LOWER NORTH ECONOMIES CONTRACTING; POLITICAL DIVIDES

UNCLAS SECTION 01 OF 03 CHIANG MAI 000098

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EAGR ECIN EFIN ELAB PGOV SNAR SMIG SOCI TH
SUBJECT: LOWER NORTH ECONOMIES CONTRACTING; POLITICAL DIVIDES
PERSIST

REF: 08 CHIANG MAI 72 (AS PRICES RISE, NORTHERN RICE BOWL EXPANDS)

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Sensitive but Unclassified; Please handle accordingly.

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Summary and Comment
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1. (SBU) The economy in Phitsanulok remains stable, providing a
solid economic foundation for the region, despite the global
economic crisis causing many workers to return to the lower
north. Although the agricultural sector in the region's
economic hub of Phitsanulok is reportedly accommodating
returning workers, villagers who travel seasonally as unskilled
workers to Bangkok report the impact of the economic crisis is
limiting opportunities there. While the crisis' impacts on
divergent socioeconomic communities in the lower north vary, it
does not appear to be exacerbating the existing political
divide. Like elsewhere in the north, personal relationships and
cash payouts rather than political ideology determine how locals
vote, red or yellow.


2. (SBU) Comment: While the global economic crisis is
certainly having some impacts in the lower north, the real
economic challenges that villagers face are long-term problems,
such as lack of access to irrigation and steady government
financing of local projects. With less access to capital,
poorer locali,ties are generally still loyal to the former
Thaksin administration that supported such rural development
initiatives, though money and personalities are the main
motivators for voters in this region. If recent stimulus
efforts to finance infrastructure projects across the country by
current Prime Minister Abhisit are well received in the lower
north, red shirt loyalty in the region could decline. End
Summary and Comment.

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Despite Crisis, A Resilient Lower North Economy
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3. (U) Although the economic crisis is negatively affecting
some parts of the lower north, the local economy is generally
resilient, businessmen and villagers in Phitsanulok Province
told econ staff during a June 24-26 trip. Phitsanulok city is
primarily supported by currently stable economic sectors such as
agriculture, education, and health care. Phitsanulok is
considered a hub for the lower-north in each of these sectors
providing consistent incomes that fuel the local economy. In
semi-rural parts of the province, farmers reported that they are
content with current agricultural prices and are not constrained
by the global crisis.


4. (U) The primary effect of the crisis in the lower north is
an increase in labor supply due to laborers returning home after
being displaced from the suffering export-oriented sectors based
in the Bangkok area. However, even this added supply of workers
remains a manageable issue. The labor-intensive agricultural
industry, for example, appears able to absorb returning workers
as long as they are willing to perform manual labor and the
farming community they live in has sufficient access to
irrigation systems to expand their production.

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Policy Efforts Maintain Stable Economy
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5. (U) Phitsanulok villagers expressed appreciation for the
government's price floor on rice, a policy the farmers believe
allows the region to adapt to the changing economic environment.
Presently, farmers are guaranteed a minimum price of 9,500 THB
(280 USD) per metric ton, while the market price is
approximately 9,000 THB (265 USD). Farmers still complain that
the price guarantees cannot compare to last year's high
commodity prices, which peaked at 14,500 THB (425 USD) per
metric ton (reftel). Moreover, farmers continue to comment that
profits are low due to the high prices of inputs such as
fertilizer and pesticides.


6. (U) Other nationwide stimulus policies have lessened
economic burdens in the urban parts of the lower north. The
recent stimulus package provided a 2,000 baht ($59) one-time
payment to each employee of a formal business who registered for
social welfare and made less than 15,000 THB (442 USD) per
month. Even though the largest factory in the city had a round
of layoffs and wage cutbacks, its workers received the handout.
Also, the central government is trying to improve human capital
through low skilled workers by providing job training for
workers returning to the region. Each trainee receives room and
board as well as 50 baht (1.50 USD) per diem per day.


7. (U) One village headman near Phitsanulok city stated that

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the central government is now supporting new initiatives at the
local level that provide farmers with machinery and training to
manufacture organic fertilizer. These initiatives
simultaneously allow locals to decrease their demand for
expensive chemical fertilizers, while raising local demand for
labor to produce the organic fertilizer (balancing off the labor
supply increase caused by returning laborers). Although the
village headman was concerned about accommodating all of the
young laborers coming back to his village after being laid off
in Bangkok, he seemed confident in providing these needy
citizens with work through these new development initiatives and
the generally labor intensive agriculture sector.

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In (Yellow) Urban Areas, Democrats Get Credit for Econ Strength
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8. (U) Due to the stimulus initiatives, villagers residing in
agricultural, suburban communities of Phitsanulok stated that
they were not concerned about the economic crisis and that they
are more than capable of surviving on what they have now, a
philosophy they associate with King Bhumibol's "sufficiency
economy" concept. Moreover, many communities consider farming a
way of life, and, no matter what the economic situation, they
would plant rice regardless.


