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But where's the cash to pay for it? 

October 17, 2000

FOR the first time in Thai political history, political parties going into the next general election have devoted a robust amount of energy to polishing their economic policies to win votes. 

From the Democrat Party and the Thai Rak Thai Party to the Chat Pattana Party and the Chat Thai Party, economic platforms have been drafted with details that would have been downplayed in past elections. 

Yet no matter how beautifully the policies are drafted, the key problem the next coalition government will face is finding the money to pay the bills. "To me the only issue that matters in the next government is how it is going to raise money to pay all the bills. For the day of reckoning is coming," Dr Ammar Siamwalla, a well-known economist and adviser to the Thailand Development Research Institute, said recently. 

Dr Nimit Nonthapunthavat, chief economist for Bangkok Bank, said: "I really have sympathy for the next government, for the biggest question is how is it going to find the money? Money is increasingly becoming very scarce." 

So far, the Chuan government has spent about Bt1.2 trillion in fiscal stimulus measures to prop up the economy, trying to offset weak private investment and domestic consumption. It has also socialised the financial-sector restructuring, which is expected to cost taxpayers close to Bt1.2 trillion. So the government budget will come under severe constraints in accounting for these debts and their interest costs. 

Moreover, there are fears that the Thai economy may not be strong enough to drag the country out of the crisis. The threats come from the potential for higher interest rates in overseas markets and the slowdown in external demand for Thai goods, as well as from the slow pace of domestic banking and corporate restructuring. 

Reuters has compiled the key policies of the four major political parties, which are expected to vie fiercely to become part of the next coalition government (see table). 

A broad analysis gives the impression that the Democrats, if elected as the next government, will largely try to follow up on the policies they have already implemented during the past three years in office. Their core philosophy involves the further liberalisation of the Thai economy, attracting foreign investment, upgrading regulatory and business practices to best standards, pushing Thailand to join the globalisation trend and strengthening the competitiveness of the country as a whole. 

The Democrats' economic policies will feature a mixture of easy money and cautious fiscal policy to curb public debts. But they also realise that the Thai economy still needs the fiscal stimulus measures, and they have thus pledged to lower corporate income tax from 30 per cent to 25 per cent and increase net personal income tax allowances, which will contribute to the continued fiscal deficit. 

The Democrat Party will continue to stick to a market-oriented approach in tackling the banking-sector distress. Banks will be encouraged to set up their own asset-management companies to deal with their problem loans. 

The Thai Rak Thai Party, led by telecom tycoon Thaksin Shinawatra, is more aggressive in its pro-growth strategy. Thaksin has pledged to boost Thai economic growth to at least 7 per cent. 

Although both parties have proposed a cut in corporate income tax to 25 per cent from 30 per cent, the two differ in the details of their proposals for personal income tax allowances. These measures are aimed at stimulating private investment and domestic consumption. 

Thai Rak Thai would like to set up a government-run asset management company to buy out the bad debts in the banking system once and for all so that the Thai banks can increase lending. This proposal would cost taxpayers Bt300 billion to Bt400 billion. 

While going for economic growth in a big way, the Thai Rak Thai Party is less vigilant when it comes to best practices. Thaksin would like to give some leeway to the banks, which should not need to fulfil all the tough prudential standards because they cannot fulfil them anyway. 

"It is like when you play golf with Tiger Woods. He should give you some handicaps; otherwise you cannot play against him. The same thing goes for the Thai banks, which should be given some handicaps to compete against the foreign banks," he said. 

The biggest question raised by Thai Rak Thai's policies is how it will finance its pledge to allocate Bt1 million to each village throughout the country, for a total cost of Bt77 billion. Moreover, the party proposes a debt suspension for three years for farmers owing Bt100,000. This will cost the government about Bt18 billion a year. 

Chat Pattana Party, led by Deputy Prime Minister Korn Dabbaransi, has proposed a cut in value-added tax from 7 per cent to 5 per cent. It also would like to set up a national asset-management company to buy the bad debts from the banking system. It has pledged to focus more on working with debtors, rather than with creditors, to clean up their debts. 

Chat Thai Party, led by former prime minister Banharn Silpa-archa, is more inward-looking. Its constituencies are largely the rural communities. In its policies, it has proposed to divert 40 per cent of the national budget to local administrations to run their communities. It also wants to help farms with more processing plants for farm products, extend coverage of the social security fund to farmers and transfer the farmers' debts to the state-owned agriculture bank into a separate fund. 



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