The Role of Governance in Development Revisited:
A Proposal of an Alternative View*

FASID Discussion Paper on Development Assistance No.5

March 2005

Yasutami Shimomura
Hosei University* The responsibility for facts and opinions in this publication rests exclusively with the author and its

interpretations do not necessarily reflect the views or the policy of the FASID or other institutions.

Table of Contents
1. Introduction: Governance matters ................................ ................................ ........................... 1
2. The Mainstream Approach: A Critical Review ................................ ................................ ........ 2
2-1. Definition of good governance ................................ ................................ ........................... 2
2-2. Conventional regression analysis ................................ ................................ ..................... 3
2-3. Exceptional? Yes. Irrelevant? No. ................................ ................................ ...................... 6
3. Alternative Approach: Proposal of Two Realistic Hypotheses ................................ ............... 9
3-1. First hypothesis: meeting a limited number of “strategic” good go vernanceelements is crucial ................................ ................................ ................................ ............ 9
3-2. Second hypothesis: endogenous elements of good governance which are embedded
in socio-cultural structures of developing societies can play important roles ........... 10
3-3. Accumulation of in depth case studies ................................ ................................ ............ 11
Case for the Eastern Seaboard Development Plan of Thailand ................................ .............. 12
1. Profile of the case ................................ ................................ ................................ .................... 12
2. Thailand in the early 1980s ................................ ................................ ................................ .... 12
3. The Eastern Seaboard Developmen t Plan ................................ ................................ ............ 14
3-1. The mission of the plan ................................ ................................ ................................ .... 14
3-2. The evolution of the plan ................................ ................................ ................................ . 15
4. The crossroads ................................ ................................ ................................ ......................... 16
4-1. Setback of the plan ................................ ................................ ................................ ........... 16
4-2. World Bank factor ................................ ................................ ................................ ............ 17
5. Aftermath of the review ................................ ................................ ................................ .......... 18
5-1. The Christmas eve cabinet decision ................................ ................................ ................ 18
5-2. Aftermath of the decision ................................ ................................ ................................ . 18
5-2-1. Laem Chabang port and industrial complex ................................ ........................... 18
5-2-2. Map Ta Put port and industrial complex ................................ ................................ . 20
5-2-3. National Fertilizer Corporation (NFC) ................................ ................................ .... 20
6. Assessment of the position of three major players: Thai government, World Bank, andJapanese government ................................ ................................ ................................ .............. 21
6-1. The structure of the problem ................................ ................................ ........................... 21
6-2. National Fertilizer Corporation ................................ ................................ ...................... 22
6-3. Construction of two ports ................................ ................................ ................................ . 24
6-3-1. Laem Chabang ................................ ................................ ................................ ........... 24
6-3-2. Map Ta Put ................................ ................................ ................................ ................ 24

6-3-3. Balance sheet of postponement ................................ ................................ ................ 25
7. Conclusion and policy implication ................................ ................................ ......................... 26
7-1. Checks and balances a la Thai: multipolar system, ex perienced balancer, and freepress................................ ................................ ................................ ................................ . 27
7-1-1. Multipolar system among the power elite ................................ ............................... 27
7-1-2. Role of experienced “balancer” ................................ ................................ ................. 28
7-1-3. Transparency and openness in the policy making process through the role ofthe mass media ................................ ................................ ................................ .......... 29
7-2. Technocrats with certain compe tence were insulated from pressure groups .............. 30
References ................................ ................................ ................................ ................................ .... 31

Figure 1 ................................ ................................ ................................ ................................ .......... 4
Figure 2 ................................ ................................ ................................ ................................ .......... 5
Figure 3 ................................ ................................ ................................ ................................ .......... 5
Figure 4 ................................ ................................ ................................ ................................ .......... 5
Figure 5 ................................ ................................ ................................ ................................ .......... 6
Figure 6 ................................ ................................ ................................ ................................ .......... 7
Figure 7 ................................ ................................ ................................ ................................ ........ 10
Figure 8 ................................ ................................ ................................ ................................ ........ 15
Figure 9 CHOICES THE THAI GOVERNMENT FACED IN 1985 ................................ ...... 22
Table 1 Governance indices and Freedom Scores in early 1980s: East Asia, Sou th Asia,
and Africa ................................ ................................ ................................ ........................ 7
Table 2 Governance Indicators in 2000 -01: East Asia, South Asia, and Africa ...................... 8
Table 3 Macroeconomic indicato rs of Thailand in early 1980s ................................ ............. 13
Table 4 Exchange rate changes after the plaza Accord ................................ ......................... 19
Table 5 Simulation on the profitability o f NFC................................ ................................ ...... 23
Table 6 Trends of fiscal balance and debt indicator ................................ ............................... 25

This article attempts to reexamine our basic understanding of the relations between
economic development and governance. Its main purpose is to i) cast light on thecomplicated realities which the mainstream a rguments in the international community
have failed to take into account, and ii) propose an alternative theoretical framework to
overcome such shortcomings 1.

1. Introduction: Governance matters
There is a consensus about the crucial role of good governance in achieving sustain able
development.
World leaders have repeatedly asserted in their statements that good governanceis anindispensable element for sustainable development, together with democracy and basic
human rights. In 2001, the summit leaders of G8 announced in Genoa,“Open,

democratic and accountable systems of governance, based on respect for human rights
and the rule of law, are preco nditions for sustainable development and robust growth ”.
They declared to help developing countries promote:•accountability and transparency in the public sector•

legal frameworks and corporate governance regimes to fight corruption•

safeguards against the misappropriation of public funds and their diversion into
non-productive uses•

access to legal systems for all citizens, independence of the judiciary, and legal
provisions enabling private sector activity•

active involvement of civil society and Non Governmental Organisations (NGOs)•

freedom of economic activities.

Kofi-Annan, United Nations Secretary General also asserted“Good governance isperhaps the single most important factor in eradicating poverty and promoting
development ” (UNDP2002:51).
Similar assertion has been repeated by the international aid community.
In 1991, the Development Assistance Committee (DAC) of Organization for Economic

1

This was drafted based on my articles published in Yasutami Shimomura ed.

The Role ofGovernance in Asia , Singapore, Institute of Southeast Asian Studies, 2003, with various addition
and modifications.

1Co-operation and Development (OECD) emphasized that the concept of“governance”

has assumed a more central f ocus as an area of key attention by both bilateral andmultilateral donors, and participatory development cannot be achieved without good
government, which is composed of competence and honesty, public accountability,
broaderparticipation

indiscussion

an ddecision-making

oncentralissues(OECD1991:33 and 44). Lewis Preston, former President of the World Bank stated“good governance is an essential complement to sound economic policies ” (World
Bank1992:v). And his successor

James Wolfensohn

regards “good and clean

government ” and “an effective legal and justice system ” as elements constituting basic
prerequisites for sustainable growth and poverty alleviation in his proposed
Comprehensive Development Framework.
While the postulate of strong relation betwe en economic development and good
governance is well accepted, it should be admitted that our knowledge of the detailed
process of causality link: how good/bad governance leads to good /bad development
performance is much limited .
In order to overcome the a bovementioned problem, this article attempts to examine how
the mainstream approach has paid insufficient attention to some crucial aspects of thereality, and propose an alternative analytical framework . In our proposal, we will
introduce a couple of hypo theses reflecting the reality more effectively, and stress theimportance of accumulating large number of in -depth case studies on the relations
between governance and development performance under specific country conditions . To
illustrate how the propose d idea works, a recent case study will be shown.

