LET IT BE
Suranand Vejjajiva
Money is illusion, rice and fish are real (nguen thong pen khong maya, khao pla pen khong jing) - these are the famous wise words of a former Thai minister of agriculture, Prince Sithiporn Kridakorn.
It still holds true today, amid the present economic crisis which questions the validity of our assumptions on the real and monetary sectors of the economy.
The collapse of financial institutions in the United States is an end product of Wall Street greed, which virtually makes profit by trading paper. Innovative financial instruments and derivatives under fancy names and acronyms are in fact, illusionary, as they are totally detached from the real economy.
Packaged with high returns and guarantees, investors overlooked the core contents of the paper being traded and ignored their questionable value.
So, by early 2007 when the US sub-prime mortgages began to fail, no one knew the actual weight of the "toxic debt" the whole world has to endure, up until now.
It was a blessing in disguise that Thailand went through the economic crisis of 1997. The monetary crisis and subsequent recovery remained a hard lesson learned. Banks became extremely conservative in lending, the economy has excess liquidity, financial markets for new instruments are not as developed as Western markets, and the Bank of Thailand is strict in nature.
Therefore, as the crisis in America spreads to Europe, Thai financial institutions are not overly exposed and not in the direct line of fire.
But that does not mean Thailand is out of the danger zone.
The failure of the world of investment banking and the upcoming recession is predicted to be "long and deep", according to Warren Buffet, the world's richest man and financial guru.
The expected credit crunch could lead to instant illiquidity in our economy, through decreased exports, reduced direct investments, and limited and higher-cost credit lines.
Small and medium enterprises with working capital and overdraft loans, and urban middle-class white collar workers whose lives depend on housing and car loans, together with their multiple credit cards, will feel the pain soon.
This situation poses a serious challenge to the government under the leadership of Prime Minister Somchai Wongsawat, and more so to the economic team under the supervision of Dr Olarn Chaiprawat, the deputy prime minister, and Dr Suchart Thada-thamrongvech, the finance minister.
So far, however, both are operating on standard procedure.
The 11-point programme unveiled by Dr Olarn and approved by the cabinet this past Tuesday consists of short-term measures which are the routine work of government agencies and the Bank of Thailand: tax incentives for contributions to retirement mutual funds and long-term equity funds, acceleration of budget spending, ensuring sufficient credit for small businesses, consumers and farmers, etc.
Dr Suchart has also expressed in a recent interview how he would manage the economy according to his "fish pond" framework. He explained that he would increase liquidity and stimulate the economy through injecting funds into grassroots projects, just like pouring water into a dried up pond to keep the fish alive.
It seems that the two macro-economists running the nation's economy are thinking mainly in terms of monetary solutions to ease the pain and stimulate the economy.
But that may not be enough. The world is changing. With energy prices remaining high and major financial institutions in a shambles, economic volatility will be the order of the day.
Nations must adapt and revamp their financial structure to create immunity from the unstable markets, while building an environment of a "safe haven" to lure investments.
And, more importantly, they must concentrate on strengthening the real sector. Because it is the real sector that creates income and makes economic growth sustainable. A strong real sector will bring in business and investment.
A clear and coordinated development strategy for Thailand's main engines of growth - tourism, agriculture and industry - must be devised.
Hopefully, it will be announced in next week's parliament session, which will consider the new government's policy statement.
Politically, the government also has to coordinate with various ministers holding economic portfolios who came from the various factions in the ruling PPP and its coalition partners. This could be a problem for Dr Olarn, who lacks the political skills. Cooperation from other ministers is expected to be just lip service, as they have their own agendas and interests to pursue. PM Somchai must show political leadership to steer the economic cabinet in the right direction.
Dr Suchart's analogy might be correct - that fish need water to survive. But money is illusionary and the reality of politics is the impossible task of how to make fish swim in a coordinated manner. That would be a sight to see.
Suranand Vejjajiva served in the Thaksin Shinawatra cabinet and is now a political analyst.
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