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Thailand's CEO

Billionaire Prime Minister Thaksin Shinawatra has boosted his country’s growth rate—and his own business empire is among the beneficiaries.

Thaksin Shinawatra traveled a bumpy road on his unlikely journey from rookie cop to billionaire prime minister of Thailand. He says the worst moment came in 1984, as he juggled his police career with attempts to set up small businesses. A Bangkok movie theater he had bought closed down. Then he lost $750,000 on a computer import business. His total debt to the bank rose to $7.6 million. “I had no house to live in, and I had a wife and baby al- ready,” he says. “I had borrowed 100 percent of the money from the bank. I became a nonperforming loan.”

After that brush with bankruptcy, Thaksin, 54, proceeded to build Thailand’s biggest business conglomerate, including a mobile phone service company with 13.5 million subscribers—double the number of its nearest rival. Then, in 1998, he formed his own political party, Thai Rak Thai, which means Thais love Thais. Three years later, the party recorded the most resounding election victory since the abolition of the absolute monarchy in 1932, capturing 295 of 500 seats in the lower house of parliament.

Today, ensconced in the prime minister’s office on the second floor of Bangkok’s Government House, Thaksin says he runs Thai- land as a chief executive officer runs a business. Among other things, he’s boosted Thailand’s credit rating two notches to Baa1— two levels above investment grade—and kept interest rates at a his- toric low to encourage investment by the country’s entrepreneurs. He’s also fended off accusations that he has muzzled the press, that his policies favor his own companies and that he has appointed unqualified family members to government posts.

Under Thaksin’s leadership, gross domestic product rose to 6.7 percent last year from 1.8 percent in 2001, according to the Fi- nance Ministry. And Thaksin says he’s targeting higher growth: 8 percent this year and 10 percent in 2005. His ultimate aim: to turn Thailand, which presently has a GDP per capita of $2,000—one- third that of Mexico—into a developed nation by 2015.

So far, investors have enjoyed the ride. From 2001 to the end of 2003, the total market value of companies in the Stock Exchange of Thailand’s benchmark index almost quadrupled, to $122 billion from $33 billion. Last year, the Bangkok SET Index was the world’s third-best-performing stock index in dollar terms, according to data compiled by Bloomberg, rising 136 percent compared with a 26 percent increase in the Standard & Poor’s 500 Index.

Thaksin says he wants to turn Thailand into an oil trading center to rival Singapore, No. 3 in the world.

Thaksin controls companies that account for 36 percent of the value of the SET index—10 percent through family share holdings and 26 percent through government share holdings—according to Bloomberg data. Shares of the Shinawatra family’s holding company, Shin Corp., almost quadrupled last year to 38 baht from B10. Shares of the family’s mobile phone service company, Advanced Info Service Pcl, rose to B85 from B35.50, and shares of an unprofitable tele- vision network, ITV Pcl, rose to B29.75 from B4.30. Shares in Shin Satellite Pcl, Thailand’s only satellite company, more than doubled to B33.71 from B16.56.

Some investors say they fear Thaksin’s career might be about to go through another of its rough patches. This year, following an outbreak of bird flu and terrorist attacks in the border areas where most of Thailand’s minority Muslim population lives, the Thai stock market has slipped to worst global performer from third best last year. As of March 9, it was down 7.3 percent for the year compared with a 3.2 percent increase in the S&P 500. “Thaksin’s policies may be for the short-term good, but it could all fall off the edge of the cliff again,” says Hugh Young, Singapore-based managing director at Aberdeen Asset Management Plc, who oversees $5.2 billion of assets in Asia, including $300 million in Thailand.

Thaksin’s strategy for growth, known as Thaksinomics, relies partly on stimulating the domestic economy by lending to poor farmers and small and medium-size businesses. Household debt averaged $3,348 last year—more than double the 1997 figure, according to the Thai Chamber of Com- merce. Thaksin says he and his ministers remain vigilant about consumer debt and other economic trends. “We are very alert; we monitor every indicator,” he says. “It’s like I check my cholesterol. I used to be 180. Then I went up to 200. That is still OK, but I started to control my eating to bring it back to 180 again.”