2. The Mainstream Approach: A Critical Review
2-1. Definition of good governanceThe definition of good governance is broad and vague. However, as the communiqué ofthe Genoa Summit suggests, the following issues have been frequently referred by theinternational community as basic components of good governance:a) Accountability, transparency, openness etc. in exercising power of governmentb) Rule of law, competent and credible judiciary, and predictable public conductc) Sufficient institutional capacity of the public sector to ensure effective
administrative behaviord) Corruption control

2e) Control of excessive military spending
In addition to the above agenda, democracy has been repeatedly raised as an importantelement of good governance by many experts and institutions. OECD has claimed
democracy is an indispensable part of good governance. UNDP stresses that good
governance should be“democratic governance ”, from the viewpoint of humandevelopment (UNDP2002:51). This pos ition could be labeled as “broad” definition, in
contrast to the position of the Bretton Woods institutions, i.e. the World Bank and IMF(Nelson and Eglinton1993:9). The World Bank and IMF have carefully avoided “explicit”
commitment to political regime ag enda, taking into account the legal framework of
Bretton Woods system, which is based on “nonpolitical vision ”. The position of the
Bretton Woods institution s could be called as “narrow” one.
2-2. Conventional regression analysis
A wide variety of empirical s tudies have been done on the relations between good
governance and development. When we review the huge stock of such empirical studies,
we find that most of researches are based on regression analysis. While various
valuable findings have been given, thes e researches have basically failed to show theinsight into the specific and detailed process how the difference in governanceinfluences development performance in a real world in which we actually live. Also theiroutcomes are rather mixed as shown below .
Let us see some examples. Robert Barro explored relations between the growth rate anddemocracy indicator (Barro1997:60, Figure 1). Kaufmann, Kraay, and Zoido -Lobaton
illustrated positive relations between (i) voice and accountability and infant mortalit y,and (ii)rule of law index and per capita income (Kaufmann, Kraay, and Zoido -Lobaton
2000:12, Figure 2 and 3). In its Human Development Report 2002, UNDP showed there
is no automatic link between (i) democracy score and equity, and (ii) democracy scoreand human development indicator (UNDP2002:60, Figure 4 and 5).

According to

Beatrice Weder, the proposition “property rights and the rule of law are important fordevelopment ” were strongly supported econometrically, while there is only weaksupport of the proposition “high levels of corruption reduce growth ”, in spite of widely
accepted conviction that corruption damages development, and neither democracies nor
autocracies are superior at generating higher growth (Weder1999:61 -62).
Conventional regression analysis of these literatures has basic shortcomings. Let us
review two most notable aspects:
3First, the adopted analytical tool is not necessarily suitable to the problem withcomplicated structures. A set of elegant and highly sophisticated econometric tools could
be effective in treating “well-structured ” problems, where the number of alternatives islimited, the policy goal can be clearly defined and the probabilities of outcomes of the
adopted policy measures are predictable. However they often do not work properly when
they are applied to highly complicated and“ill-structured ” problem, where theabovementioned conditions are not found. The relation between governance anddevelopment is a typical ill -structured problem, as there are a wide variety of unknown
perspectives. Under the circumstances, we should be cautious about the findings ofregression analysis.
Second, the stage of development is not taken into account properly. In most cases, as isapparent in the analysis made by Kaufmann , Kraay, and Zoido-Lobaton (please refer toFigure 2 and 3), a group of advanced economies such as US, Sweden, and Singapore, arecompared with Least Developed Countries (LLDC), such as Afghanistan, Sierra Leone,
and Congo. As there are significant differences in socio -economic structures between
these two groups, dealing with them in a single dimension is not advisable even thoughvarious measures are attempted for controlling the expected problems.

Figure 1

Source: Barro 1997

4

Figure 2

Figure 3

Source:Kaufman, Kraay, and Zoid -Lobaton 2000

Figure 4

Source: UNDP 2002

5

Source: same as Figure 2

Figure 5

Source: UNDP 2002
2-3. Exceptional? Yes. Irrelevant? No.
The standard research on governance and development tends to highlight two types ofcountries: countries of good governance/performance on the one hand and countries
with bad governance/performance on the other hand (Fig ure 6). It is argued that thecontrast between them shows the worth of good governance. The clear contrast between
Ghana and Zambia is often cited (refer to World Bank1998 for example). However this isexcessively simplistic, as a group of high performing developing economies are excluded.
Put it differently, the standard approach does not pay due attention to a group ofcountries with excellent development performance anddisappointing governanceindicators (case 1 in Figure 6). This group includes East As ian economies such as
Thailand, Indonesia, China, and Vietnam. An OECD report once proposed governanceindicators of ASEAN economies in 1980 -83. While the figures were lower in comparison
with some South Asian and African counterparts (Table 1), it should be noted that inthose days ASEAN countries prepared for the high speed export -led growth of the late1980s.
There is a recent similar case. Indicators of China and Vietnam in 2000 -01 are notbetter than selected South Asian and African countries (Table 2 ).

6

Figure 6
Mainstream Case

Case 1High development

High development

performance with good

performance with deficiency

governancein governanceCase 2Mainstream Case

Disappointing development performance

Disappointing developmentwith good

performance with deficiency

governancein governance

Table 1Governance indices and Freedom Scores in early 1980s:
East Asia, South Asia, and Africa
(1)*

(2)*

(3)*

(4)*

(5)**

corruption

red tape

legal systemgovernancefreedomaverage ofscores(1)-(3)
East Asia
Indonesia

1.5

2.75

2.5

2.25

5.5

Malaysia

6

6

9

7

3.4

Philippines

4.5

5

4.75

4.75

5.4

Thailand

1.5

3.25

3.25

2.67

3.4

Bangladesh

4

4

6

4.67

5.5

India

5.25

3.25

8

5.5

2.3

Pakistan

4

4

5

4.33

7.5

Sri Lanka

7

6

7

6.67

2.3

Cameroon

7

6

7

6.67

6.6

Ivory Coast

6

7.75

6.5

6.75

5.5

Zimbabwe

8.75

7.75

7.5

8

3.5

Ghana

3.66

2.33

4.66

3.55

6.5

Kenya

4.5

5

5.75

5.08

5.5

South Asia

Africa*1980-1983(the higher the better) 、**1982-83(the lower the freer)
Source: (1)-(4) Bardhan, P. The Role of Governance in Economic Development , Paris,
Organisation for Economic Co -operation and Development, 1997, (5) Freedom House,
Freedom in the World Country Ratings 1972 -73 to 2001-2002

7

Table 2
Governance Indicators in 2000-01:
East Asia, South Asia, and Africa
democracy

rule of law

government

Corruption

effectivenessEast Asia
China

-7

-0.19

0.14

3.5

Vietnam

-7

-0.57

-0.3

2.6

Bangladesh

6

-0.76

-0.54

0.4

India

9

0.23

-0.17

2.7

Pakistan

-6

-0.74

-0.48

2.3

Sri Lanka

5

-0.31

-0.44

n.a.

