Business leaders and economists have welcomed the stimulus package by the government's new economic team but are warning the government to be cautious about using populist policies.
The policies, officially announced yesterday by Deputy Prime Minister Somkid Jatusripitak, are all aimed at boosting spending power in rural areas.
Interest-free loans for the first two years will be provided to people through 59,000 Village Funds with a budget of 59 billion baht.
Grants of 5 million baht each will be made to 7,000 tambons nationwide for construction and repair works with a budget of 35 billion, while budget disbursement will be accelerated for small projects below 1 million baht with a budget of 16 billion.
Mr Somkid said the government would try to create a multiplier effect upcountry through closer cooperation among economic ministers.
Supant Mongkolsuthree, chairman of the Federation of Thai Industries, said the stimulus package would boost purchasing power among the farm sector and other low-income earners.
But he added: "This is obviously a populist policy, as it's meant to inject cash directly into the economic system. This is fine in the short term, but we're strongly opposed to it being overused.
"The damage to the economy remains from the past government's policies. If the policy comes out similar to the rice-pledging scheme, we will definitely oppose it. No one can handle that massive damage."
Thais are addicted to populist policies that provide quick cash with no concern about consequences, so it is not easy to cut them immediately, but in the long term the government should find policies that encourage people to learn how to develop themselves in sustainable ways, Mr Supant said.
One long-term measure should focus on zoning plantations for farmers, which would reduce waste from unnecessary measures.
Paiboon Suwanna, an adviser to the Thai National Shippers' Council, said the government should assess whether the new measures benefited the right groups of people in terms of money circulation and employment.
Phaibul Kanokvatanawan, chief executive of The Mall Group, said these measures would help low-income earners while the economy was down. He suggested adding measures to boost tourism also.
"Airports need expansion as fast as possible to welcome more tourists, and high-speed trains and more roads should be built to link with neighbouring countries," Mr Phaibul said.
Bank of Thailand governor Prasarn Trairatvorakul said the measures were expected to yield short-term results, but the long-term impact should be contemplated.
"In general, these are measures aimed at addressing [domestic] demand and enhancing confidence when the economy faces short-term problems, but eventually we have to solve the supply side," he said.
"For instance, we have to examine whether rural communities are engaging in projects that induce benefits or produce products that can be sold."
Implementation of these measures and selection of target groups to benefit will be key.
Mr Prasarn said risks of an increase in rural household debt generated from Village Funds would have to be taken into account.
"Since the central bank has been assigned by the cabinet to supervise specialised financial institutions, it is hoped the government will manage these banks' accounts correctly in accordance with accounting standards," he said.
"The term 'populist policies' can be interpreted in many different ways, but proper economic policies should address ongoing problems and not result in long-term problems."
Usara Wilaipich, senior economist at Standard Chartered Bank, said the government's short-term measures, particularly interest-free loans, would bolster domestic consumption because money would be directed to low earners.
"The money will also help farmers to pay their debts," she said.
Amonthep Chawla, head of research at CIMB Thai Bank, said the measures would help rural households that have been affected by low farm produce prices and the drought.
But these measures are not expected to boost rural consumption because households would use the cash to repay their informal debts, he said.
The measures also aim to improve agricultural productivity, Mr Amonthep said.
He said concerns about these measures worsening household debt or affecting the government's fiscal discipline were not substantial, as these were short-term policies with no long-term obligation.
Implementing these measures is essential because a deterioration in rural households' purchasing power will have a spillover effect on the middle classes and the economic recovery.