Marc Faber, managing director of Hong Kong–based asset management firm Marc Faber Ltd., says he’s prepared to trust Thaksin’s judgment for now. “For Thailand, Thaksin’s about the best leader you could have,” says Faber, who man- ages $150 million. “Previous coalition governments were weak and indecisive. He’s a businessman. He’s pragmatic, and he can take decisions that make things happen.”

Plenty is happening. Thaksin has handed out $25,000 in loans to every one of Thailand’s 70,000 villages to boost con- sumer spending and promote grass-roots businesses such as fish farms and textile factories. He has allowed farmers to delay repayments of $1.6 billion in debt for three years and ordered state-owned banks to lend $3.4 billion to small and medium-size businesses. He’s spending $12 billion on new subway systems and roads in addition to $3 billion already committed for a new international airport near Bangkok. He says he wants to further boost the Thai stock market by sell- ing $6 billion worth of shares in government-owned corpo- rations such as Airports of Thailand Pcl, which in March raised $440 million in the nation’s biggest share sale in three years. Institutional investors ordered more than 20 times the amount of stock they were offered. In early March, he was forced to delay the planned $1.8 billion sale of shares in the Electric Generating Authority of Thailand, following protests by employees who fear they may lose their jobs.

Interest rates have fallen to 1.25 percent from 18 percent in September 1999. As a result, housing starts in Bangkok will increase 20 percent this year, predicts real estate agency CB Richard Ellis (Thailand) Group Inc. Car sales may in- crease by a similar amount to a record 900,000 units, ac- cording to the Thai Automotive Club, a trade group. Exports are booming, up 18 percent last year to $80 billion.

Thaksin says that within five years, he wants to turn Thai- land into an oil trading center to rival Singapore, which ranks No. 3 in the world, behind New York and Rotterdam, accord- ing to Massachusetts-based Cambridge Energy Research Associates. At a fashion parade in February in which he shared top billing with leggy German supermodel Nadja Auermann, he launched Bangkok Fashion City—an initiative he says he hopes will make Thailand’s capital the Paris of Asia by 2012.

Then there’s his plan to attract big-spending tourists. Thailand was already the world’s 16th-most-popular destina- tion—just behind Portugal and ahead of Switzerland—in 2002, attracting 10.7 million visitors who spent a total of $8 billion, according to the United Nations’ World Tourism Or- ganization. To lure wealthier tourists, Thaksin has intro- duced a Thailand Elite Privilege Card. For a $25,000 fee payable to a government-owned company, tourists would get discounts at luxury resorts, upgrades on Thai Airways Inter- national Pcl planes and other perks. He says he hopes to sell 1 million cards in the next 10 years.

As for severe acute respiratory syndrome and bird flu, Thaksin is betting tourists won’t contract the diseases in Thailand. Last year, he offered to pay $25,000 to any visitor who caught SARS. This year, he has upped the ante to $75,000 for anyone contracting bird flu, which had killed seven Thais as of early March. To emphasize his point, Thaksin in February put on a chef’s apron and stood up be- fore a crowd of thousands in front of Bangkok’s Grand Palace to cook chicken dishes, which he sampled and distributed to the crowd.

Thaksin has also been policing crime. He declared war on drugs, and when the smoke cleared three months later, about 2,500 suspected drug dealers lay dead, according to the National Human Rights Commission of Thailand. Thaksin said they were resisting arrest or killing each other to avoid being turned in.

Thaksin has no trouble getting his message across, at least domestically. The government controls four of Thailand’s eight TV stations and Thaksin’s family owns a fifth, ITV. An- other station is owned by the family of Pracha Maleenont, his deputy interior minister. “There’s an obvious comparison to be made between Thaksin and Silvio Berlusconi in Italy,” says William Heinecke, 54, U.S.-born chairman of Royal Garden Resort Pcl, which is Thailand’s largest hotel and restaurant company. Royal Garden operates the Marriott and Burger King franchises in Thailand. “There are a lot of similarities: personal wealth, stock market capitalization, media interests, vision for their countries,” Heinecke says.

