NEW THAI ECONOMIC TEAM TAKES THE REINS OF A

C O N F I D E N T I A L SECTION 01 OF 05 BANGKOK 003746 SIPDIS STATE FOR EAP/MLS, EAP/RSP, EEB STATE PASS TO USTR (WEISEL/BISBEE) TREASURY FOR OASIA COMMERCE FOR EAP/MAC/OKSA SINGAPORE FOR FINATT BAKER E.O. 12958: DECL: 12/24/2018 TAGS: ECON EFIN PGOV ETRD PINR TH SUBJECT: NEW THAI ECONOMIC TEAM TAKES THE REINS OF A WORSENING ECONOMY REF: A. BANGKOK 3712 (NEW THAI CABINET APPOINTED) ¶B. BANGKOK 3648 (ABHISIT ELECTED) BANGKOK 00003746 001.2 OF 005 Classified By: Ambassador Eric G. John for Reasons 1.4 (b) and (d). ¶1. (SBU) Summary: Thai businesses and investors are worried about the effects of the global financial crisis on Thailand, and Prime Minister Abhisit's cabinet selections for his economic team have not quelled these fears. An Oxford-educated economist, Abhisit and his Oxford classmate Korn Chatikavanij, a career investment banker who will serve as Finance Minister, have been welcomed by most business elites and economic observers, but Abhisit's picks for other key economic positions, particularly those at the Ministries of Commerce and Industry, were met with sharp criticism, as the appointments simply appear to be the result of the political trading to secure Abhisit's coalition in Parliament. Exacerbating these concerns, the Ministry of Commerce released its November export data, showing an 18.6 percent decline in export values year-on-year. Most government and private sector analysts have predicted significantly slower overall economic growth for 2009, with most estimates between zero and two per cent. Thailand's financial house remains in good order, with high foreign exchange reserves and low foreign debt. On December 29, the new Prime Minister and his cabinet Abhisit will present the government's policy agenda to parliament for debate, formally outlining the plans the government hopes to implement in both the near- and long-term. End Summary. ¶2. (C) Comment: Abhisit and Korn, while both only 44 years old, bring a breadth of economic knowledge and experience to the new government. However, it remains to be seen whether Abhisit will be able to ward off political pressures from both within and outside his coalition and still push forward much-needed programs and policies that will allow Thailand to cope with the global economic downturn and position itself to be competitive globally in the years ahead. The political maneuvering that resulted in coalition allies putting seemingly unqualified people in key cabinet positions does not bode well. Meanwhile, well-placed business contacts tell us that the current projections for some growth in 2009 are optimistic and GDP growth may well be negative. End Comment. TWO OXFORD CLASSMATES LEAD THE ECONOMIC TEAM -------------- ¶3. (SBU) Prime Minister Abhisit's cabinet selections for his economic team received unenthusiastic reactions from most business and media observers -- with one exception, Finance Minister Korn Chatikavanij. Korn was quickly hailed as Abhisit's most capable economic minister, and the only one, other than Abhisit himself, who has any background in economic issues (see bio below). Abhisit announced that he will lead the government's economic team himself, but Korn is expected to be alongside the Prime Minister when any decisions are made. Korn, a career investment banker turned politician, has served as the opposition party's "shadow Finance Minister" since February, closely monitoring the financial policies and programs instituted by Prime Ministers Samak and Somchai. Abhisit and Korn are close friends, as well, having studied economics together at Oxford University. Abhisit entered politics not too long after returning to Thailand from Oxford, while Korn went on to become one of Thailand's most well-known investment bankers, eventually becoming the head of JP Morgan's operations here. ¶4. (SBU) Abhisit's policy plans will not be presented in parliament until December 29, but Abhisit and Korn have made several policy announcements at economic-related public appearances this week, including at a visit to the Stock Exchange of Thailand on December 22 in hopes of building investor confidence. Korn told the press that his first priority will be to revive investment and boost consumption, in hopes of mitigating the impact of the global economic BANGKOK 00003746 002.2 OF 005 downturn. One of the government's first major initiatives, according to Korn, will be to significantly increase the mid-year supplementary spending bill in hopes of jump-starting the Thai economy. Abhisit, Korn, and other members of the economic team are expected to meet with the central bank governor later this week to discuss monetary policies. OTHER PICKS DRAW CRITICISM -------------- ¶5. (SBU) While most observers have positively responded to Abhisit's selection of Korn as Finance Minister, his other picks for his economic team have disappointed the business community and economic observers. Two appointments, in particular, Pornthiwa Nakasai as Commerce Minister and Charnchai Chairungruang as Industry Minister, have been heavily criticized