Opening Keynote Address

Dr. Thaksin Shinawatra

Prime Minister of Thailand

Excellencies, Cabinet Ministers, Members of the Diplomatic Corps, Distinguished Guests, Ladies and Gentlemen,

I am delighted to welcome you to Thailand, and to this very special forum on a very important topic. I wanted to welcome you myself to emphasise the great significance that my government attaches to the issue of grassroots empowerment. As a matter of fact, it is a fundamental part of our economic philosophy.

We consider microfinance and other economic empowerment tools absolutely central to our policies. This is not only for the purpose of alleviating poverty in this country and elsewhere. Microfinance and grassroots empowerment are also vital elements in our strategy to transform Thailand for the 21st century, and to create a national society and economy based on balanced and sustainable growth. Therefore, before I speak directly on these two issues, allow me to give you the macroeconomic context for Thailand and provide for you the backdrop of how our economic policies came into existence.

As many of you may remember, when I first assumed the office of Prime Minister in 2001, Thailand was still struggling to recover from the 1997 financial crisis that had devastated so many Asian economies. It was a crisis that had profound consequences for every aspect of the lives of the Thai people and for the image of Thailand in the world.

The financial crisis and the subsequent weak recovery were particularly hard on the poor. In urban areas, unemployment rose to a high of 3.6 percent by the year 2000. Eventually, more than one million Thais were unemployed. Rural incomes also suffered due to declining agricultural product prices, retreating by 15.3 percent in 1999 and 3.5 percent in 2000. Between 1996 and 2000, the number of people living in poverty increased from 6 million to 10 million, or from 11 percent to 14 percent of the population, further aggravating the disparity between rich and poor.

Despite a few signs of improvement by 2001, growth was still elusive. Having swallowed the bitter IMF medicine prescribed to them, the Thai people had lost confidence in a fast recovery and were desperate for inspiration and hope. The mandate for the new government was clear: to revitalise the Thai economy and put it on a sustainable footing for the future.

My government realised that recovery was not as simple as getting back on track using the 20th century paradigm of development through mass manufacturing, commodity exports, and foreign investment. This was the so-called East Asian Economic Model that so many Asian countries, including Thailand, had been following with much success over the years.

This model had done very well for Thailand during our previous stage of development. Over the long term, however, this model cannot be sustained. Commodities tend to face unfavourable terms of trade. Even initially high value-added products, such as microchips, can become commoditised. Cheap labour is not much of a basis for long-term development, either. Countries that rely on cheap labour are inevitably pursued by hungrier competitors. Moreover, the emergence of China and India—the world’s two most populous nations—in the global economy will make it difficult for smaller nations now to compete in this game.

It must also be pointed out that our pursuit of such a model in Thailand had led to unbalanced growth. Greater emphasis was placed on industrialisation, rather than on agriculture, even though rural agriculture was the occupation of the majority of Thai people and 86 percent of Thailand’s poor live in rural areas. Capital was almost entirely directed to urban areas and large urban firms, ignoring grassroots industries and SMEs. Many people looking for work moved from rural areas to the city, subsequently creating other problems such as overcrowded slums. This situation may sound familiar, not only to the Thais in the audience but also to many of you from neighbouring countries, or from nations outgrowing your own development paradigms.

During my government’s first term in office, there would be more external shocks to come: terrorism, war, disease, and their disastrous economic consequences that rippled throughout the region and the world. As it turned out, our policies not only had to be the right ones, but also innovative ones. What we needed was a new paradigm appropriate for new domestic and global realities.

This meant that Thailand had to do no less than reinvent itself. The nation could no longer afford to react only when something directly affects us. Nor could we afford to be so vulnerable to external conditions beyond our control. We had to actively transform ourselves into a knowledge-based economy and society in step with global trends but, at the same time, more self-sufficient.

We needed to create more income for the people; we needed to lower the costs and expenses of the people; and we needed to expand the opportunities for the people as much as possible. Above all, we needed to renew trust and confidence, domestically and internationally. Our strategy would have to be based on more than a simple analysis of domestic resources such as land, labour and capital. We needed a deeper understanding of our own needs and advantages.

Ladies and Gentlemen,

Based on extensive research and social mapping, we devised an integrated and innovative “Dual Track” policy giving equal emphasis to strengthening the domestic economy, while maintaining our openness to the global economy. For too long, Thailand had been preoccupied with exports, neglecting our own domestic economic foundations. To correct this imbalance, my government has sought to develop our society’s inner strengths and resilience from the grassroots level on up. After all, for a tree to grow, there is little benefit in watering it from the top down. Most of the water and nutrition is needed at the roots.

When grassroots sectors and rural communities prosper, they improve domestic consumption. In order to prosper, these communities need to discover their strengths. And in order to leverage their strengths, they need both financial support and knowledge support. This is the central logic behind the grassroots track of our Dual Track policy.

Financial support is primarily about giving the poor equal access to capital markets, and about recognising the existing value of their tangible and intangible assets. This is how microfinance became a centrepiece of our Dual Track policy, with microcredit vehicles such as the Village Fund, People’s Bank, and Asset Capitalisation programme. You will hear more about these and other programmes during this conference so I will not go into detail about them.

Knowledge support, on the other hand, is about complementing traditional knowledge and skills with modern, world-class management, marketing, and manufacturing know-how. Let me give you an example. In the past, the majority of Thai people mainly earned their living by farming. With farm prices fluctuating year by year, farmers have trouble making ends meet. Too often, they were forced to borrow money that they cannot afford to repay and were trapped in a lifelong cycle of indebtedness.