Like Italian Prime Minister Berlusconi, Thaksin is an ardent soccer fan. He says he and a group of business friends now want to buy an English Premier League club. Thawatchai Sajakul, coach of the Thai national team and a member of parliament in Thaksin’s party, says the prime minister has his eye on Liverpool FC. Thaksin himself says he held unsuccessful talks last year with Mohamed al-Fayed, owner of the Fulham club and of Harrods department store in London. Thaksin won’t say which team he’s now looking to buy or which he supports. ‘‘I support the good team with the good price,” he says.

Also like Berlusconi, who controls 90 percent of Italy’s broadcast TV stations and whose main company, Mediaset SPA, accounts for 2.7 percent of the Milan Stock Exchange MIB 30 Index, Thaksin has dual roles as the country’s most powerful businessman and politician, which have led to accusations of conflict of interest and resulted in a career-threatening brush with the law. In 2000, Thailand’s National Counter Corruption Commission charged Thaksin with concealing his as- sets while serving as a government minister in 1997 and ’98 by placing shares worth $100 mil- lion in the names of his chauffeur, butler and maid.

If he’d been convicted, he could have been barred from holding office for five years. Thak- sin denied the charges, saying his wife had made the arrangements and that his failure to report the assets was “an honest mistake.” In August 2001, seven months after his election victory, Thailand’s constitutional court, in an 8–7 ruling, cleared him of the charge.

Thaksin says he isn’t worried by crises he faces. ‘I have a little worry, but I have slept very well,’ he says.

Thaksin has since stepped down as chairman of his companies and says he no longer has any corporate role. He has handed executive positions and share holdings to brother-in-law Bhanapot Damapong, 55; his 26-year-old son, Panthongtae; his daughters, Pantongtha, 22, and Paetongtarn, 18; his wife, Pojamarn, 48; and sister Yingluck Shinawatra, 37. Bhanapot is chairman and the largest share- holder of Shin Corp., Thaksin’s holding company, which is 40 percent owned by family members.

Shin Corp. in turn owns 43 percent of Advanced Info Service, 55 percent of ITV and 51 percent of Shin Satellite. Advanced Info is Thailand’s third-largest company, with a market value of $6.5 billion. Shin Corp. ranks eighth, at $2.8 billion. The family’s Shin Corp. share holding, added to stock held in other companies, boosts Thaksin’s family fortune to at least $1.4 billion in publicly traded shares.

Last year, Shin Corp. reported a profit of $250 million on sales of $529 million—an 84 percent increase over its 2002 profit. Advanced Info’s profit rose 62 percent to $473 million on sales of $2.3 billion. Shin Satellite’s profit fell 23 percent to $28.2 million on sales of $148 million. ITV reported a loss of $17 million on sales of $43 million compared with a $20 million loss the previous year.

The Shinawatra empire is still expanding. Last year, Shin Corp. took a 50 percent stake in Thai AirAsia Co., the first cut-price airline allowed to compete against government- owned national carrier Thai Airways. Last November, the Shinawatras sold shares in SC Asset Corp., the family’s real estate company, which owns Thaksin’s three Bangkok office buildings: Shinawatra Tower I, II and III. The initial public offering raised $25 million from the sale of 20 percent of the company’s stock.

Last December, acting as an individual, Thaksin’s wife outbid Thailand’s biggest homebuilder, Land & Houses Pcl, for a 13.4-acre block of land in central Bangkok. Pojamarn bid $19.5 million—$1 million more than Land & Houses, Thailand’s central bank said in a statement.

The family, through son Panthongtae, also owns 7.46 percent of Thai Military Bank Pcl, the country’s seventh-largest lender, which is 15 percent owned by the Royal Thai Army and which in January announced it would merge with the Thai unit of DBS Group Hold- ings Ltd., Singapore’s biggest bank by assets. Thaksin’s government is encouraging bank consolidation so local banks can better compete against foreign rivals. “The prime minister’s family is getting more and more power,” says Kraisak Choonhavan, an opposition politician and chairman of the Senate Foreign Relations Committee. “Wherever there are gains to be made, they seem to come under the wing of his conglomerate.”