9. (SBU) Acceptance of the current economic environment in
Phitsanulok is most evident among supporters of current Prime
Minister Abhisit and the Democrat Party-led government, most of
whom reside in Phitsanulok city and the immediate surrounding
area. Businessmen and middleclass locals said they are also
pleased with Abhisit's performance because they believe their
tax payments will be funneled into more business-friendly
policies, rather than into subsidies that benefit farmers.
However, businessmen said they remain frustrated with the
airport closures in late 2008 that damaged investor confidence
in the Thai market.


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In Remote (Red) Areas, Economic Hardship is Nothing New
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10. (SBU) While urban and suburban areas of the lower north are
coping economically, poor rural villages with minimal levels of
economic development are still struggling, though their barriers
to income generation are long-standing problems that predate the
economic crisis. Growth under former PM Thaksin fueled
development initiatives in these rural communities, an era which
is still fondly remembered here. With an unstable political
environment and worsening economy, the current government,
however, cannot or, some would say, will not support the
countryside's development the way Thaksin-centric political
parties have. The backlash against this perceived lack of
central government support is evident by the red shirt protests
around Thailand as well as the comments by villagers in the
hinterland of Phitsanulok.


11. (SBU) Interviews with villagers in the outlying sub-district
of Suan Mieng indicate that not all of Phitsanulok province is
faring well during this economic downturn. One sub-district
organization official stated that administration revenues that
fund the local government and development initiatives were cut
from around 11 million THB (324,000 USD) in previous years down
to only 3 million THB (88,500 USD) in 2009. This 72 percent
decrease in operating revenue halted almost all local
development initiatives and reduced opportunities for
employment, which were already bleak due to a lack of access to
irrigation. Farmers can harvest rice, cassava, or corn only
once a year here, so income is already much lower, while
transportation costs are higher. Falling commodity prices
further exacerbate the situation as these villagers survive only
on what they produce. Furthermore, villagers in this rural area
do not benefit from the government's rice price guarantee
program because farmers cannot produce during the dry season
harvest (when guaranteed prices exceed market prices) due to the
lack of an irrigation system. Instead, villagers travel to
Bangkok during the dry season to work as street merchants.
However, those jobs are not as profitable due to the economic
crisis, they said.


12. (SBU) The economic hardship of these rural locales generally
translates into support for Thaksin and the redshirt movement.
For example, one prominent villager stated that Abhisit's
administration is only concerned about helping the businessmen
and people who already have money. This villager spoke of

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agricultural middlemen and rice mill owners who benefit from
government subsidies and stimulus, while the typical farmer
received no benefits and was left to fend for him or herself.
Additionally, since this sub-district did not have any
registered businesses, the government stimulus of 2,000 THB (59
USD) did not reach any of the local people. This local leader
was exceptionally angry, believing that his community would not
receive many benefits from the central government's economic
stimulus investment plan.


13. (SBU) Since this village is not receiving many central
government benefits, many needy villagers are either selling
their land to outsiders or borrowing from the local community
fund, which has performed well over the past few years and
earned interest. Land sales are at an all time high in this
community, as locals see more opportunity to work in Bangkok
despite the economic crisis and sell their land off to people
from the South who come up to plant rubber trees (septel),
leaving them without almost any assets at all. Moreover, it is
expected that as villagers borrow from the community fund,
interest returns will decrease while the returns from the loan
will be lower as commodity prices are low and the risk of
investing is greater during the economic crisis.


14. (SBU) Due to the lack of job opportunities in this
community, many of the locals leave to go find work in Bangkok
or other countries. A number of villagers we spoke with stated
that after the rice planting season, they will go back to
Bangkok to sell coffee or grilled food stuffs, or work on any
remaining construction sites. Also of note is that villagers
from this community said that they would attend both red and
yellow shirt rallies as both would pay between 500 to 1,000 THB
(15-30 USD) a day and provide meals. Our contact noted that the
yellow shirts (of the People's Alliance for Democracy) pay more
than Thaksin's red shirts for participating in Bangkok protests,
indicating that, although Thaksin is still revered here, poor
villagers are indifferent to the ruling coalition and are most
concerned with personal welfare instead of political ideology.


15. (SBU) Due to the economic downturn, jobs in Bangkok are less
plentiful while low skilled labor positions offer lower wages,
according to Phitsanulok villagers who travel there for work.
This has led the most desperate to engage in more risky
businesses. Our contact noted that drug sales and abuse are on
the rise in his hometown. He stated that many young adults,
whose parents are away working in Bangkok or other countries,
will travel to the Thai-Burmese border to purchase
methamphetamine type stimulants (yaa-baa) to sell in the village
at a profit and to consume. So not only are youth disadvantaged
with a lack of job opportunities, but village leaders are
concerned that a rise in drug use will further eat up whatever
money they do have and destroy their opportunities for the
future.


16. (U) This cable was coordinated with Embassy Bangkok.
ANDERSON