Thailand: ATMS and price discrimination

Like Bali, Thailand’s economy is often associated with tourism. In actual fact, the sector makes up about 9.3% of Thailand’s GDP, with manufacturing eclipsing it by quite a bit, along with the financial services industry (Thailand is a stable Southeast Asian economy whose currency, and probably their banking system, is well-regarded regionally, possibly explaining why that sector is doing well). Still, Thailand knows that the travellers from Britain, Australia, Singapore, the US, and other East Asian countries are an important resource, and it’s developed a very decent infrastructure to welcome them. Getting around can either be very easy (for a price) or moderately easy (for very cheap).

One thing that does not come cheap, however, is money. I don’t mean in the traditional economic sense of opportunity cost (you have to give up time to get money), but in the literal sense, that if you want to get money from your bank or credit card, you will have to pay for the privilege. As of October 2017 the exchange rate is roughly 30 baht to the dollar. An ATM withdrawal at any ATM in Thailand, regardless of bank, will run you 220 baht, or about seven U.S dollars.

How do the Thais afford these ATM fees? 220 baht is the cost of four or five meals, seven rides in a songthaew (bus-taxi pickup truck that is actually a great idea), a motorbike rental for a day–it’s a fair bit, especially if you’re earning a median Thai income, which is about 237 USD, or about 8000 baht per month. Two withdrawals would be about 5.5% of your income.

The answer is simply that the Thais do not pay these ATM fees–extra fees are charged only for foreign cards–any nationality. My American and Korean cards were both met with the same charge, and the ATM openly tells you that the fee is for foreign cards. This is a perfect example of…

 

Price discrimination!

An economic phenomena where businesses charge customers different prices for the same good, dependent on their willingness to pay. Usually it’s hard to pull off, because supermarkets can’t ask for your tax return every time you enter the store and change all the price labels to the maximum they think someone of your income group would be willing to pay.

It’s getting easier of course–online retailers can profile you based on past purchases and other collected data, get an idea of what you’re willing to pay, and change the price on that copy of Capital in the Twenty-First Century all with an algorithm if they want to, and once we all get contact lenses with HUD screens projected in front of us that let us shop in augmented reality, supermarkets could do the same thing.

That’s all in the future though–for now, we’re stuck with price discrimination based on simpler types of profiling, which is where Thailand’s ATMs come in. Charging 7 USD for an ATM withdrawal from foreign accounts is a nearly foolproof means of price discrimination in the country. Here are a few reasons Thailand can pull it off.

First, barely anywhere in Thailand accepts credit cards, especially not at normal levels of buying things. 7-eleven stores have a minimum, I believe, of around 3-500 baht, or at least nine dollars. That sounds easy to meet, but in Thailand that’s four bags of chips, three beers, a coffee, and two or three candy bars–and that’s all for my lowball estimate of 300 baht. That’s not a normal amount to purchase at 7-eleven most of the time.

So because everything from street food to the post office is cash-only, you need it–and as a traveller, you typically run out faster than you think you will due to unexpected expenses or just saying “lets do this cool thing” one too many times. And the only way to get cash is ATMs.

Second, there is absolutely no competition–I’m not sure exactly why all the banks charge the same rate, but the two main possibilities are government regulation (basically a tourist tax) or price-fixing/collusion by cartelized banks. In any case, if you need cash, you’ve got a few banks to choose from and they’re all the same price. I always liked Siam Commerce Bank because it’s got a slick color scheme.

Third, tourists aren’t going to organize and get anything done about this–they’re here for a few weeks, and they want to see some cool temples. They’ll bite the bullet and pay, then forget it until the next time. Elasticity of demand for money among tourists in Thailand is pretty low.

Fourth, Thailand doesn’t need to see tax returns to know what price to charge you–if you come to Thailand, you’re already paying a significant amount for travel, signaling that you’re in a disposable income bracket that will absorb higher prices without a lot of hesitation. Thailand’s tourism sector has a less reputable part that basically makes their entire living off this assumption, and even the more reputable parts hike the official prices (for national parks, temples, museums, etc) way up for foreigners. And of course it’s true–even with the price hikes it’s very affordable for someone like me and my U.S dollars.

 

Bali, Indonesia: developed tourist sector; developing economy

The island of Bali, Indonesia, is well-known for being the “love” section of the book/movie Eat, Pray, Love. As a tourist destination, though, it has a history that goes way back past the 2010 movie. Actually, in 1932 there was another film, The Virgins of Bali, popular for its numerous images of bare-breasted Balinese women (courteously allowed to remain so by the Dutch, who, in the spirit of colonialist cultural sensitivity, legalized nudity by uncivilized women, but not civilized women; draw your own conclusions). This film sparked a purely academic interest in visiting the island, and Bali’s tropical climate, striking natural beauty, and laid-back culture has kept the tourist industry going strong since. Even a volcanic eruption, violent political unrest, two terrorist bombings, and “Bali Belly” have been unsuccessful in discouraging visitors.

