Bankruptcy edging ever closer
Prime Minister Chavalit Yongchaiyudh's U-turn on the oil tax and his lack of political leverage to muster Cabinet approval for the financial reform package will not only cost Thanong Bidaya his finance job but also push Thailand closer to bankruptcy.
After yesterday's meeting with Gen Prayudh Jarumanee, a military strongman and former chairman of the Thai Military Bank, Thanong said he would re-examine his role in the administration and announce his final decision before 6 pm today, one hour before the prime minister is scheduled to negotiate the impending Cabinet reshuffle with Lt Gen Chatichai Choonhavan, leader of the Chat Pattana Party.
Chatichai has made it clear that he would like to see sweeping changes in the Cabinet, with his party assuming control of the key economic portfolios. Chat Pattana has been fiercely criticised for hijacking the financial reform package, which was supposed to have been approved by the Cabinet on Friday along with five Royal decrees and an amendment to the Revenue Code.
Politically speaking, it is impossible for Thanong, a former banker, to continue his job as finance minister when his fiscal consolidation package and financial reform package have been gunned down by the coalition members of the Chavalit administration. Both packages are crucial for winning the renewed confidence of the international community in Thailand's macro-economic management, at a time that the private sector is seeking to roll over its short-term external debts of US$30 billion.
They are also part of policy conditionalities agreed upon between the Royal Thai Government and International Monetary Fund in return for support of a stand-by credit worth $17.2 billion. Failure to implement the radical fiscal consolidation policy and reform the financial sector will threaten the prospect of the Thai government receiving the next payment in stand-by credit from the IMF.
Jaroong Nookwun, deputy governor of the Bank of Thailand, yesterday warned that a change in the Finance portfolio will be sensitive at this time of economic difficulties, particularly when it involves efforts to win back the confidence of international investors. He added that Thanong played a very high profile role in negotiating a rollover of Thailand's debts with the creditors in Japan and more recently in Hong Kong at the annual World Bank/IMF meeting.
Dr Virabongsa Ramangkura, the deputy prime minister responsible for the IMF programme, has expressed reservations over any hasty departure from this administration at a time that his assignment remains unfinished. When Virabongsa first took over the deputy premiership in August, he said his single aim was to help the country escape the economic catastrophe. ''If I could push the country back one step from the edge of the cliff, then I would consider that I was doing the job," he said then.
Yesterday Virabongsa, the conservative economist with strong backing from the military, showed his determination to keep on fighting in the face of the government's backtrack on the oil tax, which has greatly damaged the country's credibility in international eyes. ''My aim is to help tackle the economic problems. Insofar as there is still room for me to do it, I will continue to do it," he emphasised.
Chavalit was forced to back-pedal on the Cabinet's decision to raise the oil tax by Bt1 per litre, designed to garner about Bt24 billion in tax revenue to keep the fiscal 1998 budget at a surplus of one per cent of the gross domestic product. The oil tax increase along with a host of other luxury taxes and import duty hikes, which would have fetched a total of Bt40 billion in fresh revenue has proved costly politically, with threats of social and political unrest.
Korn Dabaransi, deputy prime minister and industry minister, quickly distanced his party from the oil-tax hike, fearing political repercussions, although he was consulted before Chavalit tried to ram the tax hike package through the Cabinet on Tuesday. On Friday Chavalit bowed to political pressure by announcing that the oil tax increase would be reversed to its original rate.
''Although the government has reversed its position on the oil tax to avoid domestic backlash, it has lost the credibility and confidence of the international community and international institutions," said Dr Nibhon Puapongkorn, vice president of the Thailand Development Research Institute.
Without additional revenue from the oil tax, the government will be dipping into the energy conservation fund now worth about Bt14 billion. This amount won't be enough to meet the stringent fiscal consolidation requirements, and besides it will be depleted in six months. The government has no immediate plan in hand to achieve the budget surplus.
''The reverse of the oil-tax increase shows that the government is not careful enough in tackling economic problems and in its management of the tax revenue," charged Tarrin Nimmanahaeminda, a former finance minister and now a Democrat.
With the fiscal 1998 budget hanging from a worn-out string and the financial reform package subject to being watered down by politicians, attempts to put the Thai economy back on track have now lost momentum although the Chavalit government appeared to make a good start on Tuesday when the fiscal tightening policy and the financial reform package were announced.
The two packages were described by Dr Prasarn Trairatvorakul, the deputy secretary-general of the Securities and Exchange Commission, as ''substantive", which should be able to win back confidence once the investors fully digested details. ''The key components in unwinding the complications in the financial sector are also logical," he added.
The political infighting for power on Friday has dealt a heavy blow to Thailand's efforts to achieve economic and financial reform. A radical political change is necessary if Thailand is to escape from economic catastrophe. At this point, hopes are getting dimmer indeed.
BY Vatchara Charoonsantikul and Thanong Khanthong