In 2023, Thailand experienced significant political changes, but the economy remained moribund. In May, elections for 500 seats in the House of Representatives brought an unexpected victory for the reformist Move Forward Party with 151 seats but no parliamentary majority.
The populist Pheu Thai party took second place with 141 seats. Its leadership includes Paetongtarn Shinawatra, the daughter of former Prime Minister Thaksin Shinawatra, who was in exile at the time. The Move Forward Party's electoral success, based largely on support from younger Thai voters, surprised most observers as its reform-oriented agenda potentially threatens the position of the country's elite.
Maneuvers within the unelected 250-member Senate prevented the Move Forward Party from forming a government. A coalition led by the Pheu Thai Party, which includes parties from the outgoing military-backed government, was able to form a majority government. Srettha Thavisin, a real estate tycoon and not an elected member of parliament, was nominated as prime minister by the Pheu Thai Party and appointed in August 2023.
These political events occurred in the context of persistently slow economic growth dating back to the Asian financial crisis of 1997–1999. Real GDP growth for 2023 was estimated at 2.5 percent, the lowest in Southeast Asia after Myanmar. Forecasts for 2024 and beyond suggest similarly weak growth.
In 2023, inflation remained below 1 percent and while unemployment was not a problem, persistently low real wages were. The Pheu Thai Party's campaign promises included a cash distribution to all Thai citizens and a significant increase in the minimum wage.
Shortly after he took office, a campaign promise of a cash handout became a major political goal, in the form of a “digital wallet” worth 10,000 Thai baht ($286) for every Thai citizen, limited to purchases in the recipient's area of residence . This liquidity injection was to be financed by 500 billion baht ($14 billion) in government bonds.
The “digital wallet” initiative could have temporary redistributive benefits. Lawyers have argued that such a huge national debt would only be legal if the current situation was viewed as a “temporary crisis.” A more fundamental question is whether demand stimulation makes economic sense given Thailand's circumstances.
Current policies reflect a misunderstanding of Thailand's core economic problem. The reason for the continued slow economic growth since the Asian financial crisis has not been a lack of aggregate demand. During the 2020-2021 COVID-19 lockdown, sensible Keynesian arguments of this nature were put forward to justify a temporary demand stimulus. This stimulus actually happened, as it should.
In 2023 this was no longer the case. Thailand's current economic problem is not idle economic capacity, including unemployment caused by a temporary lack of demand. The temporary demand stimulus provided by the Digital Wallet program is a policy response to a demand deficit problem that does not exist.
Thailand's economic problems lie on the supply side. The slow output growth is the legacy of persistently low growth in productive capacity over the decades since the Asian financial crisis, particularly since around 2006. Its main cause has been low private investment rates and inadequate productivity-enhancing forms of public investment and economic reform. The share of private investment in GDP was well below the level of the decades before the Asian financial crisis of 1997–1999 and is lower than in comparable Southeast Asian countries. Thai companies were not confident about investing in their own production capacity.
The Pheu Thai Party's election promise to significantly increase the minimum wage was well received by its supporters but met with predictable resistance from business groups. The new government has radically reduced the promised size of the increase. An increase will still occur and may be justified by moderate increases in the cost of living. But these populist policies do nothing to address the economic cause of persistently low real wages among less-skilled Thai workers – their low productivity.
Current data on reading, writing, arithmetic and foreign language skills among young Thais puts them at the bottom compared to Southeast Asian countries. The outdated features of Thailand's public education system, which lead to poor learning outcomes, are a partial cause of this long-term productivity problem. Although Thai education experts have been highlighting this problem for decades, successive governments have consistently found it too difficult to address.
Politically expedient, short-term measures that ignore the need for long-term productivity improvement reform are Thailand's ongoing policy failure. This is clearly evident in the agenda of the current populist government. But unfortunately, with some exceptions, for at least two decades the underlying story has been whether governments were democratically elected or not.
In addition to education reforms, Thailand needs to reform trade and competition policies and reduce the cost of corporate compliance. The slow growth of private investment in productive capacity and the low real wages of Thai workers were a consequence of the absence of these reforms.
Peter Warr is the John Crawford Emeritus Professor of Agricultural Economics at the Crawford School of Public Policy, Australian National University.
This article is part of an EAF special series of articles looking back on 2023 and the year ahead.
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