Normative Narratives


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Transparency Report: Thailand’s Anti-Democracy Protests

Original article:

In a world now accustomed to democratic upheavals, including the Arab Spring and the Saffron and Orange Revolutions, the weeks of political upheaval in Thailand stand out for one main peculiarity. Protesters massing on the streets here are demanding less democracy, not more.

From their stage beneath the Democracy Monument, a Bangkok landmark, protesters cheer their campaign to replace Parliament with a “people’s council” in which members are selected from various professions rather than elected by voters.

The embattled prime minister, Yingluck Shinawatra, has proposed new elections as a solution to the turmoil. But that is just what the protesters do not want.

In today’s fractured Thailand, a majority wants more democracy, but a minority, including many rich and powerful people, is petrified by the thought of it.

Because a number of the protest leaders are members of Thailand’s wealthiest families, some have described the demonstrations here as the antithesis of the Occupy Wall Street movement. This is the 1 percent rebelling against the 99 percent, they say.

The reality is more complicated — the protesters include rich and poor, Bangkok residents and many people from southern Thailand who feel disenfranchised by the current government and its northern power base. What unites the protesters is the desire to dismantle Ms. Yingluck’s Pheu Thai Party, which has won every election since 2001.

The anti-democracy protests, which have been some of the largest in Thai history, call into question the commonly held belief that a rising tide of wealth in a society will naturally be followed by greater demands for democracy. Thailand today is much richer than it was two decades ago, but it is also much more divided.

On the face of it, the crux of the protest appears to be a classic power struggle between a dominant majority and a minority frustrated by its losing streak in elections and its inability to influence national policies in a winner-takes-all, highly centralized system.

But Thailand’s crisis is multifaceted and tightly intertwined with the fact that King Bhumibol Adulyadej, the country’s 86-year-old monarch, who during more than six decades on the throne has been revered to the point of quasi-religious devotion, is ailing and that the country is bracing for his death.

More broadly, Somsak Jeamteerasakul, a leading Thai scholar on the monarchy, argues that Thailand’s protracted political turmoil has been exacerbated by the contrast between a deified king and politicians who appear crass and venal in contrast. “We have an image of monarchy that is flawlessly excellent in everything,” he said in 2010. “If we had not built this image in the first place, we would not have so many problems and complaints with politicians.

Respect for the king, and the notion of his near-infallibility and beneficence, are deeply ingrained in Thais from the earliest years of schooling.

This blog is concerning the legitimacy of protests calling for replacing the democratically elected government with an appointed “peoples council”. There are two central tenets of liberal democracy I will base this analysis on:

1) Liberal democracy is meant to uphold the will of the majority, while protecting the rights of the minority.

2) Everyone is viewed as equal in the eyes of the government; no one person has more or less influence over political outcomes than another.

Based on uncontested election results, and the fact that protesters are not satisfied with the proposition of early elections offered by Prime Minister Yingluck Shinawatra, one can assume the protesters represent a minority of Thailand’s population. Based on this article, there is no evidence that the rights of this minority are being infringed upon.

Protesters cannot claim a mismanagement of the economy, as the per capita GNI has more than doubled over the past decade. Thailand’s HDI has been trending upwards for decades, and it’s poverty rates have been going down for years (accompanied by a decline in the Gini inequality index)–the current democratic governance structure surely has some merits.  One particular area of concern is Thailand’s level of perceived corruption / lack of transparency, however a move away from democracy would likely exacerbate this problem.

It seems rather that protesters, unhappy with populist policies that do not directly benefit them, are trying to change the policy making process to one which they can control. Such a move would be a violation of the two tenets of liberal democracy listed above. It would amount to upholding the will of the minority while violating the political rights of the majority. It would also give more power to the desires of select individuals.

To appease the opposition, the government should consider changing its parliament from a “first past the poll” system to a proportional representation system, to ensure a plurality of opinions in policy making. The government should also consider expanding civilian oversight mechanisms, to increase transparency and allay fears of corruption / embezzlement.

To become a more effective political party, the opposition should consider embracing policies which have had success in reducing poverty / inequality while simultaneously increasing economic growth. Such pragmatism is a necessary component for the continued relevance of any political party; in democracies everywhere, parties which do not embrace popular and effective policies tend to fall by the wayside.  

