Challenging years until the next elections

Challenging years until the next elections

Life is full of challenges and we do not know what lies ahead. The next four years may be a long time for a lot of people, and a lot of things could change. But four years may not be long for the re-elected President Barack Obama, given the fragile recovery of the US economy.

We all remember that four years ago Mr Obama was a figure of hope and inspiration. The American economy was in a downward spiral when he took office. The US financial system was in deep trouble, and the country had a lot fewer jobs than it previously had. Households were debt-ridden as the value of their homes fell substantially following the bursting of the housing bubble. With deteriorating household balance sheets, consumers stopped spending and businesses decided to stop investing. Banks and carmakers were in deep trouble from heavy debts and losses.

Although the financial market chaos was resolved quickly thanks to a large amount of liquidity injected by the Federal Reserve and bank bailouts, economic recovery did not come fast enough. The condition of the US housing sector, the usual key driver of a quick recovery, remains weak four years on, while households are trying to pay down their debts instead of spending, depressing demand further.

As a result, Mr Obama's first term was not so great. A lot did happen, but the progress of recovery was extremely slow. To be fair, he did do something right, because at least the situation did not become much worse.

Some of his policies such as aggressive stimulus, bailing out General Motors and Chrysler, putting the banks through stress tests and forcing them to raise capital have been effective in stopping the downward spiral. His healthcare reform has also been successful, but still he has done very little to deal with its huge and unaffordable costs.

One of the most important challenges for President Obama now is the "fiscal cliff", a perfect storm of budget cuts and tax increases that are scheduled to start taking effect in January. The Congressional Budget Office warns of a 1.3% contraction in the US economy if no action is taken immediately, and the US economy could slide into recession as a result.

Given the importance of the US as a partner to Thailand in terms of both trade and investment, a US recession could have a significant effect on us _ directly via the slowdown on US investment and imports and indirectly via trade with China and other Asian countries.

Despite the need for continued fiscal stimulus, the truth is that America cannot continue to tax like a small government but spend like a big one. The US national debt has reached US$15 trillion. Relative to GDP, that debt is larger than it has been at any time since the 1940s and World War II. So the most urgent task is to work to address the nation's fiscal challenges in a way that takes into account both the need for long-term sustainability and the fragility of the recovery. Mr Obama is going to need a lot of prayer for that, just as he admitted when he visited Wat Pho in Bangkok last week.

Despite a bad start for his second term, I think the outlook for Mr Obama is somewhat positive. In a true democracy such as the US, politicians accept defeat and their parties move on to work on improving the economy, though disagreements between Republicans and Democrats remain deep.

After the election, Mr Obama got down to work immediately. One of his missions was shoring up US relations in Asia, visiting Thailand and Myanmar and joining the East Asia Summit in Cambodia.

On the contrary, the outlook for Prime Minister Yingluck Shinawatra is worrying despite Thailand's stronger economy. We seem to have progressed nowhere since the coup six years ago. And just over a year after its election, Thailand is still not free from manoeuvring by both government supporters and anti-government groups: the political tensions over constitutional amendments in July; the conflict over the deaths in the May 2010 violence after the release of the report by the Truth for Reconciliation Commission in September; the removal of Democrat Party leader Abhisit Vejjajiva's military rank this month; and the anti-government rally by the Pitak Siam group last weekend. These events cast serious doubt on Thailand's future, as many other unconstructive political manoeuvres lie ahead _ and sooner or later we could be heading for another round of political instability.

Unlike Mr Obama's mission to get the US economy out of recession, Ms. Yingluck's greatest challenge may be bringing back peace and unity to our fractured society, a task that eluded the last four governments that came after the coup.

The truth is there is not that much time left until the next election. We cannot dismiss the importance of politics in economic life, as Thailand has rightly seen from our past political crises. We can choose to maintain the status quo, or we can choose to change. If we choose to have Thai-style politics, we need to accept that Thailand will likely fall further behind other countries. Life is full of options, so let's hope that we choose our option wisely.


Dr Tientip Subhanij holds a PhD in economics from the University of Cambridge and has dual careers in banking and academia. She can be reached at tien201@yahoo.com

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