Botswana

9

0.68

0.83

6

Ghana

2

-0.08

-0.06

3.4

Kenya

-2

-1.21

-0.76

2

Tanzania

2

0.16

-0.43

2.2

South Asia

Africa*the higher the better
Source: UNDP, Human Development Report 2002

While these phenomen a may puzzle the people who rely on the standard theory of
governance and development, it should be admitted that these constitute the reality.
Theoretically there are three possible ways to explain why these economies haveachieved sustained development i n spite of disappointing governance indices. First, theexisting proposition of strong relation between governance and development might notuniversal as granted. Second, standard governance indices might be biased. Third,
governance elements which are not included in the standard governance indices might
contribute to development. Although the first two issues are important, this article
focuses the attention on the third aspect.

83. Alternative Approach: Proposal of Two Realistic Hypotheses
This paper prop oses two hypotheses on the role of governance in development. The
purpose is to reflect the reality more effectively.
3-1. First hypothesis: meeting a limited number of “strategic” good governanceelements is crucial
Developing economies are strongly urged to improve governance. What is not clear is
how far they are to improve governance. Is it vital for them to attain most of thegovernance requirements? Is it a realistic mission?
According to our observation, the mainstream approach literatures have an impli cit
assumption that high development performers show better governance in general. The
reality is however more complicated. When we compare East Asia and Sub SaharanAfrica, the picture is not simple. In Table 1 and 2, East Asian countries do not show any
distinct superiority in governance over selected African economies, according to theratings by the international community, although the development performance
between two groups is decisive.
To work out this puzzle, we need more realistic hypothesis. E ven without meeting mostof governance requirements, meeting limited number of“strategic elements ofgovernance” may ensure sustained development. Figure 7 illustrates this. Suppose
there are “n” elements of good governance; regarding each element certain degree ofattainment is required by the international community. Suppose a country, which showshigh development performance, meets only three requirements. According to ourassumption, some of the attained elements ensure high development performance.
Let us review the communiqué of the Genoa summit. It proposed a long list of desirable
governance conditions. Apparently, meeting these goals is desirable. However, meetingsome crucial or strategic ones may be enough to lead to sustained development.
Under this assumption, we need to identify the strategic elements of governance inindividual developing country. The components of strategic elements are supposed todiffer from one country to another, and in accordance with development stages. The
higher the development stages, the more sophisticated requirements . When Thailand
tried to launch sustained growth in the late 1950s, the strategic elements for them could
be much simpler than those for the Thai economy to maintain their position of emerging
market in the late 1990s.
Understanding strategic elements of good governance is not an easy task. Our proposal
is to accumulate case studies of various countries to gain clues to these elements.

9Figure 7
Meeting the Good Governance Requriments:: Alternative Assumption
Degree of Attainment

International
Requirement

Score of country A

1
2
3(Good Governance Elements)n3-2. Second hypothesis: endogenous elements of good governance which are embedded
in socio-cultural structures of developing societies can play important roles
Investors、aid officials 、and NGO staffs share a common view that getting things done in
East Asia is much easier than Sub Saharan Africa. However, various governance indices
do not necessarily show clear differences in these two regions, as we already saw inTable 1 and 2. This situation suggests that the standard set of good governance does notwork effectively, as far as these t wo regions are concerned .
This situation also hints that governance elements which are not included in thestandard list may play important roles in development. Exploring such possibility could
cast light on new aspects of relations between governance and development, and lead tobetter understanding of the role of governance.
In every community, we find various endogenous factors have governed the manner of10

decision making explicitly or implicitly. It is necessary therefore to pay due attention to
informal institution including social capital, which is embedded in specific historicaland cultural background of a society. While such elements do not appear explicitly inthe standard list of good governance, they may play critical roles in getting things don eeffectively.
3-3. Accumulation of in depth case studies
How to identify then the abovementioned strategic and embedded/endogenous elementsof good governance? Our proposal is to accumulate case studies of specific policy agenda
in specific countries of spec ific period. Such studies would provide vivid and realistic
pictures of the role of governance in the improvement or deterioration of development
performance. Policy implications drawn from accumulated findings are crucial for
supplementing the mainstream approach.
In accordance with this viewpoint, various case studies on governance in East Asia havebeen launched. One recent result is a book titled The Role of Governance in Asia
(Shimomura2003), which is based on the group works of twelve scholars 2, five fromASEAN countries and seven from Japan .
Researches have been made on a wide variety of governance issues in ASEAN countries:
macroeconomic crisis management, decentralization, aid management of mega project,and corporate governance of local business g roups etc. It was reconfirmed thatgovernance issue is really broad and complicated. For example, the attempts ofdecentralization in pursuit of governance reform lead to a wide variety of outcomes,
positive or negative, depending on the local conditions. Another research shows that thefall of an authoritarian regime creates a power vacuum, from where mushrooming
governance problems with new rules of the game and different structures evolve.
To illustrate an endeavor of exploring strategic and/or endogen ous good governanceelements, this article introduces a case of Thailand in the mid 1980s, when the country
was struggling to build export capacity. It was presented at a workshop, which was held
for the book of The Role of Governance in Asia .

2

Junichi Inada (Japan), Ikuo Iwasaki (Japan), Kyoko Kuwajima (Japan), Tommy Legowo (Indonesia),
Zainal-Abidin Mahini (Malaysia), Pitch Pongsawat (Thailand), Yuri Sato (Japan), Yasutami
Shimomura (Japan), Hideaki Shiroyama (Japan), Sudarno Sumarto(Indonesia), Jorge Tigno(Philippines), and Matsuo Watanabe (Japan)

11Case for the Eastern Seaboard Development Plan of Thailand

1. Profile of the caseThis is the case of a developing country, which tackled two difficult tasks at the sametime: macroeconomic crisis management and export capacity building. This country,
pursued its own s olution, often without conformity to the recommendations made by
two influential donors, i.e. the World Bank and the Japanese government. According toour analysis, the country made worthy achievements in this difficult task.
This is the case of a developi ng country, whose governance rating was relatively low inthose days. For strengthening export capacity, this country attempted the constructionof gigantic industrial complexes; the task is often accompanied by corruption. They got
the task done without a ny notable scandal.
In this case, a developing country tackled a mission, which required highdegree ofgovernance, while the country was given only mediocre governance rating by theinternational community. They accomplished the mission successfully. We assume thiscase hints the important roles of a limited number of governance elements, possibly
embedded in the specific socio -cultural structure. The exploration of such elements maylead to some new aspects of the link between governance and development.
This is the reason why the case is adopted.