Thaksin has also appointed relatives to government jobs. He made General Chaisit Shinawatra, his cousin, command- er of the army, a position that also gives him a seat on the board of Thai Military Bank. Thaksin promoted brother-in- law Lieutenant-General Priewphan Damaphong to deputy commander of the Royal Thai Police Department. “In terms of helping the people, this is the most pro-poor government Thailand has ever had,” says Mechai Viravaidya, former chairman of Krung Thai Bank Pcl, Thailand’s second-largest lender. “But there are issues of conflict of interest, nepotism and control of the media.”

Thaksin says he treats relatives and rivals equally. “Compare Thailand to a ship,” he says. “We have to sail through the ocean and get safely to shore. I am the captain. The people on board may be my relatives or my enemy. I am not going to sink the ship.”

Thaksin’s business partners and executives say they get no favorable treatment from the government. Tony Fernandes, CEO of AirAsia Sdn., a Malaysian airline that is Shin Corp.’s partner in Thai AirAsia, says the new carrier’s maiden flight in February was a public relations nightmare because of the connection with Thaksin. The plane had to turn back with a minor fault, making headlines in the Thai press. “Had it be- longed to anyone else, nothing would have been reported,” Fernandes says.

In any event, there’s a perception among some investors that Shin companies get preferential treatment that is re- flected in their stock prices, says Mark Matthews, Bangkok- based head of Thai sales at CLSA Securities Ltd., an Asian unit of Crédit Lyonnais SA. “There’s definitely a Thaksin premium,” he says.

Sriyan Pietersz, Bangkok-based head of research at J.P. Morgan Securities Asia Ltd., says Shin Corp. and Advanced Info actually trade below the average price-earnings ratio of the SET index. ITV shares, meanwhile, are 40–50 percent overvalued, he says. On March 9, they traded at B20.12. “There’s no evidence that Thaksin’s companies are being given privileges,” Pietersz says.

Thaksin says he agrees his government should have been more forthcoming when the bird flu scare hit earlier this year. Thailand is the world’s No. 4 export- er of chickens. The trade, 90 percent of it with Europe and Japan, is worth $1.4 billion a year. Last November, chickens across Thailand started dying. Thaksin and his government denied the cause was bird flu, which had hit other parts of Asia, and said it was poultry cholera.

On Jan. 19, Thaksin invited TV cameras to watch him and his cabinet tuck into a fried chicken lunch. On the strength of Thaksin’s assurances, the European Union commissioner in Thailand also pronounced the Thai flock safe. Three days later, with humans also beginning to fall ill and die from bird flu, Thaksin declared publicly that Thailand had the H5N1 bird flu strain.

Japan and the EU banned the import of Thai chickens. A mass cull of birds began. By March 9, about 36 million birds and seven humans were dead. ‘‘We already assumed it was bird flu,’’ Thaksin said in a weekly radio address. ‘‘I couldn’t have said that it was bird flu as long as lab results didn’t come out. I didn’t want to create panic.’’

European Commission spokeswoman Beate Gminder said at a news briefing on Jan. 26 that Thailand had lost credibil- ity as a result. Investors thought so. The SET index fell to 667 on Feb. 2 from 794 on Jan. 12 before recovering to 710 on March 9, after no new bird flu cases were reported for more than a month. At the same time, Thailand, whose population is 90 percent Buddhist, has been hit by an outbreak of violence in the south, where Muslim rebels have murdered at least 50 members of the security forces, villagers and Buddhist monks, according to Thaksin.

Thaksin says he isn’t overly concerned by either crisis. “I have a little worry, but I have slept very well,” he says. “I start to worry when I wake up in the morn- ing. In the south, I know the road ahead is quite bumpy, but I am OK because I know what I have to do.” His strategy, he says, is to spend more on schools, roads and an oil pipeline in the hope of bringing prosperity to the area.