So far, the King and the military have stayed out of this fight, hopefully they will continue to do so and allow the democratic process to fix the unrest it has caused. Thailand should not dismantle its democratic system, which has a long history of effective governance.

 

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Economic Outlook: Quantitative Easing, Monetary Policy Coordination, and the IMF

I was going to write a  conflict watch about the chemical gas attack in Syria, but as different actors are aligning with their interest and using mostly circumstantial evidence (Russia / Assad Regime: rebels did it, why would we launch chem weapons while U.N inspectors here?; Opposition / Western governments: Assad did it, emboldened by lack of international intervention after previous chem attacks, Assad subsequently shelled area so time would pass, now UN inspectors cannot get reliable results), I will refrain from speculating on these troubling events until more information emerges.

Continuing the narrative that has come to the forefront since G-20 finance talks in Moscow and the focus surrounding extra-territorial consequences of loose monetary policy at the Fed’s annual Jackson Hole meeting, policy coordination between central banks and new policy responses by IMF are needed to ensure as smooth as possible a transition from Q.E. to Fed monetary policy tightening (exactly when this will occur is uncertain, I am of the mind that it will be later rather than sooner).

Original articles:

Reuters:

Central banks should coordinate to avoid unwanted side effects as they exit from ultra-easy monetary policies that have left the world awash in cheap money, top policymakers were told on Saturday.

“The main challenge will be to manage the consequences of monetary policies, and their evolutions, on cross-border liquidity movements,” Jean-Pierre Landau concluded in a paper he presented to an audience that included top central bankers from advanced as well as emerging market economies.

The Fed’s bond buying, or so-called quantitative easing, has been at the heart of its aggressive efforts to revive U.S. economic growth after it cut interest rates to nearly zero in 2008. Interest rates in Europe and Japan are also ultra-low.

However, the purchases have spurred massive capital inflows into faster growing emerging economies, which are now suffering as investors anticipate an end to the easy money.

But he lamented that the necessary coordination on monetary policy was unlikely, and warned of the potential for the “fragmentation” of global capital markets.

Stocks and currencies plunged in India, IndonesiaBrazil and Turkey this week as investors fretted over a looming reduction in the U.S. Federal Reserve’s monthly bond purchases.

Landau acknowledged that central bankers dislike the idea of coordinating monetary policy because their job is to focus on domestic goals. But they worked well together during the 2007-2009 financial crisis, when the Fed, European Central Bank, Bank of Japan and other central banks coordinated rate cuts and currency swap lines.

As cross-border liquidity pressures build, they will find it productive to do so again, although cooperation is more likely through regulatory and financial structures aimed at preventing excessive leverage or harmful asset bubbles, he said.

In an ideal world, the cooperation would extend to monetary policy because policies in major economies such as the United States can have an international impact that amplifies their magnitude with domestic implications, Landau argued.

“The system itself is producing more accommodative monetary conditions than warranted by the situation,” he said. “In a reverse environment, when monetary policies need tightening, the effects could be symmetrical and complicate the exit from non-conventional measures.”

In addition, much could be gained through an international “lender of last resort,” which would remove the motive for some nations to maintain massive foreign exchange reserves, he added.

“All countries have a common interest in finding ways to disconnect reserve accumulation from exchange-rate management,” Landau said. “The need for national reserves could be reduced if credible mechanisms exist to provide for the supply of official liquidity on a multilateral basis.”

Economix:

The stimulus campaigns of the Federal Reserve and the central banks of Europe and Japan, by depressing domestic interest rates, have helped to push trillions of dollars into developing markets in recent years.

The question of what central banks are supposed to do about it dominated the formal agenda here at the Kansas City Fed’s annual monetary policy conference.

The answers were surprisingly mellow. The rest of the world would like the Fed to explain its plans clearly, and then to travel slowly. Bankers from developing nations said they might need to impose some restrictions on the outflow of capital, but expressed little concern over the potential for serious economic disruptions.

Christine Lagarde, the managing director of the International Monetary Fund, struck the same sanguine tone in a Friday speech, declaring that “Central banks handled entry well, and we see no reason why they should not handle exit equally well.”

She added that the fund – and by extension, the major economies – accepted that some developing countries might need to impose some financial controls. “In some circumstances, capital flow management measures have been useful,” she said.

