Thai Junta Changes Economic Course

When Thailand’s military-run government announced plans to shutter the country’s entire gold mining industry, the policy caught Akara Resources, a subsidiary of Australian mining giant Kingsgate, completely unaware. Prime Minister Prayut Chan-o-cha’s Cabinet made the decision in mid-May amid growing controversy over Akara’s $1 billion-invested gold mine in central Phichit province. Activist and community groups claimed that the operation has adversely impacted the local community’s environment and health. The company repeatedly refuted the allegations as “unscientific.”

Prayut’s economic lieutenants had earlier aimed to drive provincial growth through more gold mining, a plank in the ruling junta’s wider pracharat, or “people’s economy” economic transformation strategy. The policy U-turn cancelled plans to tender over 100 new gold mining exploration concessions, and will result in the automatic rejection of all future operating license applications, according to officials cited in local media reports. Prayut, a former army commander, justified the decision by highlighting that Akara’s gold mine, the country’s largest open pit operation, was fomenting conflicts in society.

Prayut’s professed sensitivity to community concerns, if true, represents a significant shift in his regime’s policy approach. In recent weeks, his government has also started to back away from designs to develop ten special economic zones (SEZs) in border provinces, where industrial investors would have been allowed access to cheaper labor in neighboring Cambodia, Laos and Myanmar. Aimed to stoke economic activity in some of the country’s more underdeveloped areas, the proposed industrial complexes also threatened to bring his government into direct conflict with local communities opposed to the developments.

State versus community conflicts were brewing, threatening to spill over at the rural grassroots level ahead of a crucial constitutional referendum analysts anticipate will serve as a proxy vote on military rule. In January, Prayut issued two orders under Section 44 of the military’s interim constitution, a measure that grants the premier unlimited powers, to squelch any popular challenge to the SEZs and 14 controversial power plant projects. The orders suspended laws and regulations that local communities have previously leveraged to contest and delay industrial developments that may threaten their livelihoods and environment.

It represented the first time Prayut invoked Article 44 to push potentially unpopular state-led mega-projects. His government justified the suspension of the regulations, including on environmental impact assessments, on the grounds that Thailand faces dual energy security and waste management crises which would crimp the national economy if not firmly addressed. Soon after invoking the controversial measure, Prayut announced spending plans to invest 10.5 billion baht ($286 million) in over 100 SEZ-related infrastructure projects over the next two fiscal years.

Some analysts believe that cooler technocratic heads prevailed against the SEZs potential to become upcountry white elephants. (The status of the 14 power plants is less clear.) While Prayut’s economic strategy aims to promote more value-added province-based growth, both as a counter to coup-ousted premier Yingluck Shinawatra’s populist policies and a means to address the country’s yawning urban-rural wealth divide, foreign investor interest in placing plants in far-flung regions of Thailand was negligible when they could just as readily and with less regulatory risk invest directly in cheaper neighboring countries.

The regime’s inability to clinch a deal with China on a high-speed rail line linking Thailand’s eastern coast to China’s landlocked southern regions, meanwhile, has undercut Thailand’s quest to serve as a hub for both the Association of Southeast Asian Nations Economic Community (AEC) and ASEAN-China free trade area. A shorter version of the original line will only connect Bangkok to the northeastern town of Nakorn Ratchasima and lack a clear economic rationale. The lack of international connectivity likely cooled Chinese interest in the SEZs, despite reports of Chinese speculation in land where the complexes were to be built.

Some analysts believe the regime’s economic strategy is now shifting away from the provinces to industrial “cluster” development, a policy finance minister Somkid Jatusripitak has long promoted. His program aims to promote foreign investment in 11 strategic sectors, including automobiles, electronics and, surprisingly, aerospace, that leverage established industrial capacity in the country’s eastern seaboard area. The gambit’s comparative allure to investors would be shorter supply chains, better infrastructure, and tax incentives on par with rival Singapore for companies to create regional headquarters in Thailand.

If clusters replace SEZs at the core of Prayut’s strategy, it will represent a reversion to Thailand’s past policies of dependence on foreign investment in Bangkok-centric industrial areas to drive export-led growth. His pracharat policy promised to prioritize sustainable provincial economic growth, a key component of his government’s 20-year economic transformation plan to address entrenched inequalities and promote national reconciliation. But even with his authoritarian powers to push policies, it’s a shift his junta views as either too politically risky or simply economically unviable.