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VacationSpot.com LOOKING INWARD: Thaksin's alternative

July 26, 2001

Prime Minister Thaksin Shinawatra yesterday spelled out his plan to build an entrepreneurial class and to gradually shift the country away from reliance on the East Asian economic model.

Speaking to the Joint Foreign Chambers of Commerce at the Grand Hyatt Erawan Hotel, Thaksin said the Thai economic crisis and lingering malaise were caused partly by the East Asian economic model, which is founded on multinational corporations, foreign capital, foreign investment and exports.

Yet overall development from this export-oriented model has failed to benefit the broad spectrum of society, and leaves the country susceptible to another crisis due to heavy reliance on the volatile demand of the major trading partners, he said.

Thaksin said his government's policy is to build an entrepreneurial class and to focus on strengthening the domestic economy. By saying so, Thaksin is clearly aiming to reduce the weight of the contribution of export earnings to the economy, so that domestic demand can be boosted to balance the policy mix.

Thaksin apparently wants domestic demand to become the main engine of economic growth. Chief adviser Pansak Winyaratn said domestic consumption is already worth about US$55 billion (Bt2.47 trillion) a year, making the domestic market for new ideas and new products a massive one.

By shifting to growth spurred by domestic demand, Thaksin hopes the country will be less vulnerable to external shocks. The European economy is 80-per-cent driven by internal trade, while the remaining 20 per cent comprises exports. The US domestic economy accounts for 70 per cent of its gross domestic product (GDP), compared with 30 per cent for exports.

Thailand and other East Asian countries are appear to be heading towards another economic storm, caused by a collapse in demand from the US and Japanese markets. Exports account for more than 50 per cent of the Thai GDP, while Singapore, Taiwan and Malaysia, which would be hit harder, depend even more heavily on exports.

Thaksin was careful with his wording in yesterday's speech, trying to reaffirm his government's commitments to promoting foreign investment and to fulfilling international obligations. He said his government would pursue a "dual-track" policy by continuing to attract foreign investment and by rebuilding the strength of the domestic economy.

Thaksin avoided airing his views on the deteriorating macroeconomic conditions, caused largely by the export slump and by the slow pace of domestic corporate and financial restructuring. But he did give some scope to the management of the public-sector debt, outlining a five-year timeframe in which the government hopes to balance the budget, and explaining how the government aims to tackle the Bt1.3 trillion in losses at the Financial Institutions Development Fund.

Thaksin emphasised the need to revive entrepreneurial spirit, coupled with extending economic programmes at the grassroots level, which has been the key policy platform of the Thai Rak Thai Party.

He said people have benefited from foreign investment and to some extent from technology transfers, but they have not quite learned how to become good entrepreneurs. Over the next three months, the government will establish an SME bank, specialising in lending money to small and medium-sized enterprises.

Yesterday Thaksin launched the village-fund programme, which will extend Bt1 million to many of the 77,000 villages nationwide. He said debt restructuring for the farmers has been satisfactory, as is the People's Bank, which lends Bt15,000 to small-time borrowers, and the universal healthcare programme, which is now operated by pilot hospitals in 21 provinces.

The prime minister appeared to believe that his social platform can provide a cushion for the effects of the slowdown in the global economy. But critics have argued that he has not actually addressed the corporate sector, which still provides the bread and butter for the domestic economy.

Thanong Khanthong



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