TwoVIEWS
THAILAND at a crossroads
DR UTTAMA SAVANAYANA
Stage one was the revival. Stage two
will bring an economic transformation
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| "As 2004 draws to a close,
the perception of Thailand has changed," says Dr Uttama. |
As
the general election draws closer, the country's economy and its
future become a subject of intense interest to the general public.
It is the time for political parties to communicate their economic
thinking as a key component of their platforms to attract voters.
Their jobs, however, are more challenging than ever.
Today, the public demands much more information, ideas, and all
the elements of a coherent agenda. "Me-too" agendas no
longer suffice.
For the present government under the leadership of Prime Minister
Thaksin Shinawatra, the "me-too" label can hardly apply.
Many would, in fact, say it has been the government's differentiated
policies that have stirred discussion. The public will deliver the
final verdict, based on their assessment of the tangible results
of the past four years, coupled with the government's proposed agenda
to propel the economy forward in the next four years.
To assess the government's performance, it is necessary to understand
the prevailing economic conditions at the outset of its term and
see how the policies fared. Today the Thai economy has truly recovered.
In fact, current GDP growth in the 5-6% range makes it easy to forget
that the economy was actually growing by only 2.1% in early 2001
and looked to slow even further.
It was by no means Thailand's entire fault. The global economy was
faltering as the US tech bubble burst and ignited stock market plunges.
Thailand's exports fell and the domestic economy slowed. Recovery
was threatened, uncertainties rose and confidence dipped.
Faced with these serious conditions, the government's economic agenda
was carefully formulated with two basic objectives. First, it was
critical to urgently revive macro stability and economic growth.
Second, it was crucial to turn challenges into opportunities to
reform and launch the economy on a new path of sustainable growth
and enhanced global competitiveness. Bold initiatives were called
for.
Macroeconomic stability requires appropriate fiscal and monetary
policies. The first fiscal sustainability framework was developed
with clear targets and timeframe to guide fiscal consolidation and
maintain fiscal discipline.
At the same time, the government moved decisively to tackle problems
that had crippled the normal functioning of the economy, notably
non-performing loans. The Thai Asset Management Corporation spurred
the resolution of bank NPLs and was the catalyst for debt and economic
restructuring for the corporate sector. The stage was set for reviving
growth.
Reviving growth from the grassroots. The very first layer of Thai
society, where the majority of people reside, has long suffered
from lack of opportunities but holds the greatest potential as the
driver of growth. The government's innovative measures aimed at
alleviating deep-rooted structural ills have included farmers' debt
relief, the Village Revolving Fund, the People's Bank and special
housing programmes.
But that is only half of the picture. To complete it, these programmes
are linked to new initiatives, for example, One Tambon, One Product
(Otop), to help communities fully utilise new-found strengths.
Reactivating entrepreneurial SMEs. Despite being the largest group
of Thai businesses, small and medium enterprises have received too
little attention. As the logical extension of the grassroots, SMEs
play an integral part in development strategy. Several carefully
formulated measures have been introduced. These include upgrading
the SME Bank and related agencies, and special tax measures. As
well, by encouraging "clustering", the government works
with the private sector to create dynamic networks connecting SMEs
to large enterprises to broadly leverage synergy and resources.
Driving the Dual-track Strategy. While the domestic economy has
been the prime driver of recovery and growth, pro-active engagement
on the international front is equally important. With an open, market
economy, it is crucial for Thailand to work with our international
partners in a two-way manner to reinforce domestic economic momentum
as well as to open up new opportunities for the private sector.
Ultimately, the government aims to position Thailand as a prominent
member of the global economic community.
Reforming the public sector. Without an efficient public sector,
private-sector development cannot succeed. The government has thus
launched reforms of the bureaucratic network, public agencies and
state enterprises. Goal- and performance-driven agendas are the
norm.
