Friday, May 2, 2014

Management of finance in Thailand: I still don't get it

When I left school and after my civil service, my parents insisted that I should study something useful, so I decided to give economics a try. In the first 2 years you learn a little about macroeconomics, but a lot about business management. So I do understand business a bit.


When I watch the way people do business in Thailand, in particular the SMEs and how people manage their private finances, I always wonder how that works. It is quite different from what I learned. In our compound all houses are soled, but 10 percent is empty. Not rented out, not for sale. And as you know, buildings aren't getting better over the years, if not maintained. And the houses aren't, nature slowly starts taking over. Or the small shops, where a fruit seller just opened next to a - fruit seller. And as I mentioned earlier, 8 Seven Eleven in my street.

I learned price calculation includes all costs, like purchasing goods, rents, taxes, expected profits, salaries. That doesn't seem to apply here: it almost seems that price is made up by what the neighbour sells it for. so the business part is a big secret for me.

But even more is personal finances. Average income in Thailand is 12.000 Baht per month, with higher salaries for office workers and lower for manufacturing. Thats about 400 USD. An iPhone is 800 USD, that's two salaries. TV, iPad, washing machine, IKEA furniture, Starbucks coffee - how the hell can urban Thais afford this?

They maybe can't. The Kennan Institute published a research about Thai financial management skills.

Thais have scored very low in regard to their financial management skills, according to Piyabutr Chonvicharn, Vice-Chairman of the Kenan Institute Asia.

Mr. Piyabutr cited a recent survey by the Bank of Thailand and the Finance Ministry as showing that three groups of people most at risk in piling up on debt were students, low-income people, and farmers. Shockingly, they make up at least 70 percent of the Thai population. He said that their poor spending habits resulted in higher household debts, which had risen from 55.6 percent in 2008 to an alarming 82.3 percent in 2013.

And these are just the official numbers. Urban people may have more debts through family channels - the informal sector is huge in Thailand and you can only guess how big. Also, higher incomes have more access to corruption.

Consumption is still high in Thailand, but it comes with a price: "Thailand's Bubble Economy Is Heading For A 1997-Style Crash" wrote Forbes in November last year. Add the political situation and the related downturn in some economic sectors, and you have a recipe for a disaster.

One indicator is that while I read that banks say bad performing loans are around 2-3 percent, I remember a quote of a motorbike seller in Issan who said that 25 percent of bike sells are never paid.

Let's see if Thailand becomes a problem in ASEAN or if it can survives this crisis.