Time is running out for Thai industry
March 16, 2001
AFTER fumbling his way over the past three weeks, Dr Somkid Jatusripitak
has begun to find some clues in the dark labyrinth of the Finance Ministry.
On Wednesday the finance minister signalled that he was contemplating
immediate measures to jump-start the moribund economy. The stimulus measures
would go directly to boost the export, tourism and real estate industries.
Simultaneously, Somkid would be erecting a Chinese wall to curb the influx
of luxury imports.
This signal is critical, coming at a time when both the US and Japanese
economies are showing worrying signs of excessive weakness. Over the past
three years the Thai crisis has been spared the wrath of total damnation
because of the buying power of the US and Japan, which suck in almost
50 per cent of Thai exports. If buying orders from these two markets were
to recede, the Thai economy would be hard hit and its recovery delayed
further.
Therefore, Somkid is really in a desperate situation to stimulate domestic
consumption, otherwise the economy will slip into a recession. His most
important task now is to jump-start growth. He is beginning to get things
right, but he will certainly need a larger, even more effective, stimulus
package that must be pushed out as quickly as possible to achieve a modest
economic growth rate.
For Thailand, a modest growth rate is 4 per cent, which barely ensures
a normal business environment. A growth rate below 4 per cent will not
only complicate the bad debts and banking problems, but also deter fresh
loans from being released to small and medium businesses which Somkid
really would like to see.
The problem with Somkid is that he has to work within the broad framework
of the Thai Rak Thai-led government's 10 policy priorities. These policies
do not address the immediate need of stimulating domestic consumption.
The Thai Asset Management Corporation will not add new money to the economy.
Nor will debt suspension, the village fund programme, universal health
care coverage, the SME Bank and the People's Bank. The timing of their
implementation is also in doubt.
Thai Rak Thai's policy platform is a work of genius marketing that helped
the party to win the landslide election. Some of the policy measures are
sound, with implications for social development and income distribution.
But the whole platform, which addresses the long-term structural problems
of Thailand, is not an answer to the present economic quagmire.
Advisors to the Thai Rak Thai Party, including Somkid, have got it all
wrong. They believe that the party's economic programme, which aims to
inject money to the grass-roots level and increase the purchasing power
of rural people, is a remedy for the Thai economic problems. This is not
going to happen.
Just take a look at Thai Rak Thai's main constituency, which is the rural
or farm sector. Agriculture accounts for about 12 per cent of gross domestic
product (GDP). Yet this sector puts food on the table for 30-40 million
Thais out of the total population of 62 million. This implies that most
Thais' living standards are quite low. Any policy to help these folks
is highly commendable, yet the farm sector is not the driving machine
of Thai economic growth.
Ploughing money into the rural sector may win votes but it won't result
in high economic growth. Rural folks do not pay taxes. Traditionally,
they depend on government subsidies in different forms. Simply put, how
can an economic growth of a minimum 4 to 5 per cent be sustained if all
Thai Rak Thai's measures are diverted to a sector that accounts for only
12 per cent of the GDP? The mathematics do not add up. Thai Rak Thai's
efforts to create a taxable base through small- and medium-scale enterprises
will not happen overnight, or in time to come to the rescue.
It is the modern industrial and business sector that pays most of the
taxes. The modern sector accounts for almost 90 per cent of GDP. Big companies
pay 95 per cent of all tax revenues collected by the government. The problem
with the Thai economy at this point is that these companies are mostly
insolvent due to their indebtedness. Painful corporate restructuring is
inevitable to prevent Thailand from facing a Japanese-style recession.
Widespread business insolvency has already created the present condition
of "liquidity trap", where banks are hoarding money they do
not want and cannot lend out, and where interest rates approaching zero
won't kick-start the economy.
So instead of monitoring the public sector's spending on infrastructure
so that every baht helps stimulate the economy and is not wasted, Somkid
and the Thai Rak Thai government are doing the opposite. They are attempting
to scale down infrastructure spending in the 2001 fiscal budget so that
they will get at least Bt40 billion to finance their populist programmes.
This policy reversal will hurt the economy, robbing industries and businesses
of a chance to reduce their excess capacity or create more jobs.
It's time for Somkid to step back and redefine the government's approach
to economic stimulus. Time is running short. The danger is clear and present.
Thailand is already slipping into another round of crisis, as feared by
Prime Minister Thaksin Shinawatra.
BY THANONG KHANTHOG
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