The cabinet on Tuesday endorsed the emergency economic stimulus package proposed by the new team under the leadership of economic czar Deputy Prime Minister Somkid Jatusripitak.
Although the Keynesian approach to reviving economic growth has not worked well in any country since the onset of the "great recession" of 2008, the deputy prime minister did not seem to be paying much attention to that aspect.
The government is also desperate to take any measures that will increase the chance of lifting growth as the people have become increasingly unhappy with it for not being able to pull the economy out of stagnation.
As this economic czar was the brain behind the populist programmes launched by the administration that assumed power in 2001, the approved package contains elements of those programmes.
One leading element is the transfer of a large sum of money to the village-fund programme that originally channelled to each village one million baht, with a stipulation that it formed a committee to manage the fund by on-lending it to villagers in the community. Since its inception, funds have been added to this programme despite some abject failures because it has been a political tool used by those associated with the political party that won the 2001 elections.
As when it was first launched, to avoid scrutiny of the normal budget process, the Government Savings Bank and the Bank for Agriculture and Agricultural Cooperatives are strong-armed into providing the funds, with the government compensating them for the interest they are not allowed to charge the villagers.
To market products that villagers are expected to make from investments financed by these funds, major campaigns -- with great fanfare and substantial expenditure -- are expected to be launched under the banner of the old One Tambon, One Product (Otop), or something similar. This is likely to happen despite the overall failure of the Otop project.
The government expects the new money to provide a major boost to the economy via increased domestic expenditure, to compensate for continued stagnation in major export markets, as well as to help villagers earn additional income by producing new goods and services. But results will fall short of expectations because a high portion of the money will go towards refinancing old debt that villagers have incurred with village funds as well as with other sources, including loan sharks.
Although some villagers have made productive use of the provided funds, many have not. Funds are often used for ill-conceived investments or direct consumption. As debt comes due while investments run into trouble, borrowers resort to short-term funds from unofficial sources that charge exorbitant interest rates to pay off debt so they are qualified to borrow again. Instead of helping villagers find new sources of income, village funds have largely strengthened the debt trap that many fall into.
As for the Otop project, only a small minority of the enterprises that participated have survived. A great majority of these are not newly set up but additional operations of the already well-established ones that have found a new channel for marketing their products.
The government has wasted much money staging Otop fairs and putting up buildings all over the country to sell Otop products. While the fairs have provided additional venues for Thais to have fun -- something they never have enough of -- new buildings have been largely underused.
As the new funds will not generate much additional income, many villagers will continue to be under great financial strain, which will increase in the next few months if prices for the new rain-fed rice crop are low as they often are during the harvesting season. In such a case, the government will be under great pressure to provide some form of price support, although the huge losses incurred under the rice-pledging programme conceived by the last government will not be paid for anytime soon. Subsequently, additional measures will be launched, some of which will be financed by debt or perhaps by part of the international reserves currently held by the Bank of Thailand, as easy sources of funds, such as the two government-owned banks, are exhausted. As all of these will be urgent measures not subject to normal scrutiny, they are likely to increase chances for corruption.
In my view, the stimulus programmes will lead to more wastage of money, more unnecessary consumption, more debt, more addiction to populism, and more corruption. How all these fit into the wish of the prime minister who has repeatedly said he would use the sufficiency economy concept to underpin development in the country is unclear. Rather, my guess is this short-term stimulus programme is influenced by John Maynard Keynes' famous expression: In the long-run, we are all dead.
Sawai Boonma has worked as a development economist for more than two decades. He can be reached at sboonma@msn.com.