Economist rejects World Bank ideas
August 23, 1999 -- DR Jim Walker, the chief economist of Credit Lyonnais Securities Asia Ltd, has attacked the World Bank's traditional economic growth model, urging Thailand not to rely on exports as the engine of growth, succumb to the temptations of the fixed-exchange rate policy, promote high savings rates to support growth and bank on government intervention in the economy.
He put forth this powerful argument in a presentation on ''What Thailand Should Do for a Sustained Recovery'' last week, organised by the Securities Analysts Association of Thailand.
He said Thailand cannot rely on exports to fuel the spectacular economic growth like in the past decade because the fight for export market shares among the emerging economies has expanded in numbers and intensity.
Given the trend that manufactured exports have become ''commoditised'', profits will be squeezed, he said. Moreover, the slowdown, if not a recession, of the US economy next year and beyond will further put pressure on Thai exports to the US market.
Instead, Walker, who first predicted the Thai economic bubble in January 1995, called on Thailand to focus on strengthening its comparative advantage, which should dictate its export profile.
Since Thailand is strong in tourism, food processing and the agro-business, these are some of the sectors the country should hope to bank on for future prosperity, he said.
Walker also warned about the temptation to succumb to polices based on exchange-rate ''certainty'', saying that this certainty is an open invitation to speculation.
Thailand, which has adopted a floating-exchange rate system, has learned a costly lesson on relying on the fixed-exchange rate regime for too long -- between 1984 and 1997 -- until it led to an accumulation of foreign capital which was more than the system could absorb and created an economic bubble. When the bubble was about to burst, the foreign-exchange regime was subject to attack because investors believed that the baht would not be able to hold on but would eventually be devalued to prop up exports.
Walker said China is now facing this problem with its fixed-exchange rate regime, although its currency is inconvertible.
Nervousness about the possibility of it devaluing its currency in the face of the realignment of the regional currencies has been haunting the rest of Asia for more than a year, he said.
Walker believes that China is more likely to adopt a more flexible exchange-rate regime instead of moving outright to devalue its currency.
A change in the Chinese currency regime is likely to send the renminbi down by 8-12 per cent, which will be absorbed by the regional currencies.
But if the Chinese currency is to be devalued by 20-25 per cent, it will lead to further competitive devaluations, which in the end will not benefit any country, he said.
In real life, uncertainty creates competitiveness. Walker used the analogy of a goalkeeper trying to save a penalty kick from a striker.
He said if the goalkeeper leaps to his right every time he tries to save a penalty kick, chances are higher that he will be beaten by the striker. But if he leaps to his left some times, where right-footed strikers are more hesitant to kick the ball to, he'll create uncertainty among the strikers and have a better chance of saving a goal.
Walker also came up with another unorthodox view that high savings do not guarantee high or quality growth. One of Thailand's strengths, which has been proclaimed with pride over the past decade, is that it is a country with one of the highest savings rates in the world, equal to about 35 per cent of the gross domestic product. This high savings, which is also the hallmark of the Asian miracle, is believed to have induced investment rather than spending.
But Walker said the corollary of high savings is low consumption.
Instead of relying on domestic consumption to spur growth, Thailand and other Asian countries have relied on other countries' consumption for their exports, he said.
''High savings corresponds with high debt -- either government or private,'' he said. ''Somebody will have to borrow these savings.''
He said the World Bank and the mainstream macro-economists are inherently flawed in their attempt to promote savings to help spur economic growth.
In this regard, Walker favours the American model, a low-saving but high-spending economy. The present problem with Japan is that it cannot encourage its own people, who have locked away their savings, to spend their way out of the economic recession.
''The government should tell its people to spend their money and have a good time,'' Walker said.
As for government intervention in the economy, Walker has no complaints about Thailand, which so far has been making progress in deregulating its economy.
He rated the present Chuan government as the best he has seen in Thailand.
However, he said: ''Government attempts at reducing uncertainty by introducing protection through tariffs or price controls will curtail the economy from adaptability options. The protection might be good for some industries or companies, but it is bad for the entire system.''
BY THANONG KHANTHONG