BBL report analyses impact of Gore, Bush

November 2, 2000

DOES it really matter if Al Gore or George W Bush becomes the next US president? For Thailand, it doesn't seem to, as the country has arrived at its own political crossroad, as a general election to pick a new government will take place either later this year or early next.

A more relevant question for Thais is whether we are going to have a Chuan, a Thaksin or even a Korn.

However, it is interesting to compare the political profiles of the two US presidential candidates to see how their policies might affect Thailand. Bangkok Bank's research department has written a report outlining the policies of Gore and Bush. Americans will pick their new president on Tuesday.

Bush's overall policies are more hands-off, while Gore's approach to leading America into a new era of prosperity is more interventionist, the report indicated.

This comes as no surprise since the fundamental political philosophy of the Republican Party, which Bush represents, is more oriented toward big business, high growth, and the financial markets. The Democrats, on the other hand, base their politics on the American working family, with a tendency to spend in an attempt to bridge the gap between rich and poor.

President Bill Clinton has been successfully running his office on the centrist policy, artfully balancing social concern with a free market policy, as has Britain's Prime Minister Tony Blair.

Interestingly, Chuan Leekpai's Democrat Party has its soul aimed towards the free market. The past three years of power has lent weight to the Democrats' willingness to let market forces solve Thailand's economic problems. State intervention has been calculatingly limited. In this sense, Chuan's Democrats share the same party line as the US Republicans.

Now facing a different direction is Thaksin Shinawatra, the leader of the Thai Rak Thai Party, who runs his political campaign on an interventionist platform. Although the telecom tycoon has presented himself as a deep-pocketed pro-business politician, his party's platform is laced with interventionist programmes designed to give more money to the poor, making him more Democrat than Republican.

Let's take their approaches in tackling the banking sector as a case in point. The Democrats would like the banks to help themselves as much as possible. Government money is their last resort. At the same time, they have forced the banks to stick to high international standards in order to earn back confidence from financial markets and investors.

But the Thai Rak Thai would like to loosen the banking standards in order to give local banks an easier time when competing against foreign ones. Thaksin has also pledged to set up a national asset-management company to bail out the bad debts in the banking system. This programme would cost Bt300billion to Bt400 billion.

According to the bank's research report, Texas Governor Bush proposes to return more than two-thirds of the targeted surplus of about US$2 trillion (Bt87.34 trillion) over 10 years (the latest forecast of the 10-year budget surplus is $4.19 trillion), or about $1.3 trillion, to the American people through tax cuts. His plan also calls for new spending programmes of about $500 billion.

Vice President Gore's planned tax cuts total about $480 billion. His proposed spending plan is bigger at $795 billion. Gore's tax cuts are targeted at particular groups, especially middle- and low-income earners. He also wants to promote savings, and make health care and education more affordable.

Bangkok Bank's report said: "Gore is more interventionist, while Bush is more hands-off. While Gore pursues social objectives through government policy, Bush is a proponent of the free market. Bush believes that private wealth will take care of social problems. Overall, Gore foresees a bigger and more active government while Bush sees the government in a diminished role".

For Gore and Bush, their political stake revolves around convincing the voters that their policies will, at best, keep their country's prosperity, now into its 10th year, going.

The first major difference between Gore and Bush lies in their tax and budget policies. Gore would like to pay down public debt by 2012. In this respect, he is trying to follow the Clinton's legacy. Clinton, for all of his personal weaknesses, has been credited for fuelling the American boom by adopting fiscal discipline. With the help of his treasury secretary, Robert Rubin, Clinton fought to keep federal spending under control. This policy worked. And it helped bring down US interest rates, which have become the fundamental reason for the US economic expansion.

Bush has not made public debt a priority issue.

But why is paying down national debt so important when the US federal government seemingly can continue to create debt forever?

"Gore's grand plan of debt elimination appears to be in sync with Federal Reserve chairman Alan Greenspan's wishes. He views debt reduction as the path to lower interest rates," the Bangkok Bank research report said.

"Greenspan has repeatedly said that his preferred fiscal policy is to pay down debt, and that he would aggressively tighten interest rates should the next administration adopted a big stimulus package."

On this front, Gore's policy platform wins the most support. He has a great debt pay-down pledge at $3.05 trillion over 10 years versus Bush's $1.7 trillion, and he hopes to consistently pay down federal debt to zero by 2012.

"Bush's brainchild, on the contrary, is that a tax cut of the magnitude he is talking about has been estimated to generate economic growth that would average 3.25 per cent annually through the year 2010, adjusting for inflation."

"Now what does all this mean for a strong and vibrant US economy? The added growth to the already strong economy could force the Federal Reserve, already worried that the economy is overheating, to respond by further raising interest rates, hence, nullifying any positive economic effects that would result from big tax cuts and perhaps prompting a recession.

"Therefore, the US economy, which is already growing very rapidly, is like to be more hurt than helped by Bush's planned tax cuts," Bangkok Bank's report said.

(The second of the two-part series on Gore and Bush)

BY THANONG KHANTHONG