US embassy cable - 05BANGKOK1072

UNCLAS SECTION 01 OF 03 BANGKOK 001072 
 
SIPDIS 
 
SENSITIVE 
 
DEPARTMENT PASS USTR BWEISEL AND DKATZ 
GENEVA FOR USTR 
COMMERCE FOR ITA/MAC/AP/OKSA/JKELLY 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, EINV, PREL, TH, Ambassador's Calls, US-Thai FTA 
SUBJECT: AMBASSADOR'S COURTESY CALL ON FINANCE MINISTER 
SOMKID JATUSRIPITAK 
 
1. (U) Sensitive but unclassified. Please handle accordingly. 
 
2. (SBU) Summary. On February 3, the Ambassador paid a 
courtesy call on Minister of Finance Somkid Jatusripitak. The 
Ambassador discussed the ongoing Thai-US FTA negotiations, 
and stressed the need to work together to ensure the talks 
continue to proceed smoothly and amicably. While agreeing on 
the need to move forward, Somkid expressed caution over the 
public perceptions of the agreement in Thailand, and urged 
the U.S. to see the FTA as a vehicle for cooperation rather 
than a negotiation over trade liberalization. Somkid praised 
the leadership of Prime Minister Thaksin and his management 
team in restoring the Thai economy to good health following 
the 1997 financial crisis, and sketched out an ambitious 
agenda for bureaucratic reform over the next 3-4 years.  End 
Summary. 
 
The FTA: Not Only about Trade Liberalization 
 
3. (SBU) Moving quickly to the Thai-U.S. Free Trade Agreement 
(FTA), Somkid said that he expects to continue to play a key 
role in overseeing the negotiations after the election, and 
that Prime Minister Thaksin remains supportive of the talks. 
However, Somkid explained that the FTA is not only about 
reducing tariffs and taxes, but also about pursuing 
activities of mutual support. Noting lingering resentment 
over the perception that the U.S. was no supportive during 
the 1997 financial crisis, Somkid acknowledged that the Thai 
public still viewed the economic intentions of the US 
negatively, casting a shadow over the FTA negotiations. 
Instead, he said, we should highlight bilateral cooperation 
and outcomes that will make Thailand more competitive. Along 
these lines, the agreement should not only be concerned with 
trade liberalization, but with cooperation in trade and in 
investment -- tariffs are only one part. 
 
4. (SBU) Somkid told the Ambassador that he plans to travel 
to Japan to re-invigorate the Japan-Thailand Economic 
Partnership (JTEP) negotiations, which have stumbled recently 
over key trade and investment issues.  Referring to a 
conversation with the Japanese Ambassador last week, Somkid 
said that Japan should not treat a developing country like 
Thailand the same as other developed countries in their trade 
negotiations. According to Somkid, he told the Japanese 
Ambassador, "I will take care of your businesses in Thailand 
-- you must take care of me." Overall, Somkid said, the US 
FTA is more politically sensitive than JTEP due to negative 
Thai perceptions of U.S. investors, another hangover from the 
1997 crisis. The Ambassador explained that despite this 
perception, American investors bring more into Thailand than 
the Japanese. While Japanese businesses retain control 
through many expatriate managers, the American business 
model, in contrast, seeks to hand over control to 
well-trained local managers as soon as possible. The 
Ambassador pointed out that this model is more effective in 
transferring technology and management skills to Thais. 
 
5. (SBU) Somkid looked forward to a positive outcome from the 
FTA talks, where both sides are better off. Acknowledging the 
Ambassador's offer to help work toward these goals, Somkid 
suggested that the talks be characterized publicly not as 
"negotiations" -- which has connotations of conflict -- but 
as "discussions." Given the importance of perceptions, Somkid 
recommended changing the name of the FTA to something along 
the same lines as JTEP, underscoring "economic partnership." 
Somkid indicated that the Thai people are "scared" of larger 
countries like China, Japan and the U.S., but that Thais must 
be able to accept new ideas and situations. The Ambassador 
agreed that it is important to put a human face on the FTA, 
but for it to pass the U.S. Congress, the FTA must be 
comprehensive. 
 
6. (SBU) Somkid added that another challenge for the Thaksin 
administration is the political opposition, which often tries 
to distort the message of the FTA and claims that Thaksin 
will "sell everything" to the U.S. While Somkid's Thai Rak 
Thai party has avoided all FTA topics during the election 
campaign, he agreed that they must clarify the government's 
intentions. He assured the Ambassador that the RTG will get 
back to work on the FTA "not too long" after the elections. 
Somkid stressed that both the US and Thailand must help each 
other move the FTA forward smoothly, and having good 
communication is paramount; if there are missteps, there are 
groups willing to mislabel the discussions. In response, the 
Ambassador proposed that they both strive to keep each other 
apprised of each government's political and policy 
developments, so as to avoid unwanted surprises. 
Economic Recovery Successful Due to Management 
 