Here are a few stats:

Population (2014) 4,255, 341
Nominal Gross Regional Product (GRP) 12.84 billion USD (PPP adjusted: 49.59 billion)
Nominal GRP Per Capita 3,210 USD (PPP adjusted: 10,804 USD)
Major economic sectors Tourism (70-80%), Agriculture/Fishing (~20%)

All statistics from Wikipedia, which draws on Indonesian publications; as far as I can ascertain much of this data is not readily available in English, or I would have cited more rigorously.

As it was my first time in Indonesia–and only five days–I didn’t have a lot of time to get out of the heavily commercialized Kuta and Ubud areas, except taking an excursion to the even more commercialized Gili Islands. That said, the entire island of Bali is tourist-oriented to some extent, making the popular areas not-unhelpful in understanding the way its economy and culture operates.

While I may go more in-depth on some specifics in future posts, for now I’m going to stick with some of the highlights of my time on Bali.

The Airport
First, the airport is nice. Not just, “not a bad airport for a developing country” nice, but “the airport actually feels like you’ve arrived in a tropical resort” nice. The interior architecture, lighting, and general ambience are above standard, and the plant-covered, softly-lit exterior makes it even better from the outside. You can tell they put money into making a good first impression on the arriving tourists. I’ve been in South Korea’s Incheon a few times and Singapore’s Changi twice, two of the “best airports in the world,” and Bali’s has a vibe that easily competes, though perhaps not the endless list of amenities that the other two offer. Given that tourism is the dominant sector of the Balinese economy, and that Bali’s GRP has grown faster than the Indonesian regional average pretty consistently (6.24% in 2016, as opposed to Indonesia’s 5.0%), this makes sense as a capital investment.

The English
Second, the level of English spoken there is a little eerie. The first day, we got SIM cards at a local shop–the attendants were completely conversational. Our taxi driver, whose son had just left for a cruise ship job in America, was also quite a talker. During the conversation, he revealed that his highest education level was elementary school, and he had spent most of his career in construction. These were not exceptions–they were certainly the rule.

So let’s put that in context: I just spent three years in South Korea, one of the world’s most developed nations with a high level of interest in learning English and an effective (almost too effective) education system. There, the average person speaks a few words and is familiar with the loanwords that make up 20-30% of the South Korean language. Still, making yourself understood or finding your way around without some command of Korean is fairly difficult. In Bali, where the average education is somewhere between elementary and middle school, almost everyone we met spoke very decent English.

The disparity has its roots in basic economics. I would lay money that if you were to go to one of Indonesia’s similarly well-developed, but less-touristy regions, you would find a lot less English. Australians and Americans are two of the main nationalities travelling to Bali, and English is essentially a universal tourism language for most other countries as well. The Balinese probably learn very little English in schools, but they learn it even more effectively than the Koreans because they have frequent occasions to use it. The agricultural sector in Bali, which still employs many, though it contributes disproportionately less to GDP, probably has lower levels of English as well. But essentially anyone in a city or popular town in Bali will have English communication skills, from the hawkers to the convenience store clerks to the tour guides. Most of their jobs, and thus a large part of their economy, depends on them being able to communicate with tourists; their incentive to be good at English is high, and they respond accordingly.

Work and Savings
Third, they are absolutely still a developing economy. Like the rest of Indonesia, Bali enjoys a fairly high standard of living relative to many places, but is still plagued by governance problems, economic instability, infrastructure shortfalls, and any number of other things.

Out of the fairly small sample size of Balinese people I had conversations with, two of them (our AirBnB host and our taxi driver) had relatives working abroad on cruise ships. Our host described her husband’s work as long days, leading into long months away from home, with visits back to his family few and far between. He had spent time on European, Asian, and American cruises, but hoped to retire soon–it’s not so much of a vacation for the workers. Despite their distaste for this job, however, it remains such an attractive position monetarily that our taxi driver’s son, with his own wife and child in Bali, had just flown to America for the third time to get a cruise ship job (having done so twice before but having had his job cancelled when he arrived, which seems like a very low move on that company’s part).

Employment opportunities on Bali are certainly a bit limited, and wages fairly low. The living standard is still in line with what you would expect in a developing nation, and overall Bali, while undoubtedly a pleasant place to live due to the climate and atmosphere, is susceptible to the same money worries that much of the world deals with.

Further impeding savings on Bali, apparently, is the plethora of expensive rituals that families must regularly perform. Our AirBnB host described to us the regularly occurring religions festivals, as well as multiple celebrations held each year for occasions such as birth, death, and marriage. These are not uncommon in most countries, to be sure, but from her description, it came out that many things on Bali merit not just one celebration, but several, each one marking a different stage in, say, a baby’s life. Religious/cultural ceremonies are also common and also require fairly significant donations.

These are just a few of the things I gleaned from Bali; time allowing, I will be writing more soon.

 

Sources

Wikipedia

CIA World Factbook

OECD Structural Policy Country Notes Indonesia

Article on Bali’s agricultural sector

Asian Development Bank: Indonesia