2. Thailand in the early 1980s
This is a case of Thailand in the 1980s. This case illustrates how Thailand maderemarkable achievements in the attempt of pursuing two policy goals, which wereincompatible to a large extent, through its ownership.
The Thai economy was faced with a serious situation throughout the first half of the
1980s. While the Thai economy had shown persistent growth for long time since the late
1950s, it suffered from macroeconomic imbalanc es under unfavorable international
environment (two oil shocks, stagflation in developed economies, sharp rise ininternational interest rate, and the slump of primary goods p rices in international
market) in early 1980s.
As Table 3 shows, investment savin g gap was between 5 and 6%, fiscal deficit was
12around 4-5% of GDP. In 1983, current account deficit reached 7.2% of GDP. The largest
concern was rising debt service ratio (from 17% in 1980 to 26% in 1985). It was afraid
Thailand could be “another Philippin es”.
In the attempt of overcoming the difficulties, the Thai government received the WorldBank’s Structural Adjustment Loan in June 1983 and adopted austerity measures.
They also introduced currency depreciation in 1981 and 1984. While Thailand washighly evaluated afterwards as one of five “top performers ” of structural adjustment by
the World Bank (World Bank 1990: 20), pessimistic views were dominant in the mid
1980s. Under the gloomy perspective, the Thai government diminished the size of
external borrowing from 1.6 billion dollars in 1984 to 1 billion dollars in 1985.

Table 3Macroeconomic indicators of Thailand in early 1980s
(%)
１９８０

１９８１

１９８２

１９８３

１９８４

１９８５

5.8

6.3

4.1

5.8

6.2

4.0

S-I gap

-4.2

-4.1

-2.1

-5.0

-5.8

-4.8

Fiscal

n.a.

3.2

5.8

4.1

3.8

5.1

6.2

7.1

2.7

7.2

5.0

4.0

23.2

7.0

-1.0

-7.7

16.3

-4.4

100

87

79

85

84

77

17.3

17.4

18.9

22.9

24.8

26.1

19.7

12.7

5.2

3.8

0.9

3.3

Economic
growthrate

deficit/GDP
Current
account
deficit/GDP
Exportgrowth
rate
Terms

of

trade
Debt
serviceratio
Change inConsumer(Jan-Sep)

price
Source: World Bank (1986)
Note: 1985 figures are provisional13

3. The Eastern Seaboard Development Plan
The case of the Eastern Seaboard Development Plan was adopted in this paper becauseof its scale, complexity, and the difficulty of execution under the macroeconomic crisis.
3-1. The mission of the plan
The Eastern Seaboard Development Plan was a regional development plan, being
located in the southeast of Bangkok (Figure 8 ). It was composed of two industrial
complexes and a wide variety of infrastructures including two deep seaports. The Laem
Chabang was an industrial complex for export oriented and labor intensive industries
and the Map Ta Put was basically a heavy and chemical industrial c omplex based onnatural gas reserves in the Gulf of Thailand. The basic idea of the plan was formulated
in the late 1970s, and a master plan was completed in 1982.
The task of the plan was to tackle two basic problems for the Thai economy. First, one of
the central agenda for the Fourth and Fifth Five Year Plan, 1977 -81 and 1982 -86
respectively, was to transform the industrial structure and the composition of leading
export goods from agriculture to manufacturing. This had been a long standing issue,
but became acute under the collapse of primary goods prices in international commodity
market after two oil crises. Being faced with a sharp decline in terms of trade, the Thaigovernment accelerated export oriented industries promotion and utilization ofdomestic energy resources, in the attempt of saving foreign reserves and improving
international balance of payment. Owing to the evolution of labor intensive lightindustries (garment, apparel, accessories, sport shoes, travel kit etc.), the share ofindustry in GDP surpassed that of agriculture, and the share of primary goods (rice,maize, tapioca, rubber, tin etc.) in the whole export persistently declined from two thirdin 1970 to half in 1980 and further to one third in 1985. The Thai government was keen
to further accelerate this tendency.
Second, improving the living standard in rural areas was a central issue, since theThird Five Year Plan (1972-76).

In this regard, the Thai government was concerned in

the concentration of business activities into the Bangkok Metropolitan area, as it
caused widening regional discrepancy and environmental eradication such as trafficjam, air and water pollution. The discovery of natural gas reserves in the Gulf ofThailand in 1973 led to the idea to construct industrial complexes in the Eastern
Seaboard for achieving decentralization of industrial production and improvement ofliving standard in rural area.

14

Figure 8

3-2. The evolution of the plan
In December 1980, a committee was established under the chairmanship of GeneralPrem Tinsulanonda, who became the prime minister in March 1980 ; this committee
was reorganized to the Eastern Seaboard Development Committee, ESDC) in June 1981.
In March 1981, a report outlining the industrialization strategy in the region (Anat
Report) was submitted to the committee. The Eastern Seaboard Development Plan was
adopted in the F ifth Five Year Plan (1982 -86) in October 1981.
Before the launch of the Eastern Seaboard Development Plan, in the late 1970s, theThai government requested the World Bank to finance the plan. The World Bankfinanced the master plan of Coopers & Lybrand Ass ociates jointly with the British
government. However, when the result was submitted to the Thai government in July
1982, the World Bank recommended utilization of existing Sattahip Port (Figure8),

which is a naval port near the proposed location of Map Ta Put deep sea port, taking
into consideration the heavy fiscal burden. According to the master plan, the estimated15total investment amount was 4.5 billion dollars (1981 year price).
On the other hand, the Japanese government, the largest donor in Thailand, was very
active in their support to the plan. At his visit to Thailand, Prime Minister Zenko
Suzuki expressed his willingness to support the plan in January 1981, and in May ofthat year, Dr. Saburo Okita, former foreign minister, who visited as the leade r of agovernment mission, initiated the discussion on technical and financial assistance tothe Eastern Seaboard Development Plan. Based on the Okita ’s recommendation, JICA
(Japan International Cooperation Agency) of Japanese Government started thefeasibility study of Map Ta Pud deep sea port, which was faced with various technicalproblems, such as strong wave and silting up.
In November 1982, the National

Fertilizer Corporation Limited (NFC) wasestablished, with the equity investment by the Internation al Finance Corporation (IFC)of the World Bank group. The purpose was to construct an integrated fertilizer complex,
located near Rayong on the eastern Seaboard, based on the natural gas supplies fromthe Gulf of Thailand. The Japanese government assured f inancial assistance to the NFC.
In October 1985, the Thai government signed loan agreements with the Overseas
Economic Cooperation Fund of Japan (OECF) on the construction of major projects,
such as Laem Chabang Industrial Complex, Map Ta Put Port, and Map

Ta PutIndustrial Complex.

