VZCZCXRO0713
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 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP AND EB 
STATE PASS TO USTR 
TREASURY FOR OASIA 
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 
 
BANGKOK 00005150  001.2 OF 005 
 
 
¶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. 
 
 
-------------------------------- 
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 
 
BANGKOK 00005150  005.2 OF 005 
 
 
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