One year after Prime Minister Prayut Chan-o-cha formed his first cabinet, turning around souring economic sentiment and revitalising cooling expansion remain at the top of his to-do list.
The economic teams led by Deputy Prime Minister Somkid Jatusripitak and predecessor MR Pridiyathorn Devakula appear to differ in their approaches to tackling the sluggish economy.
MR Pridiyathorn adopted cyclical measures to encourage market mechanisms to adjust themselves and focused on reform for sustainable growth. His team considered that revving up public investment, which represents a small share of GDP, might not help much amid the global slowdown. Thailand has high exposure to the global economy, with exports contributing 70% of GDP.
His team's ideas were akin to the neoclassical school of economic of thought.
But Mr Somkid, who earned his doctorate degree in marketing from the Kellogg School of Management at Northwestern University, the US, thinks otherwise. He is a big fan of John Maynard Keynes' ideas to ramp up massive fiscal stimulus with the aim of increasing aggregate demand and escaping the economic doldrums.
The idea is that the government needs to boost confidence amid a spate of negative news and the economic slowdown. A loss in confidence could push the economy into a downward spiral, even though Thailand's economic fundamentals remain sound, as seen by low public debt, high foreign reserves, and low unemployment.
If a loss in confidence is exacerbated, it would take a vast amount of resources to bring normality back to the economy, as evidenced by the 1997 financial crisis.
A Finance Ministry official says the two camps have the same direction for management of economic policies but the focus and operation timing differ.
MR Pridiyathorn, who gained an MBA from the Wharton Business School, University of Pennsylvania, the US, seems to place great emphasis on fiscal discipline and favours sustainable policies to help farmers and low-income earners. His policies focus on specific groups to reduce social inequality but also limit fiscal budget expenditure. One example was the subsidy for rice and rubber farmers by providing one-time cash handouts for each household of no more than 15,000 baht.
Even though his giveaway was deemed to be a quasi-populist policy, MR Pridiyathorn insisted it was one-off assistance for cash-strapped farmers and rubber growers. The government must use its annual budget in the following fiscal year to pay state-owned financial institutions that paid in advance for the scheme, preventing liabilities from growing.
Under MR Pridiyathorn's reign, a 15-billion-baht policy loan with 4% interest for the first three years was unveiled to help small and medium-sized enterprises (SMEs), with the state-owned SME Bank setting the rate for the fourth and the fifth years.
Another state-owned institution, the Thai Credit Guarantee Corporation (TCG), offered credit guarantees for SME loans under the portfolio guarantee scheme, with coverage at 70% of non-performing loans (NPLs) for up to 30% of the scheme.
For investment, MR Pridiyathorn concentrated on budget disbursement acceleration in the hope that public investment would trigger a crowding-in effect. He seemed to prefer keeping limited fiscal ammunition in times of necessity, perhaps feeling that stimulating the economy might be impractical at a time of limited global economic recovery.
In contrast, Mr Somkid has introduced a wave of short-term stimulus measures since he took the helm in overseeing economic affairs late last month, aiming to inject liquidity swiftly to grassroots people and SMEs to boost consumption. He is likely to be more audacious in pushing measures to stimulate investment.
Charl Kengchon, Kasikorn Research Center's managing director, says measures implemented by the two economic teams cannot be compared because of different developments domestically and externally.
The first impression from observing policies adopted by MR Pridiyathorn's team is an emphasis on medium-term and long-term economic development, but Mr Somkid's team has to respond to the doldrums on the back of continuous export contraction, the drought, global economic slowdown, China's stock market plunge and the Chinese central bank's currency devaluation, he says.
The recently unveiled stimulus package is aimed at addressing the agricultural sector and SMEs, which are both experiencing hardship.
Mr Charl says the Village Fund scheme and a grant for repair projects in 7,000 tambons nationwide could alleviate the plight of low-income earners through liquidity injection, but it remains uncertain whether these measures could spur private consumption or household spending as the received cash would be used to repay debts and households might not increase spending.
Soft loans for SMEs would reduce borrowing costs and act as a source of funding for these companies, but it is also doubtful whether SMEs would begin to purchase new machinery as economic activities remain subdued, he says.
The new economic team, however, is expected to take into account the issues of fiscal discipline and how borrowing costs could rise due to the looming rate rise by the US Federal Reserve, says Mr Charl.
Regarding concerns that these stimulus policies could increase household debt, the debt ratio has already climbed considerably and clearer economic recovery has to happen for households to generate new income and reduce indebtedness, he says.
The private sector is expected to get clearer measures to stimulate private investment, while the government could consider implementing tax-related measures to enhance private investment and attract an expansion of industrial clusters, says Mr Charl.
But a move to lower corporate income tax would reduce revenue for the government, he says.
Private investment has been subdued partly because some manufacturing industries such as the automotive sector have production overcapacity.
"Normally, the private sector would not increase investment if economic conditions remain subpar and private businesses are not expected to accelerate their production capacity," Mr Charl says.
Santitarn Sathirathai, head of economic research for Southeast Asia and India at Credit Suisse, says the government's stimulus package is a well-designed programme to smooth over the likely sharp downturn in GDP growth in the near term, but it is feared that many observers are too optimistic about the economic outlook going forward.
"First, while Thailand is getting stronger medicine, it is also facing a much tougher growth environment with the headwinds from tourism and the economic slowdown in China," he says.
"Second, we need to understand the design of this medicine. Around half of the fiscal package involves shifting the timing of spending that would have been done over the next 12 months anyway to now."
This means the boost to the final quarter's economic growth could come at the expense of next year's growth, says Mr Santitarn.
He says only the Village Fund injections, accounting for around 0.5% of GDP, entail new money but the boost to consumer spending will be partly diluted as households use the loans to pay off debts.
Measures to support SMEs and promote private investment historically tend to have limited impact in boosting firms' capital expenditure, especially at times of weak external demand, says Mr Santitarn.
"In sum, we estimate that the fiscal package could add 0.3% to 0.4% to GDP in 2015 but at the expense of weaker growth next year," he says.
Boontuck Wungcharoen, chairman of Thai Bankers' Association, says the new SME credit guarantee portfolio scheme is generous enough to attract banks to lend more to small businesses.
With the scheme's clearer conditions, loan guarantees for SMEs are expected to surge by 67% to 10 billion baht a month from 6 billion under the TCG's traditional credit guarantee portfolio scheme with NPL coverage of up to 18%, he says.
The TBA requested the Finance Ministry, under MR Pridiyathorn's reign, to raise the cap for bad-loan coverage from 18%, and the TCG later offered credit guarantee coverage at 70% of NPLs for up to 30% of the scheme.