4. The crossroads
4-1. Setback of the plan
On November 13, 1985, the cabinet approved a surprise resolution to freeze all the
Eastern Seaboard Development Plan for 45 days, and assigned three ministers toreview the whole program. Acc ording to the Nation, a Thai newspaper, this was strongly
recommended by Dr. Snoh Unakl, who was Secretary General of the National Economic
and Social Development Board, and one of the most prominent economists in those days,in his note to Prime Minister dated November 1, 1985 (The Nation, November 21, 1985).
It was reported that he wrote this letter having been shocked by a Ministry of Financereport on the serious prospects of external debt, and stressed the urgent need forregaining fiscal and monetary stability through tight belt policy (The Nation, November
22, 1985).
This movement was called “coup by conservative group ”, who had tried hard to slow
down the implementation of big projects from the viewpoint of fiscal discipline. In order16

to understand further the background, we already analyzed the macroeconomic
situation in those days.
The committee in charge of reviewing the Eastern Seaboard Development Plan wascomposed of three ministers. Suli Mahasandana, Minister attached to the Prime
Minister ’s Office, was Prime Minister Prem ’s right hand man and main trouble shooter.
He was a classmate of Prem around fifty years ago at a middle school for the sons oflower ranking public servants (Warren 1997:25 -38); Prem’s father was a junior prison
officer in Songkla, southern Thailand. Meechai Ruchupan, another Minister attachedthe Prime Minister ’s Office, was a lawyer and Suthee Singhasaneh, Deputy Finance
Minister was an economic technocrat, who had been the head of the Budget Departmentof the Prime Ministe r’s Office.
4-2. World Bank factor
While the committee was beginning the works, it was revealed by Bangkok based
newspapers that the World Bank Bangkok Office had been behind Dr. Snoh, when hetook initiatives of reviewing. According to the Nation, Mr. Quill H ermans, Chief of theWorld Bank Regional Mission in Bangkok, sent a letter dated November 6, 1985 to Dr.
Snoh. In that letter, Mr. Hermans suggested the Thai government to eliminate two deepsea port projects (Map Ta Put and Laem Chabang) from the sixth de velopment plan(1986-90), and use Sattahip and Klong Toey (Bangkok) ports as alternatives, in theattempt of saving fiscal expenditures (The Nation, November 28 and December 2, 1985).
The essential features of this proposal was repeated in a more moderatemanner in

Chapter 6 of World Bank ’s Country Economic Report, which was published around 7
months later (World Bank 1986: 132 -138).
The World Bank report of 1986 claimed “the combined economic rate of return of the(NFC) fertilizer plant and the port (as p resently envisaged) is expected to be very low ”.
As the World Bank took the position that the feasibility of NFC fertilizer plant was
acceptable (World Bank 1986:136), it meant that the return of two port projects wereregarded very low .

17

5. Aftermath of the review
5-1. The Christmas eve cabinet decision
The Thai cabinet approved the report of the three minister committee on December 24,
1985. According the press release, the main points were as follows:a) The implementation of National Fertilizer Project and

Map Ta Put Port wereapproved. While there was no specific condition for NFC, it was stipulated that theimplementation of Map Ta Put should be committed only after the signing of loan
agreement on NFC with the Japanese government (NFC was to be constructe d in Map
Ta Put Industrial Complex).
b) The implementation of other projects including Laem Chabang Port was postponedon the reason “conducting the implementation at this moment is not appropriate ”.
It was made clear that the basic structure of the Easter n Seaboard Development Plan
was to be maintained. In other words, the World Bank ’s proposal to substitute the two
deep sea port by existing ports was turned down. However, when we study the press
release carefully, it was clear that the implementation of t he whole plan was completely
postponed. To recognize the intention of the cabinet, we should analyze the following
points:“Why NFC, which was the most controversial project in the whole plan, wasapproved without any condition, while the implementation of

Laem Chabang Port,

which was quite promising because of its export oriented feature, was postponed? ”
In those days, there was a broad consensus in Bangkok that the economic and politicalfeasibility of NFC was the lowest among the whole projects; we will go back to this point
afterwards. To introduce a linkage between NFC and Map Ta Put Port was to halt theimplementation of the latter. On the other hand, the cabinet did not claim any major
shortcomings of Laem Chabang Port, and simply declared the postpon ement without
specific reason. Obviously, postponing the whole plan was the central message of thecabinet decision.
5-2. Aftermath of the decision
Here we will review the fate of three major components of the Eastern Seaboard
Development Plan after the cabine t decision of December 1985.
5-2-1. Laem Chabang port and industrial complex
The Plaza Accord of September 1985 caused dramatic appreciation of yen andfundamental changes in the fate of Laem Chabang.
As shown in Table 4, the value of yen versus US dollar, whic h was 249 yen per dollar at18

the end of June 1985, rose to 154 yen at the end of September 1986. Under thecircumstance, Japanese manufacturers began to look for alternative plant sites inabroad, and they found Thailand and Malaysia were most suitable amon g developing
countries. The tidal wave of direct investment from Japan became visible toward theend of 1986, when The Board of Investment of Thailand announced that the direct
investment from Japan in the first half increased by around 50% ( JETRO Daily,
February 7, 1989). Being stimulated by this movement, the investors of Taiwan, Hong
Kong, and Korea also began to sharply increase their direct investment to Thailand.
Most of direct investment from East Asia was export oriented and basically labor
intensive.
As a result of big wave of direct investment, a lot of new factories were constructed, andinevitably caused serious bottlenecks in infrastructure, such as port facilities, road,
power, telecommunication, and industrial estate. The shortage of port faci lities at Klong
Toey (Bangkok) was particularly apparent. The volume of containers handled at Klong
Toey increased by 20% annually in 1986 and after, and exceeded the port capacity in1988 (JETRO Daily, July 23, 1988).
Being faced with serious bottlenecks , the cabinet instructed the Eastern Seaboard
Development Committee to resume Laem Chabang Port project on the 15 th of October,1986 (The Nation, October 16, 1986).