What has been achieved? With hard work and determination, the Thai
economy has fully recovered. Tangible results are evident. They
include:
1. Robust macroeconomic health and stability. During the past four
years, the economy has expanded about 35% to 6.6 trillion baht.
Despite external impacts, GDP growth this year is expected to still
reach 6%. Stability has been restored. Thailand's international
reserves have grown from US$32.7 billion in 2000 to more than $49
billion in 2004. Public debt to GDP has fallen from almost 60% in
2000 to 48%. Inflation has been kept low at 2-3%. External accounts
have added strength as exports strongly recovered from negative
growth in 2001 to positive growth near 20% at present.
2. Balanced budget and fiscal consolidation.With fiscal discipline,
the national budget, for the first time since the 1997 crisis, will
be balanced for 2005, three years ahead of target. Government revenue
collection continues to exceed projections by some 20%, providing
a safe cushion and flexibility.
3. Financial sector and capital markets operating fully. System-wide
NPLs have fallen to 11% of total loans, compared with almost 32%
in 2000. Banks have returned to good health and profitability. Bank
credit, shrinking in 2000, expanded 12% in the third quarter of
2004, supporting business expansion and investment. The TAMC has
resolved over 98% of the 700 billion baht of NPLs transferred to
it in 2001.
Meanwhile, bank consolidation advances as a new and more efficient
financial landscape emerges. In the capital market, SET capitalisation
has risen to four trillion baht from 1.3 trillion at the end of
2000 as the SET index climbed from 269 to 670.
4. Private business recovers and private investment expands. Capacity
utilisation rose from 55.8% in 2000 to a very strong 74.6% in October
2004. The private investment index rose from 41 in 2000 to nearly
60 in 2003 and reached 67 in Q3 of this year. Accumulated value
of BoI investment projects during the past four years has topped
1.25 trillion baht while foreign direct investment is US$7.5 billion.
Full recovery of the private sector is also evidenced by the dramatic
turnaround of listed companies, from losses of 90 billion baht in
2000 to net profit of 200 billion baht in only the first half of
2004.
5. Strong and vibrant grassroots economy. Last but not least, growth
has contributed positively to people's livelihood. The average monthly
household income has surged more than 20%. More than two million
people have been rescued from poverty. Communities have greater
access to funding through specialised schemes. As such, it is natural
for household debt to increase (12.3% for H1 2004). However, people
have been putting money to good use, with investment in housing
and business accounting for 69% of household debt. The thriving
economy and innovative programmes like Otop, which has expanded
to 2,600 communities with total sales of 40-50 billion baht, help
to create new opportunities.
Economic revival with confidence. As 2004 draws to a close, the
perception of Thailand has changed. We have shed the image of a
crisis-crippled country. In Asia, Thailand now ranks among the few
leaders in terms of economic growth. Back in 2001, it was a totally
different story. Visiting international rating agencies then questioned
whether the new government's policies would work, or worse, harm
the fragile economy. Four years on, their recent reports read differently.
However, the government is far from being satisfied. The period
of repair and revival may have been completed but the new era is
about to begin.
Towards economic transformation. The present government has a clear
vision of quality development for Thai people and Thai society.
It is a vision of a society that can turn social burdens and inefficiencies
into productive forces that will foster sustainable quality growth
and lasting prosperity.
This vision requires concerted effort that needs to begin at the
roots to unlock the great potential that flows from the unique strengths
of Thai grassroots
TwoVIEWS
DR TRAIRONG SUWANKHIRI
FIRM on principles
Democrat Party says it will opt for the high
road, instead
of competing through populist one-upmanship
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The danger facing the country is
that growing wealth is underpinned by debt, says Dr Trairong.
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Consider
the Chinese proverb: "Give a man a fish, and you feed him for
a day. Teach a man to fish, and you feed him for a lifetime."
Over the past four years, the government has only handed out fish,
while neglecting to teach. Thai Rak Thai's policies present a grave
danger for Thailand in the long-term.