Some farmers supplement their income by producing local crafts, but as their local markets were limited, so too were the growth prospects for these aspiring “cottage” industries. These products are often of high quality and great ingenuity, representing decades or even centuries of local wisdom. It would be a grave discredit if they were not given the opportunity to display their rich talents to the global marketplace.

To increase the return on this indigenous intellectual capital, we decided to introduce the OTOP, or “One Tambon, One Product,” programme. OTOP supports the local development process by creating strengthened and self-reliant communities, with local people’s direct participation in income generation. Local resources and local wisdom are used to develop quality products and services that are distinctive and with added values, readily embraced in domestic and foreign markets.

What OTOP does is to enhance and multiply the value of these local goods by the addition of modern information technology, production methods, management techniques, and marketing skills to link community goods to global markets.

The benefits of OTOP have not only been economic. Community leadership and pride have also grown as a result. However, it must be admitted that the economic benefits have indeed been remarkable and beyond the wildest dreams of many people. Before the programme started, sales of local products were estimated at only 215 million baht in 2001. After only the first year of the programme, however, sales increased more than one hundred-fold to almost 24 billion baht. This is from a little more than five million US dollars to more than half a billion dollars in one year.

Ladies and Gentlemen,

Microfinance and other “market based” approaches to poverty reduction and development are well proven in both theory and practice.

When implemented as government policy, these same approaches are sometimes criticised as unsustainable, populist giveaways. However, our results speak for themselves. Thailand’s use of these principles, combined with an understanding of the country’s unique needs and potentials, have proven to effectively achieve our goals without burdening government budgets.

The result has been an accelerated recovery from the devastating economic and social effects of the 1997 Asian Financial Crisis. At the same time, we have seen significant progress toward my government’s stated goal of eliminating poverty in Thailand before the end of this decade.

Our programmes have contributed enormously to improvement in rural incomes, which have actually been increasing at an accelerated rate, compared to incomes in Bangkok. Personal income tax collection outside of Bangkok rose by 10.1 percent and 11.1 percent for 2002 and 2003, compared to 5.8 percent and 6.9 percent growth in Bangkok. By June 2004, the personal income tax collection outside of Bangkok grew 16.5 percent, higher than the 15.85 percent growth in Bangkok.

And by measuring results in terms of revenue returned to the government, such as VAT and income taxes, we are also making sure that our policies are sustainable. Thailand’s Dual Track policies have been internationally recognised as a unique and successful approach. Both developing and developed nations have looked to the Thai experience as a successful strategy to survive and thrive in an increasingly globalised world. We are not saying that we have been successful in every single thing that we have done. However, we are pleased to share both our successes and failures with other countries, in the hopes that we may together take a shortcut along the development path.

Ladies and Gentlemen,

In pushing forward our policy of grassroots empowerment, my government was aware of one important fact: Thailand’s rural areas and grassroots communities were not just the source of our present poverty, but they could also be the source of our future prosperity. Rather than weighing our country down, they could be the key to achieving a sustainable domestic economy and also to finding our competitive edge in the global market. The most important thing is to turn our rural poor from being a burden to society, to becoming a dynamic productive force that will spur the nation’s growth.

To my mind, while poverty alleviation is the primary goal of the grassroots programmes built into the Dual Track Policy, a national economic strategy based on grassroots revitalisation has many other advantages.

First, the policies unleash the tremendous untapped intellectual capital and entrepreneurship inherent in the country’s traditional crafts and rural occupations.
Second, the integrated programmes create a multiplier-effect by complementing those existing skills with modern financial services, production and information technologies, as well as cutting-edge management and marketing expertise.
Third, the national economy gains both flexibility and stability through expanded vitality and diversity of the economic base.
Fourth, economic opportunity and stimulation of the grassroots reach more people throughout the country than only stimulating industrial activities, which are concentrated in urban areas.
Fifth, grassroots activities are less dependent on imported technologies, materials and components, so there is less impact on trade and account balances.
Finally, a healthy grassroots economy that is prospering and integrated with other business sectors contributes additional revenue to the government, which can be reinvested in new community and national development programmes.
These are but some of the many advantages of grassroots empowerment from Thailand’s experience. I am sure that, from your own experience, you will be able to contribute many other valuable examples as well.

Excellencies, Distinguished Guests, Ladies and Gentlemen,

This new emphasis on strengthening the grassroots is an effort to empower our country’s most important asset, its people, so that they can take charge of their own lives. It is an effort to enable them to build greater prosperity and a better future for themselves, their children, and the rest of the nation.

The Thai Government has given priority to microfinance to expand opportunities, create income, reduce expenditures, and provide much-needed access to capital for our grassroots communities. After all, whether we like it or not, we all live in a predominantly capitalist world, where access to capital is the key to opportunities.

The new key to sustainable and sound growth should therefore be creating greater opportunities for people to thrive by expanding their access to capital, to technology, and to markets. Local economies must be turned into knowledge-based economies. The latent economic and social power in our grassroots communities must be liberated, allowing them to make the first steps along the path towards economic prosperity and sustainability. This will enable them to become more self-reliant, more innovative, and more productive.

Grassroots empowerment is not a populist ploy or a far-fetched idea. It is a proven and effective mechanism for growth and development in our societies.

We are looking forward to sharing our stories with you, and we are looking forward to learning from your stories, as we join hands together in our common quest to build a better future for the peoples of our respective countries, regions, and the world at large.

Thank you.

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