Table 4
Exchange rate changes after the plaza Accord

1985

1986

1987

Yen per US dollar

Baht per US dollar

Yen per baht

June

249.0

25.6

9.1

September

217.0

27.4

8.3

December

200.5

26.3

7.5

March

179.6

26.7

6.8

June

165.0

26.5

5.9

September

153.6

26.3

5.9

December

159.1

26.1

6.1

March

145.8

26.1

5.6

June

147.0

25.9

5.7

September

146.4

25.8

5.7

December

123.5

25.1

4.9

Source: IMF International Financial Statistics , various issues

195-2-2. Map Ta Put port and industrial complex
In comparison with La em Chabang, the progress at Map Ta Put was not remarkable,
mainly because Thai leaders linked this port with NFC, while NFC suffered fromvarious difficulties. In September 1986, Dr. Snoh of NESDB told Dr. Okita, leader ofJapanese government delegation th at the necessity of Map Ta Put fully depended on the
progress of NFC ( The Nation, September 19, 1986).
However, in February 1987, Dr. Savit Phothivihok, who was the Secretary General of
the Eastern Seaboard Development Committee and architect of implement ation,
announced the resumption of international bidding of Map Ta Put Industrial Estate on
the reason that the construction of National Petrochemical Corporation (NPC) was inprogress (The Nation, February 28, 1987).
This announcement could be a symptom o f evolving changes. Finally in January 1988,
after three years of the cabinet decision, the government officially cancelled the freezingof Map Ta Put Port and Industrial Complex; these projects completely revived.
5-2-3. National Fertilizer Corporation (NFC)
In the mean time, the NFC fertilizer project had been the subject of much controversy.
While its background was highly complicated and sensitive, the following two elements
were particularly crucial.
First, most of leading figures of Thai private sector wer e reluctant to cooperate,
although Thai private sector was expected to own more than 30% of total share amount.
It is to be noted that the Bangkok Bank group, the largest business conglomerate in
Thailand in those days, had a subsidiary company dominating the business of imported
fertilizer distribution. In other words, the NFC could threaten the rent of Bangkok
Bank group 3.
Second and more importantly, the prospect of the return on equity (ROE) or investment(ROI) was quite uncertain. From the beginning, i t was recognized that the profitability
was highly sensitive to volatile fertilizer prices (IFC1986:11 -12). In addition, the sharp
yen appreciation after the Plaza Accord damaged the project, because an international
bidding had been already made in July 1 984, and the bid amounts of two successful
Japanese bidders, were stated in yen. It is to be noted that baht remarkably depreciatedagainst yen (Table 4), because of de facto pegging to US dollars; baht was officially
pegged to currency basket in those day s.
The retirement of Finance Minister Sommai Hoontarakool, who had tried hard to

3

Interview with Dr. Ammar Siamwalla of Thai Development Research Institute of November 10, 1998.
Also Nihon Keizai Shinbun , September 8, 198720

realize the NFC project, turned the tide 4 . The Eastern Seaboard Development
Committee announced that the NFC is not the issue of the government but the private
sector (The Nation, October 16, 1986). In other words, the government washed theirhands of the NFC business.
In spite of persistent support by the World Bank and the Japanese government, theNFC project was postponed for long time, and faded away.

6. Assessment of the position of three major players: Thai government,
World Bank, and Japanese government
In this section, we will assess the decision made by the Thai government, in comparison
with the position of the World Bank and the Japanese government. The purpose is tocast light on the institutional capacity of the Thai government in those days.
6-1. The structure of the problem
Figure 9 illustrates the essential features of the problem the Thai government was
faced with in the mid 1980s. The government had to make decision

whether (i) todrastically cut the budget for the plan or (ii) to implement the plan in accordance withthe original schedule.
We should pay due attention to the fact that the prospects of the external environment
were highly uncertain in those days. Like other developing countries, Thailand wasseverely hit by deteriorating terms of trade, declining export volume due to stagflationin developed economies, and rising interest rates in international capital market. In
1985 particularly, Thailand experienced a huge balance of payment deficit equivalent to
17% of GDP. In view of this disappointment , it was understandable that most of Thai
policymakers and businessmen were pessimistic, and the World Bank was also very
cautious (World Bank 1986: Chapter 2).
Theoretically there were two possibilities regarding external environment. In the caseof adverse environment, huge fiscal expenditure could lead to unsustainable fiscal andexternal conditions. Drastic postponement of the Eastern Seaboard Development Plan
could be the answer to cope with such risk. On the other hand, in the scenario of
improving external environment, the conservative fiscal policy could worsen theinfrastructure bottlenecks and undermine investors ’ confidence. Constructing modern

4Interview with Mr. Manas Leevirapan, former Director, Fiscal Policy Office, Finance Ministry, of
November 10, 199821

industrial co mplexes with deep sea ports and strengthening the competitiveness of Thai
economy could be the answer to overcome such problems.
Reflecting its cautious view on the prospects of Thai economy, the World Bank
recommended eliminating two ports from the budget On the other hand, the Japanese
government stressed the importance of enhancing competitiveness from long term
viewpoint, and recommended the implementation of the Eastern Seaboard Development
Plan. There were a lot of disputes in Thailand too.

Figure 9
CHOICES THE THAI GOVERNMENT FACED IN 1985

Execute ESDP asplanned(Alternative 1)
Postponed theimplementationof ESDP(Alternative 2)

Economic stagnation(Probability?)
Increase in fiscal burden andexternal borrowings(the second Philippines)
Reduction in fiscal burden
and external borrowings

Recovery of growth(Probability?)
Realization of internationallycompetitive industrial area
Increase in FDI
Modernization of economic structure
Deteriorating bottleneck ofinfrastructu reDeterioration of living, andenvironmental conditions in Bangkok
Deterioration of investment
environment

6-2. National Fertilizer Corporation
There was a distinction between the Thai government and main donors, i.e. the WorldBank and the Japanese govern ment on the NFC issue. As we saw, the project was neverrealized despite the commitment of equity investment (12% of total share capital) by theInternational Finance Corporation (IFC) of the World Bank group, and Japanese
government’s financial assistance through Yen Loan by the Overseas Economic
Cooperation Fund (OECF).
In order to assess the decision by the Thai government, a counter factual analysis of therate of return on this controversial project was made in accordance with the assumptionof the feasibility study: green light in October 1986, starting construction in 1987,
commercial production in 1991. The profitability of this fertilizer plant depended on two
external factors i.e. exchange rate and world fertilizer prices. Table 5 shows the resultsof simulation using the actual figures of the exchange rate, and international price of22

urea fertilizer ( see Table 5).
If the government had given green light in October 1986, the NFC would suffer negative
rate of return on investment (ROI), due to yen a ppreciation and volatile fertilizer price.
Although it is to be admitted that this simulation is based on various conditions, what
this result suggests is low profitability of the NFC project. In other words, the positionof the Thai government was more ad visable than that of the World Bank and theJapanese government.

Table 5
Simulation on the profitability of NFC(million US dollars)
Revenue

Profit before

New

Investment

tax

investment

after
depreciation

1987

15.8

1988

202.3

1989

410.0

1990

154.8

1991

170.6

-33.2

42.5

787.9

1992

183.6

-33.4

750.4

1993

162.7

-676.6

712.9

1994

263.6

36.0

675.4

1995

316.3

91.4

637.9

1996

265.9

43.6

600.4

1997

149.0

-70.6

675.4

Profit before tax (average): -4.8
Investment after depreciation (average):675.4
POI = (-4.8/675.4) X 100 = - 0.71%
Note: start of construction: 1987
start of commercial production:1991
based on all the assumption of F/S except exchange rate and fertilizer price23

