Turning national assets into crony capital.

 21 jun 2004

There are no machines better for manufacturing fortunes than governments. They can conjure value out of thin air. They can take money out of public pockets and put it into private hands. They can commandeer land, air, water, space and then sell it for a song. They can create monopolies defended by law. They can protect illegal and lucrative ramps.

 All through Thailand’s modern history, some of the biggest fortunes have been made by using the unique power wielded by government. The simplest example was the absolute monarchy over a century ago. It financed investments in banks, cement companies, and rice mills with tax money. It commandeered land on which to build markets and shophouses.

 The military governments after the Second World War were good at this too. They sold off state enterprises at knockdown prices to some of their friends. They used tax money to buy shares in banks, and then sold those shares cheaply into private hands. Their cronies set up businesses with government-guaranteed foreign loans and then failed to repay them, so tax money had to be used instead. Many of the great business corporations of the last half-century come from these origins.

 The manufacture of fortunes by these methods tends to happen in periods when certain conditions prevail. The economy is doing well. The government is powerful and authoritarian. Public watchdogs are non-existent or too intimidated to protest. The media are fearful or nervous.

 The new factory for manufacturing fortunes is privatisation or corporatisation. The format was set by the sale of 30 per cent of PTT in late 2001. Somehow the four biggest purchases were secured by people connected to the government, namely number 27 on the Thai Rak Thai’s party list, his wife, and relatives of two TRT Bangkok MPs. Over the next two years the price of these PTT shares multiplied five times, much more than the market average. This was partly due to a suspiciously low original price (so low that the entire offering sold out in two minutes), and partly to some suspiciously large short-term surges in value which the government declined to investigate.

 This pattern continued. In the six stock offerings in state enterprises over 2003-4, the four biggest buyers were families associated with the government. The Securities Exchange Commission found no wrongdoing. Thaksin said: “Don’t think they are devils. Please give them a chance.”

 One reason for the EGAT labour protest was suspicion that the same pattern was about to be repeated. Government more or less admitted as much by promising to manage the EGAT sale more transparently, and by unwinding a very suspicious share swap which had been proposed in advance of the public offering. 

In its early days, TRT was rather opposed to privatisation. Its early policy statement said: “Privatization must be consistent with long term development perspective, and the process must not be rushed into.” But once in power, it rushed. It seems Thai Rak Thai was only opposed to privatisation when its members and backers did not have the power to control the process or the cash to benefit from it. Until the EGAT protest put a barrier in the road, the government was in a hurry to sell off 80 billion baht of assets in various public companies. 

The new lucky dip for instant millionaires is the television industry. The “news station” ITV has been converted into an entertainment goldmine by ripping up its charter. The “educational” Channel 11 is turning into a franchising operation. And Channel 5 is taking the corporatisation route.

 The case of TV Channel 5 is intriguing in several ways.. A company was created some years ago which is now partially owned by the army, partially by some military officers in their individual capacity, and partly by private investors, most of whom are involved in the entertainment business. It is proposed to float some of this company on the stockmarket, but only after adjusting its balance sheet and its reason for being. On the one hand, all the debt is being transferred away to Channel 5 which is a sort of state enterprise and thus public property. On the other hand, the company is repositioned to earn all the revenue for the sale of the TV station’s services. Two board members seem to have been so unsettled by this manoeuvre that they defied their boss and hence risked their careers. 

The army chief explained that this deal was being done to protect the army’s interests from the National Broadcasing Commission. In other words, he insisted this was not another device to turn national assets into crony capital but simply an attempt to sabotage the 1997 constitution. Among excuses offered by a senior member of the state apparatus, this has to be one of the most extraordinary.  

The constitution declares that frequencies are public property. From the moment this clause was proposed, it caused panic among the state agencies that control these highly valuable properties. The military threatened to oppose the whole charter over this issue. After the charter was passed, they threatened to defy it anyway. In the first effort to recruit members of the National Broadcasting Commission, the state agencies and their commercial clients so distorted the process that the courts stopped it. Now there is a chance that the process might reach a conclusion, the panic has increased. The Public Relations Department is trying to rewrite the broadcasting law to evade the constitution. And now Channel 5 is trying to do the same thing by some corporate manoeuvring. 

It is not clear whether Channel 5 is engaged in turning more national assets into crony capital, or simply subverting the highest law of the land. It is also not clear which would be worse.