Zen and the Meaning of Poor People's Debt in Thaksin's Thailand

It's one of the most important issues facing developing countries. And Thailand has served as a real-world laboratory. I'm talking about Thailand's vast experiment in giving large numbers of poor people greater access to credit. To no small extent, this approach defined the anti-poverty policies of Thaksin, the deposed prime minister of Thailand.

Some people believe that Thaksin's efforts to reduce poverty mainly encouraged low-income Thais to accumulate debt; they deride such measures as "inefficient." This portrayal of Thaksin-style populism is documented in the Asia Sentinel by Ten Kate: "Many critics of Thaksin’s policies feared they were creating a culture of dependency in which people would come to rely on cheap money from the state."

My own analysis of the economic trends uncovered something important. I found that poverty reduction during Thaksin's tenure was more remarkable than his critics -- and good reporters such as Ten Kate -- have indicated. I spell it out in a short post entitled Under Thaksin, Thailand's poverty fell at historic clip, despite relatively sluggish economy.

Yet a conundrum remained: how could one reconcile such downbeat assessments of Thaksin's lending programs with this new evidence? This perplexed me. Then I read a piece by Bangkok Pundit (BP) entitled Thaksin, Poverty and Household Debt. I recalled how previously in an email, BP had posited an intriguing idea, a possible solution to the conundrum: What if improving the ability of poor Thais to accumulate debt amounted to "welfare" by another name?

Supposing three criteria could be satisfied, a strong case could be made that liberalized access to debt served as a successful form of welfare in Thailand. First, if the decline in the rate of poverty under Thaksin really had been significant; second, if people had put easier-to-borrow money to good use; and third, if more open lending policies had not been ruinous to the economy of Thailand.

My finding strongly supports the first point. Addressing the second and third points, BP cited a 2004 paper according to which total household debt in Thailand was at relatively low levels when measured against other economies; the rate of non-performing loans was on the decline; outstanding credit debt stood at only 3%; there was "a gradual shift in household borrowing from informal to formal channels" (which mattered because "lack of access to formal credits may subject a sizable portion of households to exorbitantly high interest rates.") And home ownership in Thailand was on the rise, with mortgage loans accounting for the largest share -- over a third -- of total loans.

Poverty decreased. Money was put to good use. Loans did not wreck the Thai economy. Whatever you call them, Thaksin's anti-poverty measures transferred a lot of cash into the pockets of poor Thais. In the West we would call that social assistance. But for some reason, after this happened in Thailand -- after millions of poor people actually got their hands on some money -- it got derided as "bad policy."

Largely disparaging accounts of Thaksin's anti-poverty initiatives do not jive with my own analysis of the data. The fact is that Thaksin's tenure was marked by sweeping poverty reduction, despite a relatively modest increase in GDP. And if you couple this observation with the strong evidence that broader access to debt financing gave more people access to durable goods such as housing, amounting to welfare by another name -- Bangkok Pundit's insight, a far more favorable interpretation of the Thaksin experiment in poverty reduction emerges.

Under Thaksin, Thailand's poverty fell at historic clip, despite relatively sluggish economy

Partly in rebuttal to my previous post, "Was rising income equality to blame for the Thai coup?", people at various blogs (Hobby at BP, R&W) have noted that the decrease in poverty during the tenure of Thaksin (2001-2006) was not exceptional; they point to the fact that poverty has been declining in Thailand for some two decades. And Ten Kate made much the same point in the Asia Sentinel.

Having examined at the data, I believe one point has not been sufficiently emphasized in this debate: although economic growth during Thaksin's tenure was relatively modest, the rate of poverty abatement was not.

The Thai economy almost doubled between 1990 and 1995 (from 2.2 to 4.2 trillion baht.)* But from 2000 to 2005, the economy grew more slowly (from 4.9 to 6.9 trillion baht.) Effectively, Thai GDP grew by 91% during the earlier period, but only by 41% during a period largely coinciding with Thaksin's rule.