6-3. Construction of two ports
6-3-1. Laem Chabang
It was already confirmed that Thailand heavily suffered from shortage of port facilities
in the late 1980s, especially in the Bangkok Metropolitan area. It is apparent, therefore,that if the World Bank ’s suggestion to utilize Klong Toey instead of L aem Chabang had
been adopted, the results could be far more disastrous. However one could argue that
this was simply due to the Plaza Accord and following high wave of foreign investment,
which was unpredictable and occurred by chance. As a matter of fact, necessity of a new
port was recognized that even before the effects of the Plaza Accord became visible.
The volume of containers handling at the Klong Toey increased persistently with therate of 16-17% annually during the first half of the 1980s, in spit e of stagnant economic
situation. A think tank report forecasted that even under conservative assumption of
12% growth rate, the Klong Toey port could suffer from shortage of container yard
capacity (Far Eastern Economic Review , October 30, 1986). It is to be stressed that thisforecasting was made in 1985, under the highly pessimistic prospect of the Thai
economy. Taking into account the structural deficiency of the Klong Toey as a river port
(lack of space and limit of depth due to siltation) the Laem Cha bang port wasindispensable even without Plaza Accord effects.
6-3-2. Map Ta Put
The central issue of dispute between the World Bank and the Thai government waswhether the Sattahip port could take over the function of the Map Ta Put. Utilizing
Satttahip as an a lternative does not seem a feasible idea, when we consider thefundamental feature of Sattahip. As it is a naval base, the access is limited and there
was not enough space for widening the rout connecting it with petrochemical plants tobe located around t he Map Ta Put area, such as National Petrochemical Corporation(NPC) and Thai Petrochemical Industry (TPE). Accordingly there was a broadconsensus in Bangkok that Sattahip could not be a realistic alternative from technicalviewpoint 5.
Due to acceleration of economic growth (in 1986:9.5%, in 1987:13.3%) and sharp
increase in foreign direct investment, the number of plants operating at the Map Ta Put
industrial estate increased from 14 in 1991 to 48 in 1998; most of them were
petrochemical plants. In additi on, many companies have constructed plants in private
5 Interview with Mr. Paisal Sricharatchanya, editor of

the Bangkok Post of November 4, 1998, andalso Paisal Sricharatchaya “At last beginning, Bangko k finally commits to ESB Projects ”, Far
Eastern Economic Review , October 30, 198624

industrial estates in Map Ta Put area. While the World Bank claimed “the needs of thefertilizer plant are the major justification for the port ” (World Bank 1986:137), there
have been much wider needs f or industrial estate in this region. This implies theconcept of “general cargo port ” envisaged by the Thai government was more realistic
than the World Bank ’s “port for the NFC fertilizer plant ” concept.
Our conclusion is that the position taken by the Th ai government was more supportable
than that of the World Bank.
6-3-3. Balance sheet of postponement
Advocates of postponement of the Eastern Seaboard Development Plan emphasized themerit of diminishing fiscal deficit and external debt. However, the scale of th ese effects
was exaggerated .
The World Bank (World Bank 1986:135) claimed that the planned budget appropriation
for Laem Chabang and Map Ta Put was 15.1 billion baht in total, in the fiscal years of1987 and 1988, equal to 7 -8% of whole public investment and 20% of external borrowing.
Eliminating this fiscal expenditure could contribute to fiscal reconstruction, according
to the World Bank. However, this argument did not reflect properly the actual
magnitude of public expenditure.
As most of this amount w as financed through ODA loans, actual expenditure by theThai government could be minimized. Also, the effect on the capital account was toemerge ten years later only when principal repayment would begin after grace period.
The arguments in those days were not made on the real budget expenditures . As amatter of fact, fiscal deficit turned into big surplus and the debt service ratio
dramatically declined during the late 1980s (Table 6).

Table 6
Trends of fiscal balance and debt indicator(%)
fiscal balance/GDP

debt service/export

1986

- 4.2

25.4

1987

- 2.2

17.1

1988

0.7

13.7

1989

2.9

1.4

1990
4.6
9.8
Source: Economic Planning Agency of Japan, Warr, P. and Bhanupong N. (1996)
Thailand’s Macroeconomic Miracle
Stable Adjus tment and Sustained
Growth, Kuala Lumpur, Oxford University Press25

On the other hand, the postponement was accompanied by huge costs of infrastructure
bottlenecks, which could be reduced if Laem Cahabang port had been completed in 1990
according to the o riginal schedule; the actual completion was at the end of 1991.
Overloaded Klong Toey together with serious road congestion in the Bangkok
Metropolitan area, and sky -rocketing real estate prices could be reduced by the
introduction of Laem Chabang faciliti es in time.
When this balance sheet is reviewed, the costs of postponement apparently exceeded its
benefit. From this viewpoint it is difficult to support the position of the Thaigovernment.
However, we should take into consideration that the economic pro spect in the mid 1980s
was very uncertain, as was already reviewed. In other words, the decision maker, Prime
Minister Prem, was not able to have sufficient information of probability distribution
between two cases: adverse or improving. This was also a hi ghly sensitive political issue,
because of bitter disputes among policy makers, economists, businessmen, and major
donors. Under the circumstances, it was advisable as well as realistic for him to adopt
minimax regret criteria : minimizing the cost of the w orst case. The result was (i)maintaining the fundamental structure of the whole blue print, (ii)postponing theimplementation, and (iii) flexi ble change of course in response to the change inenvironment. This was a course between the positions of the World Bank and theJapanese government.

7. Conclusion and policy implication
In the mid 1980s, the Thai government was faced with two central policy agenda: copingwith macroeconomic imbalance and acquiring sufficient export capacity. They tried toconstruct two modern deep seaports with industrial estates as the core elements ofexport capacity buildin g, under the severe fiscal constraint. We found that the Thaigovernment showed good performance in tackling these twin policy agenda
simultaneously in a flexible and realistic manner. At least, the path they chose appears
better than the recommendations b y two influential donors, i.e. the World Bank and theJapanese government. It is to be noted that this was achieved by a developing country
with poor scores of governance (see Table 1). If we claim that good governance is aprerequisite of sustained develo pment, we have to answer to a basic question. Whatkind of governance elements contributed to their achievements?

26

In our opinion, two factors played important roles in securing advisable decision .
First, Thailand took advantage of “the checks and bala nces mechanism, which isembedded in their own society ”. This mechanism is different, to a certain extent, fromorthodox idea of checks and balances, i.e. the separation of three powers: administration,
legislation, and judiciary. It was composed of (i) mu lti-polar system among the politicalelite, (ii) experienced “balancer”, and (iii) free press. Second, technocrats with certain
competence played important role. It should be stressed that they were effectively“insulated” from the pressure groups.
Checks and balances in Thai style seems an example of “endogenous” element of good
governance, which is embedded in specific socio -cultural structure. It might be possible
to regard the abovementioned two factors as parts of“structural elements ”, asThailand’s standard governance indices in general were relatively low.
These are the lessons we can draw from the saga of the Eastern Seaboard DevelopmentPlan.
7-1. Checks and balances a la Thai: multipolar system, experienced balancer, and freepress
7-1-1. Multipolar system among the power elite
In the mid 1980s, there we re five influential groups in Thailand: the army, politicalparties, technocrat s, business community, and the mass media. It is worthwhile to pointout that it was a multi -polar system and checks and balanc es among the participants
functioned well.
There was no doubt that the army was most p owerful, but unlike in previous decades,
its power was not overwhelming, particularly when other actors made up their mind towork together in a coalition. For example, in 1984, the Bank of Thailand depreciatedbaht in spite of strong objection by General A rthit Kamlang -ek, Commander-in-Chief ofthe army, who was concerned about exchange loss es wit regard to arms import contracts ,owing to strong support from Prime Minist er Prem, technocrats, and leading businessfigures.
Although Prime Minister Prem was a former Commander-in-chief of the army, he did
not necessar ily behave in line with army ’s interest. As a result, the relationshipbetween Prem and General Arthit, his suc cessor, was strained. This was an importantbackground factor of the abortive coup d’etat in September 1985 by the army, andperhaps abovementioned currency depreciation in 1984. After the retirement of General
Arthit, the political pressure by the army ap peared to decline. But Prem had to watch
27