This is not the way that policymakers used to talk. The big countries and the I.M.F. spent the last few decades pushing for the liberalization of financial markets. They argued that developing nations were creating their own problems by failing to take the painful steps necessary to moderate capital inflows, notably by allowing their currencies to appreciate. And they showed no tolerance for capital controls.

The argument for global monetary policy coordination– mainly that in today’s globalized world, where unfathomable amounts of money can and do flow at the click of a mouse, that a large countries monetary policy choices have a direct impact on other countries–has already been explored in depth.One of the most important developments in monetary policy over the last generation is the conclusion that central banks can increase the power of their actions by talking about their goals, thereby shaping the expectations of investors.” Managing expectations and policy coordination are logically related and present a synergy point for global monetary policy coherence. 

Central banks historically have served a dual mandate, to manage unemployment and inflation. A 3rd (secondary) mandate has emerged since the Great Recession; to manage the extra-territorial effects of monetary policy decisions.

Two other interesting points are raised in these articles; the issue of capital controls and flexible credit lines.

Capital Controls:

International  capital investments are necessary for helping least developed countries (LDCs) escape poverty traps / expedite their development process. However, the mobility and liquidity of capital in today’s digital and globalized age make capital flows intrinsically volatile–capital controls help temper this volatility. IMF managing director Christie Lagarde has endorsed the use of capital controls in certain instances, which represents a complete 180 from the IMFs “Washington Consensus” policies of the 1980s and 90s. When money is “cheap” (as it is now), it flows to places that offer a higher rate of return (i.e. developing countries). Capital controls provide a buffer from capital flight when monetary policy tightens (which is inevitably as the global economy recovers), which can otherwise have devastating standard of living / human rights implications.

Capital flight may lead to less investment / higher “risk premium” (investors will not like the idea of not having complete control over their investment), but it is surely should be a countries own decision what investments it allows in its country and under what conditions, considering the destabilizing nature of unchecked financial inflows. If speculative money does not wish to come into a country, that may be in that countries best long term interests anyways. The failure of “Washington Consensus” policies, culminating in global financial contagion during the Great Recession, has led the international financial community (headed by the IMF) to reverse it’s previous stance on capital controls.

Flexible Credit Lines:

Jean Pierre-Landau alluded to flexible credit lines with this comment;

In addition, much could be gained through an international “lender of last resort,” which would remove the motive for some nations to maintain massive foreign exchange reserves, he added.

“All countries have a common interest in finding ways to disconnect reserve accumulation from exchange-rate management,” Landau said. “The need for national reserves could be reduced if credible mechanisms exist to provide for the supply of official liquidity on a multilateral basis.”

Flexible Credit Lines are available to countries through the IMF if they meet certain preconditions (a shift by the IMF from imposing constitutionality on loans to having countries reach certain thresholds for eligibility, but after that providing assistance without conditions that can sometimes undermine development (see “Washington Consensus”). Countries gain access to funding by the IMF at an agreed upon rate (which is fairly low). By having this IMF insurance policies, countries are able to pursue policies in their best long-term interests (for example capital controls, or fiscal investments in public goods), as opposed to the short-term interests of speculative investors.

The existence of a FCL eases concerns of financial actors. The overall experience with FCL countries (to date Mexico, Columbia, and Poland, evidence suggests that Ireland will be next) has been overwhelmingly positive. These countries have been able to borrow at a lower risk premium without ever having to access FCL money–no FCL country has ever had to draw on FCL funds. The efficacy of FCLs is only amplified against the backdrop of the European Debt Crisis.

I am a strong advocate of both FCLs and capital controls for developing countries. Both policies are fully consistent with a human rights based approach to sustainable human development. Both policies can temper the destabilizing effects of capital inflows, giving governments the capital, policy, and fiscal space needed to respond to crisis situations. It is encouraging to see high level policy makers are of the same mind when it comes to monetary policy coordination, FCLs, and capital controls.

I invite my readers to view a PPT presentation (FCL Final) I did last year on FCLs. The study shows graphically the experiences of Mexico, Columbia and Poland before, during, and after the Great Recession (these three countries all performed very well compared to comparable countries). It concludes by arguing for “scaling-up” of FCLs by offering them to more countries as a potential development tool.