for their apparent lack of experience on commercial or economic issues. Abhisit himself even noted that his cabinet may not look impressive but claimed that his government will have stability. Abhisit and the Democrat Party ceded the majority of key economist posts to leaders of other parties within the coalition. Many political and business insiders believed that the Democrat Party's "shadow commerce minister" Kiat Sitthiamorn would receive the Commerce appointment, but even that position was lost during the political maneuvering. TOUGH ECONOMIC TIMES AHEAD -------------- ¶6. (SBU) Abhisit and his economic team are expected to seek quick solutions, or at least cushions to soften the blow, to several negative trends: decreasing demand for Thai exports, declining investment, and rising unemployment. Most analysts have presented bleak economic forecasts for 2009, too, predicting less than two percent economic growth next year. Government and private sector forecasts also show unemployment nearly doubling in the next year, although these estimates may be exaggerated. ¶7. (SBU) Thailand's export growth rate dipped into the red for the first time in six years, according to the Ministry of Commerce data released on December 22. The year-on-year data showed an 18.6 per cent decline in the value of exports from November 2007 to November 2008. The country-specific export data showed that Thailand is taking a hit from the global economic crisis, too. Export performance in nearly all of Thailand's key markets was significantly down according to the year-on-year data: -14.2 per cent for the United States, -8.4 per cent for Japan, -16.7 per cent for the European Union, -34.7 percent for Hong Kong, and -36.3 per cent for China. Even though the Ministry of Commerce still expects export growth for all of 2008 to be about 18 per cent, the Ministry's forecast for 2009 predicts export growth between zero and five per cent. ¶8. (SBU) Foreign investment figures appear to be significantly worsening, too. One of Abhisit's most difficult but immediate tasks will be restoring business and investor confidence in Thailand's economy after months of political turmoil, including the stand-offs at Bangkok's airports that several figures in the new government supported. Total foreign direct investment, as estimated through the Board of Investment's applications for incentive packages, declined from more than $13 billion to less than $9 billion, approximately a 35 percent drop year-on-year over the January to November time frame. Investment from the United States has plunged from nearly $2.5 billion in 2007 to less than $250 million in 2008, according to BOI year-on-year estimates through November. ¶9. (SBU) Most analysts continue to argue that Thailand's economic fundamentals are still relatively strong -- high levels of foreign reserves at the central bank, low inflation BANGKOK 00003746 003.2 OF 005 rates, high capital to debt ratios, and a low exposure to foreign debt. Abhisit and his economic team will be tested on how well they can maintain these strong fundamentals and at the same time boost domestic consumption levels and encourage domestic and foreign investment. SELECT BIOS -------------- ¶10. (SBU) Below are biographic notes on select members of PM Abhisit's economic team. Post will continue to provide additional bio details on key cabinet officials in our regular reporting. Finance Minister Korn Chatikavanij -------------- Korn Chatikavanij is the only Democrat Party member who holds a key economic position in Prime Minister Abhisit's cabinet. A 44-year old career investment banker turned politician, Finance Minister Korn has quickly attracted the confidence of business and financial leaders -- something that cannot be said for Abhisit's other economic appointments. Since February, Korn has served as the opposition's "shadow Finance Minister." (Note: Democrat Party Leader Abhisit established the opposition's "shadow cabinet" to closely track the performance of then PM Samak's and later PM Somchai's governments.) Known for his good looks and 6'3" height, Korn's nickname in the Thai media translates as "tall and handsome." For nearly 20 years, Korn worked as the managing director of Jardine Fleming Thanakom Securities, a company he cofounded at the age of 24. The brokerage became one of Thailand's largest securities firms and was acquired by JP Morgan in ¶1999. Korn then became the country director for JP Morgan, where he remained until 2004. (Note: The Embassy used to meet with Korn frequently in his capacity at JP Morgan and has maintained contact with him since then.) A political neophyte, Korn left the financial world to enter politics in February 2005, when he was elected to parliament. He quickly rose up the ranks of the Democratic Party, becoming the Deputy Secretary-General during his first year in office. According to formal party records, Korn is a significant financial backer of the party, although we are not sure how his contributions stack up against other figures, undisclosed forms of support. Korn received his Bachelor's with