The risk of populist policies can be best seen in Latin America.
Brazil, Mexico, Chile, Argentina, Peru _ all suffered as a result
of populist policies.
Under populism, where the state gives handouts to the people, of
course the people are happy. But what is the result? You create
a mentality where the people think they don't have to work, and
all they need to do is ask for what they want from the state.
Thai Rak Thai policies violate basic microeconomics. In any business,
money is the last input. You first need to know what you want to
produce, what you want to sell, how much you expect to profit _
and only once you have a clear plan, and are confident of generating
a profit, should you even begin to think about how to finance it.
The government has given funds out without any idea of what each
of these new businesses can do.
Over the past four years, we have seen this government focus largely
on wealth creation and economic growth. The thinking by Prime Minister
Thaksin Shinawatra _ one of the country's most successful businessmen
_ is that to be wealthy is a key goal in itself.
He hopes for the best. But if not done correctly, the result is
that everyone will be poor. Any businessman thinks first about how
to maximise profit. But for an economist, the aim is to maximise
resources.
Consumption has risen steadily as a result of growing wealth. But
the danger is that this wealth is underpinned by debt _ over the
past several years, economic growth has been outpaced by a rise
in household debt.
Where Thai Rak Thai has founded its economic policies based on growth,
the approach taken by the Democrat Party is to concentrate on income
distribution and poverty reduction. All of our policies are centred
around these goals.
Public policy rarely can be split into black and white. Many policies
undertaken by Thai Rak Thai over the past several years, whether
the village investment funds or the 30-baht health care programme,
are extensions of initiatives first put in place by the Democrat
Party when we led the government.
We will continue and expand the existing policies that are worthwhile.
Our policy platform has been crafted based on what is needed by
the country, what is feasible and what represents a prudent consideration
of possible risks.
Our policy platform is centred around five separate initiatives:
FFree education up to Matthayom 6; FAddress the debt problems faced
by rural communities with work programmes; FGuarantee jobs for new
graduates; FOffer added financial security for the underprivileged
elderly with payments of 1,000 baht per month; FOffer free, quality
health care for all citizens.
In education, we will ensure that the government, not parents, takes
responsibility for providing for not just school tuition, but also
uniforms, books, computers and English lessons. We will expand educational
grants and loans, ensure free milk for all students up to Matthayom
3 and free lunches for the poorest students.
Thailand cannot continue to teach students without understanding
what the marketplace needs. Globalisation and market competition
is a reality, and the country's future will depend on improving
our human resources and skills to meet the challenges of the future.
We will look to expand the number of science and technology graduates
by 20%, as well as strengthen the vocational system.
New university and vocational school graduates will be assured that
they receive the training necessary to enter the labour force. We
will guarantee that each new graduate has a job for at least one
year after completing their studies, and establish new centres to
help graduates start their own businesses or improve their job skills.
We need to take a similarly pro-active approach in dealing with
the debt problems faced by the rural poor. You can only clear debt
by raising income. This can come only by raising production, not
by raising debt.
Price guarantees only distort the market and place unnecessary burdens
on the public purse. What we must do is to educate farmers about
how to reduce their production costs and improve their yields.
We will also look at innovative solutions on how to clear people's
debt, say by encouraging farmers to plant trees or initiate projects
of similar economic and social benefit. Pilot programmes will be
initiated to encourage farmers on the use of organic fertilisers
to help reduce their production costs and revitalise their fields.
This programme represents the very heart of the concept of self-sufficiency.
Our policies are practical, effective and have been designed to
help address the largest problems that currently face our country.
But we also must maintain principles, and not simply look for short-term
gains at the expense of the future. It may be that we will lose
the next election. But we want the country to move in the right
direction. We will not compete based on populist policies.
Trairong Suwankhiri, a deputy leader of the Democrat Party, is a
former deputy prime minister and labour minister, and holds a doctorate
in economics from the University of Hawaii.
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