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Give Post-Crisis Thailand Two Cheers for Muddling Through

The currency is stable enough, but the stock market has fallen by 30 percent this year, which leaves it not far above its crisis low and down 85 percent in dollar terms from its all-time high. Salomon Smith Barney puts Thailand almost at the bottom of its league of emerging markets.

Politics is too confused for most outsiders (and not a few Thais) to comprehend. Adding to the confusion is the resignation from Parliament by 50 members from the New Aspiration Party of former Prime minister Chaovalit Yongchaiyudh, who is trying to force early elections.

So is Thailand making steady progress in economic recovery and institutional development, or has progress stalled? Is another crisis around the corner as political confusion combines with unresolved banking problems to set off new alarms?

The political future is less clear than ever, but partly for reasons which reflect well on Thailand's attempts at self-improvement. Parliamentary elections must be held by the end of the year under new constitutional rules. Single-seat constituencies and a party list system by which some seats will be filled by proportional representation have been introduced. This has unpredictable consequences, as most parties (the Democrat Party headed by Prime Minister Chuan Leekpai is the exception) consist of agglomerations of personal factions.

Unclear, too, is whether the opening of the new Parliament will be delayed for months because of challenges by the Electoral Commission to some successful candidates and endless arguments before the Constitutional Court.

The rules are supposed to raise the quality of candidates and prevent malpractice such as vote-buying. Improving standards will be a slow process. Meanwhile, the delays give an impression of a chaotic system. But at least higher standards are being expected, if not always delivered, and the number of parties is likely to diminish.

The parliamentary elections are likely to be a fight between Mr. Chuan's Democrats and an entirely new party, Thai Rak Thai, set up by the telecommunications tycoon Thaksin Shinawatra, who has shot to the top of the popularity polls in fickle Bangkok. Mr. Thaksin presents himself as a man who can get things done.

The electorate in general may be restive for change. Mr. Chuan will have been in office for three years, a long time in Thai politics. This undemonstrative leader remains trusted, but his party has been sullied by a few scandals and the economy is not recovering as fast as the public expects. It seems likely that Mr. Chuan will persevere, pushing the budget bill through Parliament before calling elections.

There is a widespread view that it will not make much difference which party comes first, as it will need coalition partners who are familiar faces.

Mr. Thaksin's critics say his business achievements have been based mainly on exploiting the murky interface between public and private sectors. He has yet to announce an economic team, but there are suspicions that he favors oligopolies and national control over the free market policies pushed, with IMF and World Bank advice, by the current government. Given his background, he might also be more willing to use public money to write off the debts of private sector borrowers.

However, any drift to economic nationalism is likely to be tempered by the fact that next year a Thai, Deputy Prime Minister Supachai Panichpakdi, will take over the World Trade Organization. More bailouts would be politically unpopular and run into stiff resistance from conservative Ministry of Finance and Bank of Thailand officials who already worry about the size of the public debt, which could, according to latest World Bank estimates of potential banking losses, reach 65 percent of GDP.

The irony of the economic situation at present is that the government, responding to public concern about debt, is being more cautious than the World Bank or the IMF suggests is necessary. First-quarter recovery was weaker than hoped and not broad-based. Progress in reducing nonperforming loans and foreclosing on borrowers has been slow. There has been scant new lending to stimulate business, and a culture of default remains pervasive.

Unemployment remains high, and there is concern that cutbacks in public sector deficits could stall the economy.

But there are bright spots, too. Exports and tourism are strong, foreign debt has been paid down, and foreign direct investment has picked up even as portfolio investment has declined. Banks are liquid, interest rates are low and the currency is competitively priced. A continued pickup in consumption looks likely despite low agricultural export prices. GDP should grow by 5 percent this year.

The picture overall is mixed. The unexciting reality is that Thailand is muddling through. Politics will remain a confusion between good intentions and actual practice. Economic recovery will be gradual and uneven. The excesses of the '90s have robbed the poor and left a legacy of debt that will preclude sustained growth much above 5 percent. The educational system is a drag on moving upmarket.

Thailand remains what it has long been - the most open, optimistic and homogeneous state in Southeast Asia. It has also taken aboard more lessons from the crisis than anywhere else except South Korea. Two cheers for Thailand.