carefully the movement s of the army, as he had already retired and could not directly
control the military machine.
In Thailand, no single political party acquired a majority in congress, until very recently.
In those days too, many small parties were in rivalry with each other, and it was notpossible to choose their party leaders as Prime Minister. Under such circumstances, acoalition of five parties had to agree to choose Prem, who did not have a seat in the
congress. While political parties were not so influential, it was recognized that any
party could threaten the coalition, hinting at the end of cooperation. In order to secure
the stability of his administration, Prem had to be careful about the relationship w ith
the bosses of political parties to prevent their veto. Moreover, complicated rivalry
relations were found among technocrats, economists, and business leaders. There was amulti-polar system among the power elites.
It was argued that such delicate check s and balances a la Thai could be a serious
handicap for strong leadership to drastically modernize the socio -economic system.
Perhaps it was a correct observation. However, the case of the Eastern Seaboard
Development Plan shows checks and balances a la Thai enabled a thorough scrutin y of
crucial policy agenda.
The function of checks and balances in their own ways prevented notable scandals, as
far as the Eastern Seaboard Development Plan is concerned. It is quite exceptional thatsuch a gigantic plan con suming huge amount of budget was executed without serious
incidents of corruption.
Many developed countries have introduced the separation of the three powers, i.e.
administration, legislation, and judicature , for the purpose of functional checks andbalances. While Thailand in the mid 1980s had not fully establish ed such separation,
they had an alternative and endogenous system, which led to advisable responses to thechallenges of the Eastern Seaboard Development Plan.
7-1-2. Role of experienced “balancer”
Prime Minister Prem Tinsulanonda was born in 1920. He was one year older than
Suharto, three years older than Lee Kuan Yew, and five years older than Mahathir bin
Mohamad. Like these Southeast Asian leaders who belong to the same generation, he
was a leader o f a developmental state.
As he stated in his farewell address of August 1988, Prem attempted to claim thelegitimacy of his contribution not through political or diplomatic achievements but
through economic development, more specifically poverty reduction

among the rural

people (Warren 1997:18 -20). In order to attain this goal, he delegated the power of28macroeconomic management to experienced technocrats, and protected them frompressure groups. These are typical characteristics of developmental state lead ers.
However, unlike other three Southeast Asian leaders in the same generation, andunlike Sarit, his great mentor, Prem was not a man of charisma, but an experienced“balancer” particularly in the multi -polar system in the 1980s . According to Richard
Doner and Anek Laothamatas, Prem skillfully played the army and political parties
against each other, and allowed free election and a free press while he was outsidecongress (Donar and Laothamatas 1994:411 -413, 427-429).
Prem functioned effectively as abalancer throughout the Eastern Seaboard

Development Plan disputes. One former high ranking official of NESDB recalled that,Prime Minister ’s patience in listening into the voices of different opinions. In his view,
such patience finally led to a well balance d judgment and reasonable solution in theend 5 .
7-1-3. Transparency and openness in the policy making process through the role of themass media
This article refers to a lot of newspaper articles of those days. Needless to say, it is very
unique to see detaile d inside information on public expenditure issues in developing
countries. Apparently, most of these newspaper articles were based on the “leaks” fromhigh ranking officials. A typical case was the Hermans Note submitted to Dr. Snoh andtriggered the movem ent to revise the Eastern Seaboard Development Plan.
It is to be admitted that many newspaper articles were not correct (certainly this is notunique to Thailand) and were used as tools of manipulation by each camp. For example,
the contents of Hermans No te were leaked to the press in the attempt to prevent the
campaign of tight belt policy camp.

Nevertheless, many articles contributed totransparency and openness, as details of the policy making process were made known tothe public. It is to be pointed o ut leaks were usual in Thailand in those days. Despite awide variety of negative effects, at least leaks effectively prevented “back door decision
making” by political bosses and barons, which are common in developing (as well as
developed) countries. Don er and Anek argue that one of the uniqueness of the Prem
administration was it allowed free press (Doner and Laothamatas 1994:412). We would
like to emphasize this characteristic as an element of good governance under

the Prem

regime.

5 Interview with Dr. Bunyaraks Ninsananda, Former Director, Overall Planning Division, NESDB, ofNovember 3, 199829

7-2. Technocrats with certain competence were insulated from pressure groups
World Bank report of The East Asian Miracle stressed the importance of “technocratic
insulation” in East Asia (World Bank 1993:167 -174). Perhaps Thailand in mid 1980s
was a representative case of “economic technocrats with a minimum of lobbying forspecial favors from political and interest group ”.
The tradition of independent bureaucracy has a source in the pre- modern Siam court.
This tradition was strengthened by Field Marshal Sarit Thanarat when he be came
Prime Minister through a coup d’etat in 1958 and delegated power over macroeconomic
management to a group of young elites trained in abroad; the leader of that group was
Puey Ungphakorn, governor of the central bank (Siamwalla1997:6 -9). A lot of young
technocrats were appointed to posts in four organizations − the Ministry of Finance,
the National Economic and Social Development Board, the Bank of Thailand, and theBudget Department of the Prime Minister ’s Office− which have formed the core ofThai technocracy since then. Dr. Snoh Unakle and Mr. Sommai Hoontrakool, whoplayed important roles in the policy making on the Eastern Seaboard Development Plan,
were among them. They had been promoted to leading technocrats, and were regarded
as experienced and w ell-balanced policy makers.
As shown in the case of currency depreciation in 1984, Thai technocrats were effectively
insulated from pressure groups, such as the army and political parties, under Prem ’s“umbrella”. Reflecting such insulation, the disputes

on the Eastern Seaboard

Development Plan were basically made among technocrats, and the roles of politicians
and generals were limited. This implies that disputes were made with certain degree ofrationality. This is considered to have been an important fa ctor leading to well balanced
policy making process.
In this concluding section, we touched upon several governance elements, which
contributed to the achievements. Some of them are found in the standard theory of
governance. According to our analysis, h owever, they ensured achievements eventhough many other standard conditions of good governance ware absent in Thailand in
those days. This suggests the crucial roles of limited number of governance elements.
Meanwhile, we found several governance elements , which are quite unique to the Thai
society, contributed a lot. This suggests the importance of endogenous social -cultural
conditions in attaining good development performance.

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