Here's where it gets interesting.

From 1990 to 1994, the percent of Thais living in poverty fell from 34% to 18%.** From 2000 to 2004 the percent in poverty fell from 21% to 11%. During both periods, the percentage of Thais classified as poor decreased by almost half, despite the slower economic growth of the second period.

This data leads me to conclude that poverty reduction under Thaksin was all the more impressive an achievement, given that the economy was not growing as fast during his tenure.

* Thai GDP data is from the IMF (via Wikipedia).
** Poverty rate data is from NESDB (via Bangkok Pundit).

Update: "Zen and the Meaning of Poor People's Debt in Thaksin's Thailand" follows up on this post.

Was Rising Income Equality to Blame for Thailand's Coup?

Note: this post now has updates (bottom).

Recently The Economist ran a story that looked at the growth in inequality in Asia. This chart caught my eye, because it showed that from the 1990s to the 2000s, Thailand bucked the trend: among the nations of Asia, Thailand had made great progress in reversing income inequality.

That this is one legacy of the policies of deposed Thai Prime Minister Thaksin, there can be little doubt.

I wonder whether the trend also might help to explain why certain segments of Thai society strongly supported the coup d'etat. I have long suspected this. Perhaps noticing that the poor were quickly "catching up," there was some level of resentment on the part of better educated, middle class Thais.

For example, it did not escape this foreigner's attention that the salary of a university-educated civil servant or teacher is not that much higher than that of an almost illiterate Bangkok taxi driver from the countryside.

Whereas the situation of poor Thais generally improved, the relative income level of educated, middle-class appeared not to have increased to the same extent (particularly after the economic crash of 1997). From the perspective of the better educated, this situation did not seem fair.

The coup of September 19, 2006 appeared to have had the overwhelming support of middle-class Thais. The nature of Thailand's growing economic equality might go a long way toward explaining the strength of that support. Namely, the -- largely unspoken -- perception that the poor were doing better at the expense of "their betters."

Update #1: Bangkok Pundit (BP) has posted a response to the controversy this post seems to have generated in the discussion section of his blog about whether inequality actually decreased that much under Thaksin. One of his readers, R&W, wrote:

I think the idea that "income gaps" were closing is grade A BS. It's another fabrication by apologists for the crook [Thaksin].

Among other illuminating charts and tables, Pundit presents a chart from the World Bank that looks at inequality within Thailand by region. After I have had a chance to look over this data more closely, I intend to write a follow-up post on this issue.

Update #2: Blogger R&W takes issue with points raised in this post. He questions whether Thaksin should be given much of the credit for reducing poverty, pointing to a World Bank report. BP responds to R&W here. (One of R&W's arguments is that the Thaksin-era data could be bogus.* I find BP's response to this concern most persuasive: "If Thaksin manipulated the figures, why doesn't the current government tell us the real figures, they have now had 11 months.")

* R&W disputes how I characterize his argument here, responding on the comments page of BP's blog:"I wanted to say that I didn't suggest the data was "bogus" as in totally fake, as quoted by you in your blog. I suggested it could be highly inaccurate and that Thaksin or other figures would be very liberal with such data." For the record, R&W wrote: "Did Thaksin or other governments perform their own research? If so, can we accept they [. . .] may have been liberal with their data collation?"

Update #3: My new post points to an overlooked piece of strong evidence that the poverty reduction during Thaksin's tenure was more remarkable than his critics suggest. See Under Thaksin, Thailand's poverty fell at historic clip, despite relatively sluggish economy. Also, check out what BP has to say about Thaksin, Poverty and Household Debt. His post raises an interesting question: Was improving the ability of poor Thais to accumulate debt "poverty alleviation" by another name?

Update #4: I just posted "Zen and the meaning of poor people's debt in Thaksin's Thailand" which ties together the ideas and content mentioned in Update #3.