrowing. Interest costs alone will average 3-4% of GDP in each of the next few years, according to the government's latest Letter of Intent with the IMF on August 25.

Such costs will be largely "fiscalised" — that is, they will be paid out of the yearly budgets and thus become a collective burden of the people.

According to the August 25 announcement, other supplementary social measures include:

  • refocusing and augmenting infrastructure projects by state enterprises;

  • extending insurance coverage for the unemployed on health, disability, death and maternity benefits — not income support — from 6 to 12 months and to 100,000 more people from October, at a cost of B1 billion;

  • enacting a new Labour Protection Act, on August 19, which should increase severance payments, but only to workers who have been working for the same employer for more than six years.

  • creating a subsistence fund to help — extent not specified — those who lose their jobs as their employers go bankrupt or who fail to receive their severance pay.

In addition, loans amounting to B26 billion have been arranged with the World Bank, the Overseas Economic Cooperation Fund and Asia Development Bank for job, education and health projects over the next three years. A plan for a comprehensive old-age pension is scheduled to be announced in December.

If implemented, these measures should help some specific groups in limited ways, but they have little to do with meeting the essential needs of the majority of battling families.

Moreover, full implementation is still by no means a certainty. For example, in early August the government offered little help to the hundreds of workers of Thai Melon, in Pathum Thani province, who, long after being laid off, were still refused payment of their legal entitlements (including overdue wages) of B20-40,000 each.

Also in early August, the government unilaterally amended the social security law to free itself from the obligation to contribute to workers' pension funds.

Rescuing the rich

In contrast, the Chuan government is pursuing vigorously the help-the-rich programs, privatisation and other "market opening" prescriptions handed down by the IMF.

An unspecified amount of government funds has already been spent to shore up the capital of problem banks which have recently been taken over, mainly by government-owned banks. But these predators will be privatised as soon as possible.

Any losses that may be inflicted on the government to make these financial institutions saleable will be fully "absorbed" by the public coffers.

A range of taxes that might "impede" the restructuring of non-financial businesses were waived earlier this year. More are to come, at unspecified but significant public expense.

These concessions serve primarily to reduce costs for private businesses and have at best a remote connection to the stated aim of reviving the Thai economy. An extreme example is the permanent waiving of income tax on all short-selling stock transactions!

Legislative amendments are under way, such as on bankruptcy and secured lending, to increase and safeguard the profitability of lending institutions.

On August 18, the Alien Business Law was replaced, so that foreigners can, for the first time in more than two decades, get into 33 types of business. They include timber, fishing, exporting, retailing and wholesaling.

Other industries still reserved for Thais can still be opened to foreign ownership if the shareholding is limited to 60%, and this rule can be waived on a case-by-case basis.

For foreign banks taking a majority stake in a Thai financial institution, a five-year guarantee against any losses is offered by the government.

Privatisation

The program to privatise the bulk of key state industries is switching to high gear, and is projected to be completed by the end of 1999. Some will be on offer immediately, while others will be corporatised as a transitional step.

In energy, the disposal of the government's stakes in Electricity Generating (Public) Co and PTT Exploration and Production is completed. The sales of Esso Thailand, Bangkok Petroleum, Ratchaburi Power Plant and EGAT will follow.

Also for sale are Telephone Organisation of Thailand, Community Authority of Thailand, Thai Airways, State Railways, Airport Authority of Thailand, Regional Airport Co, Metropolitan Water Authority and Provincial Water Authority.

The big inroad of foreign capital will disadvantage some Thai capitalists, but hardest hit will be Thailand's working majority. Sweeping privatisation of key utilities will cut jobs further and fuel already high inflation.

As the economy slides into deeper recession, prospects for jobs and survival for the majority will turn bleaker. Life is going to get a lot worse.

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