Populism labelled a threat
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Populism labelled a threat

Off-budget spending eats away foundation

Maintaining fiscal discipline will be a challenge, as politicians are used to giving in to voter demand for populist policies, says Banthoon Lamsam, chief executive of Kasikornbank and a member of the junta's appointed State Enterprises Policy Commission.

Both annual budget and off-budget spending to fund populist policies are putting pressure on fiscal discipline, he told an annual seminar hosted by the Fiscal Policy Office (FPO).

"There are few countries where people manage to restrain demand and keep their fiscal discipline. Many have overspent due to political pressure to meet people's demands," he said.

"It's lucky for the country that the Bank of Thailand can keep its discipline under extreme political pressure for it to use its foreign reserves."

Mr Banthoon said he had not seen any serious fiscal reform in Thailand, although he noted the financial sector reform taken after the 1997 economic malaise had strengthened the sector.

The private sector wants the government to create a favourable environment for business, with a fair legal system, taxes and a good education system.

Fugitive former premier Thaksin Shinawatra was keen on populist policies, with other political parties following in his footsteps in their platforms. But implementing populist policies requires vast sums of money and ends up costing the taxpayers.

The rice-pledging scheme, a major populist policy of the Yingluck Shinawatra administration, is expected to cost the state 500 billion baht. Pledged prices were 40-50% higher than the market, while its goal to increase rice farmers' incomes failed as rising production costs took their toll.

Ammar Siamwalla, an honorary economist at the Thailand Development Research Institute, said running up public debt through off-budget spending was like termites eating the country's foundation.

Governments can continue delivering on their populist policies by using off-budget sources, with the rice pledging scheme and village funds good examples of this populism, he said.

Off-budget spending does not require parliamentary approval, but parliament cannot refuse to pay off such debt, said Mr Ammar.

"Such borrowing is a big loophole and stopping it is the first challenge for the FPO," he said, adding that it was time for the FPO to solve the problem since the office itself was pointing out what a problem it presented.

Mr Ammar said the Pheu Thai government spent massive amounts to finance the loss-making rice pledging scheme but turned a blind eye to efforts to increase the budget for universal healthcare coverage, also known as the 30-baht healthcare scheme.

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