AMBASSADOR'S COURTESY CALL ON FINANCE MINISTER

UNCLAS SECTION 01 OF 03 BANGKOK 001072

SIPDIS

SENSITIVE

DEPARTMENT PASS USTR BWEISEL AND DKATZ
GENEVA FOR USTR
COMMERCE FOR ITA/MAC/AP/OKSA/JKELLY

E.O. 12958: N/A
TAGS: ECON EFIN EINV PREL TH US FTA
SUBJECT: AMBASSADOR'S COURTESY CALL ON FINANCE MINISTER
SOMKID JATUSRIPITAK


1. (U) Sensitive but unclassified. Please handle accordingly.


2. (SBU) Summary. On February 3, the Ambassador paid a
courtesy call on Minister of Finance Somkid Jatusripitak. The
Ambassador discussed the ongoing Thai-US FTA negotiations,
and stressed the need to work together to ensure the talks
continue to proceed smoothly and amicably. While agreeing on
the need to move forward, Somkid expressed caution over the
public perceptions of the agreement in Thailand, and urged
the U.S. to see the FTA as a vehicle for cooperation rather
than a negotiation over trade liberalization. Somkid praised
the leadership of Prime Minister Thaksin and his management
team in restoring the Thai economy to good health following
the 1997 financial crisis, and sketched out an ambitious
agenda for bureaucratic reform over the next 3-4 years. End
Summary.

The FTA: Not Only about Trade Liberalization


3. (SBU) Moving quickly to the Thai-U.S. Free Trade Agreement
(FTA),Somkid said that he expects to continue to play a key
role in overseeing the negotiations after the election, and
that Prime Minister Thaksin remains supportive of the talks.
However, Somkid explained that the FTA is not only about
reducing tariffs and taxes, but also about pursuing
activities of mutual support. Noting lingering resentment
over the perception that the U.S. was no supportive during
the 1997 financial crisis, Somkid acknowledged that the Thai
public still viewed the economic intentions of the US
negatively, casting a shadow over the FTA negotiations.
Instead, he said, we should highlight bilateral cooperation
and outcomes that will make Thailand more competitive. Along
these lines, the agreement should not only be concerned with
trade liberalization, but with cooperation in trade and in
investment -- tariffs are only one part.


4. (SBU) Somkid told the Ambassador that he plans to travel
to Japan to re-invigorate the Japan-Thailand Economic
Partnership (JTEP) negotiations, which have stumbled recently
over key trade and investment issues. Referring to a
conversation with the Japanese Ambassador last week, Somkid
said that Japan should not treat a developing country like
Thailand the same as other developed countries in their trade
negotiations. According to Somkid, he told the Japanese
Ambassador, "I will take care of your businesses in Thailand
-- you must take care of me." Overall, Somkid said, the US
FTA is more politically sensitive than JTEP due to negative
Thai perceptions of U.S. investors, another hangover from the
1997 crisis. The Ambassador explained that despite this
perception, American investors bring more into Thailand than
the Japanese. While Japanese businesses retain control
through many expatriate managers, the American business
model, in contrast, seeks to hand over control to
well-trained local managers as soon as possible. The
Ambassador pointed out that this model is more effective in
transferring technology and management skills to Thais.


5. (SBU) Somkid looked forward to a positive outcome from the
FTA talks, where both sides are better off. Acknowledging the
Ambassador's offer to help work toward these goals, Somkid
suggested that the talks be characterized publicly not as
"negotiations" -- which has connotations of conflict -- but
as "discussions." Given the importance of perceptions, Somkid
recommended changing the name of the FTA to something along
the same lines as JTEP, underscoring "economic partnership."
Somkid indicated that the Thai people are "scared" of larger
countries like China, Japan and the U.S., but that Thais must
be able to accept new ideas and situations. The Ambassador
agreed that it is important to put a human face on the FTA,
but for it to pass the U.S. Congress, the FTA must be
comprehensive.


6. (SBU) Somkid added that another challenge for the Thaksin
administration is the political opposition, which often tries
to distort the message of the FTA and claims that Thaksin
will "sell everything" to the U.S. While Somkid's Thai Rak
Thai party has avoided all FTA topics during the election
campaign, he agreed that they must clarify the government's
intentions. He assured the Ambassador that the RTG will get
back to work on the FTA "not too long" after the elections.
Somkid stressed that both the US and Thailand must help each
other move the FTA forward smoothly, and having good
communication is paramount; if there are missteps, there are
groups willing to mislabel the discussions. In response, the
Ambassador proposed that they both strive to keep each other
apprised of each government's political and policy
developments, so as to avoid unwanted surprises.
Economic Recovery Successful Due to Management


