The job of a finance minister...
The resignation of Finance Minister Predee Daochai is a hot issue right now and I feel compelled to write about it, though I'd rather not discuss the cause -- which could be a combination of problems relating to health, internal disputes, political pressure, workloads, and unsolvable problems. Whatever the problems are, the minister has already made the decision which is gazetted. What's done is done.
The country and the whole world are in economic crisis. Whoever is brave enough to take the post of Minister of Finance must be prepared to tackle the following four problems:
Problem No. 1: The government is broke and is down to its last penny. When the economy contracts, state revenue will shrink at a higher rate than economic contraction owing to progressive personal income tax rates and profitless corporates. This problem is not limited to Thailand. The OECD estimates tax revenue would fall 9.2% in Japan and 11% in South Korea because of Covid-19. The easy solution is to borrow more to finance the deficit.
The cabinet, by recommendation of the National Economic and Social Development Council, has approved extra borrowing of 214 billion baht this fiscal year. I have a feeling that the cash deficit is higher than that but the 214 billion is the maximum allowable amount by law. The government has to wait a few weeks until the next fiscal year, which begins on Oct 1st, to pass a new extra-borrowing resolution.
As I said, passing a resolution is easy but finding the money -- the primary job of the finance minister -- is difficult or, sometimes, impossible.
No monetary system in the world has an unlimited amount of free cash available to buy government bonds. The situation is worse in Thailand as we have lost one of our main sources of cash -- foreign tourist income which amounts to 2 trillion baht per year. Out of desperation, many governments have to turn to foreign borrowing to finance their deficits.
I have a suggestion for deficit financing without having to borrow from abroad and there is no need to pass new laws or issue cabinet resolutions.
Over the years, the Bank of Thailand has absorbed excess liquidity by issuing Bank of Thailand bills and bonds. As of June 2020, the outstanding amount is 3.63 trillion baht. The government can ask the bank to release this liquidity back to the monetary system so as to buy up newly issue government bonds. Think about it.
Problem No. 2: Thai people need support for day-to-day survival and more "financial stimulus" packages will be necessary. It is unrealistic to think the economy could be quickly restored to its pre-Covid position.
Our tourism and export sectors will never be the same after Covid-19. There is no need to explain the picture of a post-Covid tourism industry.
Few people are aware that more than one-third of Thailand exports are durable goods such as automobiles, electronics and electrical appliances. Demand for these products is likely to drop sharply after the pandemic.
Planning for a Thailand post-covid is not the Ministry of Finance's job. So, this is not the time to discuss the issue. But finding the money to help people survive through this difficult time definitely is. It is unavoidable, unless the government is ready to face social upheaval. It must come up with more financial support for jobless workers and suffering businesses. The new minister will have to think about appropriate stimulus packages and, more importantly, how to finance them.
Good luck. Be brave and be innovative. Help most and use less. Also, please do a complete health check-up before accepting the post.
Problem No. 3: The minister has to balance various needs of interest groups. Be warned that each interest group is quite powerful. While I was an economist at the IMF and was assigned to work on the Philippines, I was told that it was quite difficult to come up with a good and fair development plan for the country as wealth was very concentrated. Sixteen families controlled 50% of the economy.
Economic plans and projects would be scrutinised by these families. Thailand today is not far from that, judging from wealth concentration indicators.
The new minister should be aware that free thinking might not be possible. However, that is not the end of the world. A crafty minister might be able to come up with an (almost) win-win solution for both interest groups and the people.
Again. Best of luck. The country needs you.
For problem No. 4, the new minister will quickly find it after assuming office. This is the problem Mr Predee and his predecessors in the Prayut government faced. The minister must remember that s/he is doing the job for 70 million Thais, and this problem must be tolerated and overcome.
I have no idea who will become the next finance minister. There are a few names floating around, some are from other coalition parties. Yet most have already declined. My suggestion is: Thailand's economic problems are too big for one person to tackle.
Symbolically, the country can have only one finance minister, but s/he must work with a strong team to be able to weather the Covid-19 economic environment. Tackling the problems alone will not be wise.
Last word. The government should not leave the position vacant for too long. The country cannot afford that.
Chartchai Parasuk, PhD, is a freelance economist.