The son of a coffee shop owner and one of 10 children, Thaksin grew up opposite the market in the village of Samkamhaeng, 12 kilometers (7.44 miles) from Thai- land’s second-largest city, Chiang Mai. After finishing at the top of his class in a local school, Thaksin won a place in the police cadet academy, where he graduated summa cum laude and was awarded a Thai government scholarship to study in the U.S. in 1974. He majored in criminal justice at Eastern Kentucky University in Lexington, Kentucky, earning a master’s degree. He says that to supplement his $160-a-month government grant, he worked at a local Kentucky Fried Chicken outlet and as a bus boy at Lexington’s Hospitality Inn. He earned a Ph.D. in criminal justice from Sam Houston State University in Huntsville, Texas, before returning to Thailand in 1980 to become a police officer and to set up several small businesses, most of which foundered.

Thaksin, who had married the daughter of a police general, says his big break came in the mid-1980s, when his employers at the police department were switching from paper-based to computerized records. Thaksin’s Shinawatra Computer Co. won a contract to supply an International Business Machines Corp. mainframe. In 1990, he won one of two mobile phone concessions and the following year he was awarded an exclusive satellite franchise.

In 1994, Thais found out how rich Thaksin had become. Appointed foreign minister in a Thai coalition government, he disclosed that he and his wife were worth B60 billion—$2.4 billion at the time. Two years later, Thaksin was appointed a deputy prime minister responsible for traffic and transportation. His first pledge: to solve within six months the traffic jams that made Bangkok one of the world’s most-congested cities. Despite paying incentives to traffic cops out of his own pocket and importing special computer equipment, traffic in downtown Bangkok continued to move at a snail’s pace. He resigned soon after his inability to speed up traffic became clear.

In 2000, two years after forming the Thai Rak Thai party, Thaksin acquired ITV, which had never made a profit. In February 2001, a month after taking office as prime minister, the station fired 23 reporters and editors. The journalists said the reason for the firings was that they had complained about instructions to devote more coverage to Thaksin and his party—an allegation Thaksin denied.

In February, the editor of the Bangkok Post, Thailand’s largest English-language newspaper, which regularly publish- es editorials critical of Thaksin, was replaced. The following day, the Nation, another Bangkok-based English-language publication, said the change had been made at Thaksin’s behest. “The government continues to muzzle the media and their owners,” the Nation said in a front page editorial on Feb. 26. Thaksin denied that allegation, and he has repeatedly denied media intimidation—though he frequently criticizes media coverage of his policies.

Thaksin hasn’t moved quickly enough to clean up the bad loans left by the 1997–98 financial crisis, during which the baht fell from 25 to the dollar on July 2, 1997, to 56 to the dollar six months later, says Liew Chih Wai, a Singapore-based sovereign ratings analyst at Standard & Poor’s. According to the Thai central bank, the percentage of bad loans fell to 17 percent at the end of last year from 50 per- cent in 1997. Liew says a more accurate figure is 30 percent. “Early solution of the nonperforming asset problem and improvement in corporate governance are important for growth of the economy,” he says.

One example of an enduring bad loan: Thailand’s biggest defaulter, Thai Petrochemical Industry Pcl, which in 1997 stopped paying interest on $3.8 billion of debt and continues to trade under government management while creditors wrangle with founder Prachai Leophairatana.

Thaksin says it’s not true he goes easy on businessmen who have failed to clear bad loans because he has personally felt their pain. “I am from the police,” he says. “I have been taught to have two hands: the iron fist and the velvet glove. I have kindness on one side, but on the other, I am very disciplined.”

Thaksin will have to maintain that balance if he is to over- see the completion of his program. Facing reelection next year, he intends to stay in power for only one more four-year term, he says. After that, he says, he won’t go back into business. “No way,” Thaksin says. “I want to teach management.” The popularity of his classes may ultimately depend on how the self-styled CEO of Thailand Inc. delivers—both to his local constituency and to foreign investors.


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