7. (SBU) Noting the quick and successful recovery of the Thai
economy from the 1997 financial crisis, the Ambassador asked
Somkid which steps were most effective in restoring the
economy's health. Overall, Somkid praised the steady
leadership and management style of the Thaksin
administration. In his role as Finance Minister, Somkid said
that he focused first on rebuilding domestic confidence to
spur investment and consumption. He explained that previous
governments had focused exclusively on the export market,
neglecting the potentially dynamic domestic consumer market.
By urging the state banks to lend aggressively -- commercial
banks had sharply curtailed credit after the 1997 crisis and
are still lending conservatively -- they were able to
stimulate investment and consumption, thus boosting
confidence. Internationally, he stated, this government had
promoted Thailand as the "hub" of Southeast Asia, and forged
trade agreements and links with other countries in the
region. In addition, Thailand remains an attractive
destination for FDI, including the expansion of domestic
capital markets.

Thaksin, part II: More Changes Ahead in the Economy and the
Bureaucracy


8. (SBU) According to Somkid, Thaksin and his "managers" are
still in the process of making major changes in the structure
of the Thai economy. Somkid acknowledged that despite the
economic recovery, the underlying structure of the Thai
economy had not changed for decades. The hardest part, he
admitted, is convincing bureaucrats and businesses to change
their ways voluntarily, before change is forced upon them.
Somkid said that they have had some success so far; many
banks have changed their attitudes about credit, and have
helped to stimulate both rural and urban demand through their
lending policies.


9. (SBU) Somkid told the Ambassador that one of the main
agenda items for the next Thaksin administration is to
improve and reform the Thai bureaucracy. The plans for
bureaucratic reform and restructuring will not focus on any
one institution in particular -- such as the highly-respected
Bank of Thailand, which is widely seen to have mismanaged the
1997 financial crisis -- but will be part of a much wider and
comprehensive effort. Somkid said that the bureaucracy had
improved under the Thaksin administration -- mainly through
pressure -- but many institutions, such as the educational
system, were failing in their mission. (Somkid decried the
fact that he has to send his children to school in the U.S.)
Somkid agreed with the Ambassador's suggestion that raising
the salaries of government officials, as Singapore has done,
had proven successful in recruiting, and retaining, the most
talented civil servants.

"Managing" Thailand Still Biggest Priority


10. (SBU) Somkid recognized that this reform agenda is
ambitious, but believes it can be achieved in 3-4 years under
a strong, visionary leader like Thaksin. Describing the
leadership and management style of Thaksin and his advisors,
Somkid used the expression, "rao ruu yaang ped ("to know like
a duck," which can fly, swim, and walk on land)," a Thai
phrase meaning that they are generalists who can oversee all
the specialized elements of administration. Although now
Finance Minister, Somkid pointed out that his Ph.D. was in
marketing; Thaksin himself, who received a Ph.D. in criminal
justice, founded a company that now owned communications
satellites in space. According to Somkid, successful
management depends on leadership and vision, not expertise.


11. (SBU) In approaching this agenda, Somkid said Thaksin and
his advisors have no fixed formula or theory -- "what has to
be done, will be done." As with Thaksin's streamlining of
ministries in 2002, Somkid predicted that a strong and stable
administration would be able to make many changes in a second
term. Using the example of Malaysia, Somkid said 25 years of
stability under Mahathir had a great impact on Malaysia's
growth and development. While acknowledging the benefits of
stability, the Ambassador urged Somkid to be wary of
comparison between Thaksin, and Mahathir or Singapore's Lee
Kwan Yew. Comments like these, often designed to please local
audiences, also resonate to foreign capitals, sometimes
giving the impression that Thaksin may be impatient with
democratic institutions and processes.

12. (SBU) Comment: Second to PM Thaksin, Somkid is the most
recognized authority on financial and economic matters in the
current administration. A key Thaksin insider -- and founding
member of the Thai Rak Thai party -- Somkid plays an
especially important role in setting economic and trade
policy. Despite Thaksin's enthusiasm for FTAs, Somkid's
comments suggest that his support for these negotiations is
lukewarm, at best (and many observers believe that left to
his own devices, Somkid would abandon the FTA project
entirely). Somkid's appeal for sympathy and generosity in the
FTA negotiations is a commonly heard refrain from RTG
officials and leaders. Fear of being overwhelmed by the U.S.
in these talks has increasingly led the RTG to characterize
this agreement as an ill-defined vehicle for economic
cooperation, rather than a means to secure U.S. market access
and reforms of the Thai economy. Somkid's promise to return
to the hard work of FTA-making should probably be taken at
face value, but our impression was that Somkid is not the
kind of enthusiastic supporter we need at his level of
leadership to move these negotiations forward. End Comment.
BOYCE