7. (SBU) Noting the quick and successful recovery of the Thai 
economy from the 1997 financial crisis, the Ambassador asked 
Somkid which steps were most effective in restoring the 
economy's health. Overall, Somkid praised the steady 
leadership and management style of the Thaksin 
administration. In his role as Finance Minister, Somkid said 
that he focused first on rebuilding domestic confidence to 
spur investment and consumption. He explained that previous 
governments had focused exclusively on the export market, 
neglecting the potentially dynamic domestic consumer market. 
By urging the state banks to lend aggressively -- commercial 
banks had sharply curtailed credit after the 1997 crisis and 
are still lending conservatively -- they were able to 
stimulate investment and consumption, thus boosting 
confidence. Internationally, he stated, this government had 
promoted Thailand as the "hub" of Southeast Asia, and forged 
trade agreements and links with other countries in the 
region. In addition, Thailand remains an attractive 
destination for FDI, including the expansion of domestic 
capital markets. 
 
Thaksin, part II: More Changes Ahead in the Economy and the 
Bureaucracy 
 
8. (SBU) According to Somkid, Thaksin and his "managers" are 
still in the process of making major changes in the structure 
of the Thai economy. Somkid acknowledged that despite the 
economic recovery, the underlying structure of the Thai 
economy had not changed for decades. The hardest part, he 
admitted, is convincing bureaucrats and businesses to change 
their ways voluntarily, before change is forced upon them. 
Somkid said that they have had some success so far; many 
banks have changed their attitudes about credit, and have 
helped to stimulate both rural and urban demand through their 
lending policies. 
 
9. (SBU) Somkid told the Ambassador that one of the main 
agenda items for the next Thaksin administration is to 
improve and reform the Thai bureaucracy. The plans for 
bureaucratic reform and restructuring will not focus on any 
one institution in particular -- such as the highly-respected 
Bank of Thailand, which is widely seen to have mismanaged the 
1997 financial crisis -- but will be part of a much wider and 
comprehensive effort. Somkid said that the bureaucracy had 
improved under the Thaksin administration -- mainly through 
pressure -- but many institutions, such as the educational 
system, were failing in their mission. (Somkid decried the 
fact that he has to send his children to school in the U.S.) 
Somkid agreed with the Ambassador's suggestion that raising 
the salaries of government officials, as Singapore has done, 
had proven successful in recruiting, and retaining, the most 
talented civil servants. 
 
"Managing" Thailand Still Biggest Priority 
 
10. (SBU) Somkid recognized that this reform agenda is 
ambitious, but believes it can be achieved in 3-4 years under 
a strong, visionary leader like Thaksin. Describing the 
leadership and management style of Thaksin and his advisors, 
Somkid used the expression, "rao ruu yaang ped ("to know like 
a duck," which can fly, swim, and walk on land)," a Thai 
phrase meaning that they are generalists who can oversee all 
the specialized elements of administration. Although now 
Finance Minister, Somkid pointed out that his Ph.D. was in 
marketing; Thaksin himself, who received a Ph.D. in criminal 
justice, founded a company that now owned communications 
satellites in space. According to Somkid, successful 
management depends on leadership and vision, not expertise. 
 
11. (SBU) In approaching this agenda, Somkid said Thaksin and 
his advisors have no fixed formula or theory -- "what has to 
be done, will be done." As with Thaksin's streamlining of 
ministries in 2002, Somkid predicted that a strong and stable 
administration would be able to make many changes in a second 
term. Using the example of Malaysia, Somkid said 25 years of 
stability under Mahathir had a great impact on Malaysia's 
growth and development. While acknowledging the benefits of 
stability, the Ambassador urged Somkid to be wary of 
comparison between Thaksin, and Mahathir or Singapore's Lee 
Kwan Yew. Comments like these, often designed to please local 
audiences, also resonate to foreign capitals, sometimes 
giving the impression that Thaksin may be impatient with 
democratic institutions and processes. 
12. (SBU) Comment: Second to PM Thaksin, Somkid is the most 
recognized authority on financial and economic matters in the 
current administration. A key Thaksin insider -- and founding 
member of the Thai Rak Thai party -- Somkid plays an 
especially important role in setting economic and trade 
policy. Despite Thaksin's enthusiasm for FTAs, Somkid's 
comments suggest that his support for these negotiations is 
lukewarm, at best (and many observers believe that left to 
his own devices, Somkid would abandon the FTA project 
entirely). Somkid's appeal for sympathy and generosity in the 
FTA negotiations is a commonly heard refrain from RTG 
officials and leaders. Fear of being overwhelmed by the U.S. 
in these talks has increasingly led the RTG to characterize 
this agreement as an ill-defined vehicle for economic 
cooperation, rather than a means to secure U.S. market access 
and reforms of the Thai economy. Somkid's promise to return 
to the hard work of FTA-making should probably be taken at 
face value, but our impression was that Somkid is not the 
kind of enthusiastic supporter we need at his level of 
leadership to move these negotiations forward. End Comment. 
BOYCE