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The Rediff Business Interview/ Supachai Panitchpakdi

'Foreign investment does not hurt sovereignty, unemployment does'

Thailand's Deputy Prime Minister and Minister for Commerce Supachai Panitchpakdi is a much sought-after person, hailing as he does from a region that has been in the news, mostly for the wrong reasons. The economic crisis faced by east and southeast Asia was a hot topic at the Confederation of Indian Industry's Partnership Summit in Jaipur. Even as southeast Asia comes to grips with its year-and-a-half long recession, Panitchpakdi reiterates his mantra, which clearly is: more reforms, not less. One of the ambitious projects he is rooting for is the Thailand-India road link. Amberish K Diwanji and Syed Firdaus Ashraf interviewed the Thai leader in Jaipur during the summit.

What are the lessons from the southeast Asian crisis?

What the southeast Asian crisis clearly tells us is that we should have liberalised further, not less. When we liberalised the capital account, we should have also liberalised the exchange rate instead of keeping it fixed within a bar. That would have avoided the crisis and curbed its impact.

Thailand has also amended its laws to allow more foreign participation in the economy to ensure growth picks up.

The second lesson is that the legal system must keep pace with reforms. The legal framework too must be reformed with the country's economic liberalisation so that suitable action can be taken against defaulting companies. Otherwise, it will be difficult to manage situations that arise.

And the third lesson is that governments must be aware of market complications. The government must be alert and aware of what is happening in the market and supervise the banking system and move in quickly whenever called upon to do so.

So what was the mistake committed by the southeast Asian countries?

Our mistake was of short-term borrowings that were guaranteed by the government because of the fixed exchange rate and not floating the exchange rate along with liberalising the capital account. What happened in southeast Asia is that we allowed more financial liberty with the guaranteed exchange rates. And that misallocated the funds and the funds became too cheap. So, there was no caution on allocating the funds to profitable use.

But don't you think the government should have stopped the outgoing funds?

No, I don't think the government must intervene on exchange rates so much. I think the best way is to supervise the banking system. We did not at that time go into major details of our banking system and that was a mistake.

You have visited India many times, how do you see the reform process going?

I have been observing some progress in economic reform process in India for quite some time. I think the Indian government is progressive and has shown to the investors and the world that they are committed to the reform process which was launched eight years ago.

And one proof of that is the latest amendment of the companies act for introduction of buyback and the patents bill through a special ordinance. Also, it is an achievement of the Indian government to commit itself to opening up the insurance sector to the foreign companies.

Do you think that Indian government is making a cautious attempt to avert a southeast Asia type of crisis?

Yes, I think it is alert and is doing its best to avert such a crisis. They have adopted economic programmes very cautiously in the last eight years and that is the only reason that the Indian economy has not been as badly affected. But I must mention that the Indian government must go in for capital account convertibility. If they do not do it now that can be a disadvantage to them in later years.

Do you see the euro having a major effect on India and Asia?

Yes. The euro will reduce transaction costs and much of Asia and India's trade is with Europe. In fact, India has more trade with Europe than the United States and thus the savings on transactions will be a big boon to both sides. The savings in turn will help boost competitiveness, which in turn will help growth. It will also help Indo-southeast Asian trade as we could borrow and lend in the euro rather than in dollars.

Developing countries feel that unchecked investment will hurt their national identity. Any comments?

This is a very difficult question. All developing countries who fear being overwhelmed by foreign investment must learn to manage their resources, manage restructuring their industries and cope with liberalisation. But rather than fear the process of liberalisation, we must learn to cope.

Reforms cannot be a half-hearted process. Let us remember that globalisation and liberalisation are inevitable processes, and we need to know how to deal with them. We must learn to maximise its benefits and minimise the negative aspects.

When one sells a particular industry to a foreign firm, one must convince the local people that it is in their benefit and in the national interest to do so. To convince people about liberalisation, there must be no exploitation and an independent body to look into cases of injustices. Thailand has one such body.

But do people fear foreign domination?

All monopolies are dangerous for society, whether national or international. Monopolies should be prevented. There is no point in saying that a country will allow a monopoly simply because it is from the home country, such a monopoly is not necessarily better than a foreign monopoly. It is equally bad to be dominated by a national body. Therefore, to sell liberalisation to the people, one must avoid domination of any sector; set up an agency to ensure fairness; have a legal framework to deal with such cases; and enhance competitiveness of local companies.

One must give more education to the people, and education must not just be formal but also informal, on the job training and retraining. And we must remember that international investment does not hurt sovereignty but unemployment of the people does.

Where do you see Indo-Thailand trade heading in future?

Indo-Thai trade is increasing, along with Indo-southeast Asian trade. The development of the BIMSTEC (Bangladesh, India, Sri Lanka, Thailand Economic Cooperation) agenda is a step forward and will be a vehicle of growth. Already, 13 per cent of Indian trade is with southeast Asia, and in the areas of transport, telecom, tourism there is great scope.

We have spoken about creating a road link from Thailand up to India, going through the BIMSTEC countries, and we have received a favourable response from India. I have proposed a meeting of the BIMSTEC economic ministers in 1999, and I hope it comes through.

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