honors in philosophy, politics, and economics from St. John's College at Oxford University, where he befriended fellow classmate Abhisit Vejjajiva. Korn is married to Vorakorn ("Jay") Chatikavanij, and has two daughters, aged 11 and 9, as well as two step-sons, aged 26 and 16. Commerce Minister Pornthiwa Nakasai -------------- One of the more controversial appointments of Abhisit's cabinet is Pornthiwa Nakasai as Commerce Minister. She is the head of the newly formed Bhum Jai Thai Party, which consists of members of the recently dissolved Matchima Thippathai Party, and her appointment has largely been viewed as the result of Abhisit's coalition-building exercise within Parliament. She has been widely criticized for her lack of experience in business or commercial issues, with the exception of her family's entertainment venues in metropolitan Bangkok. Recognizing the business community's criticisms, Pornthiwa set up an advisory team to assist her at the Ministry, comprised of former Vice Minister of Commerce Dr. Uttama Savanayana, former Finance and Commerce Minister Somkid Jatusripitak, as well as other business leaders. Pornthiwa received her first bachelor's degree in geography BANGKOK 00003746 004.2 OF 005 from Songkla University at Pattani and her second B.A. in political science from Ramkhamkaeng University. She also holds a master's degree in public administration from Thammasat University. She is married to Anucha Nakasai and has two children. Industry Minister Charnchai Chairungruang -------------- Charnchai Chairungruang, aged 56, is a career parliamentarian who hails from Mahasarakham province in Thailand's northeast. He was first elected to parliament in 1983 and has secured his seat in most elections over the past 25 years. Charnchai has held several political positions including Government Deputy Spokesperson, Secretary to the Deputy Interior Minister, and Parliament Secretary. He is the current leader of the Puea Pandin (Motherland) Party, representing five members of parliament for the Democrat-led coalition government. Before joining Puea Pandin, he was a member of the Thai Rak Thai Party (TRT). Despite his 25 years of service in the House, Charnchai is considered an unknown to the business elites, as very little is known about his economic views. Before pursuing his undergraduate studies, Charnchai received construction training at Uttentawai technical college. He later received his bachelor's degree at Rajabhat Maha Sarakham University and also a graduate degree in political science from Chulalongkorn University. Transport Minister Sophon Zaram -------------- Sophon Zaram, aged 49, most recently served as the Deputy Minister of Transportation under PM Somchai. He is one of several People Power Party MPs who joined the Democrat Party to help form Abhisit's government. Sophon is considered a close aide and friend of Newin Chidchob, who led the defection from Thaksin's camp and made the new government possible. A local school teacher turned parliamentarian, Sophon was first elected to parliament in 2001. Sophon received his undergraduate degree in primary education from Buriram Rajaphat University. He is married to Areeyaporn Zaram and has three sons. Sophon speaks only Thai. Virachai Virameteekul, Minister Attached to the PM's Office -------------- -------------- Virachai Virameteekul's appointment to PM Abhisit's cabinet was another controversial decision. Nipit Intrasombat of the Democrat Party accused Virachai of buying his cabinet position, for a reported 80 million Baht (over two millions USD),fueling speculation about the role of financial incentives in forming Abhisit's government coalition and cabinet. Virachai is the former son-in-law of Dhanin Chearavanont, the Chairman of the giant Thai conglomerate Charoen Paokphand Group. This close relationship to Dhanin, in addition to the donation to Abhisit's party, was reportedly what secured Virachai's ministerial appointment. Virachai began his career as a professor and lecturer of accounting at several prestigious Thai universities. In 1993, he left academia to become the Vice Chairman of the Business Development Bank. Virachai entered politics in 2001 with the now-defunct Thai Rak Thai party. He was later appointed to several leadership positions during the Thaksin administration: Vice Minister of Agriculture and Cooperatives in 2003, Vice Minister of Finance in 2004, Vice Minister of Foreign Affairs in 2005. After the 2006 military coup, Virachai emerged as the political advisor to the Prime Minister in the interim government, despite his party affiliation with the deposed Thai Rak Thai-led government. He kept a relatively low profile during the Samak and Somchai administrations and then, rather unexpectedly, resurfaced in the Abhisit government in this Minister-level advisory position to the Prime Minister. Virachai will reportedly be part of Abhisit's senior economic team. BANGKOK 00003746 005.2 OF 005 Virachai holds a master's in business administration from Clark University, and a doctorate degree in accounting from Chulalongkorn University. JOHN