Thai Economist Warns Of Fragile Fiscal Position

[george]

Thai economist warns of fragile fiscal position

BANGKOK: -- Thailand’s fiscal position has begun to become fragile since the tax collection and state revenue have declined continuously while social costs have risen, according to the Bank of Thailand.

Songtham Pinto, economist of the BoT’s Monetary Policy Group, said Thailand’s fiscal burdens had increased since the economic crisis in 1997.

The government needed to bear debt burdens incurred by the Financial Institutions Development Fund in an amount of around 10 per cent of the gross domestic product (GDP).

It resulted in public debts soaring from 13-14 per cent of GDP before the crisis to 57 per cent in the post-crisis period.

He said the increased fiscal burdens had made the country’s fiscal position become more fragile. However, the fiscal policy implementation for the economic recovery had gained momentum.

This, coupled with the government’s clear policy implementation plan, had gradually improved the country’s fiscal position.

The central bank economist pointed out that the government's expenditure in the past accounted for 18.2 per cent of GDP compared to 36.6 per cent and 26.3 per cent of the industrialised countries and developing countries in Asia.

He conceded the changing economic, financial and fiscal development might fuel risks and burdens to the fiscal position.

A study found the government’s fiscal structure risks had increased as the tax collection is expected to decline due to the implementation of the free trade area agreements.

Regarding ways to manage the fiscal risk, he said, the tax collection system needed to be improved to ensure efficiency of the taxation.

--TNA 2007-10-05

[Martin]

But the outlook for Thailand's fiscal position is way, way more favourable than for, say, the USA or the UK.

Thailand's economy is basically straightforward. The labour of the yeoman peasants and their landless helpers produces a surplus beyond their needs, as does the labour in the factories. Everybody else lives by catching ahold of a bit of that surplus in one way or another. Most get their bit by providing a service-- be it teaching, law enforcement, health care etc. Or legislating, or preaching, or reigning. All that 'service provision' has got a bit out of hand and Bangkok is somewhere around twice the size that the country can support in the long term.

But that is not a long term problem. There is enough land for the excess Bangkokians to come to 'Ban Nork' and grow their own food and have a surplus to buy their other necessities.

Contrast the UK and USA that are so dependent on imports of fuel, and have a horrendous fiscal overburden from what their populations have been promised in state pensions and healthcare provision. They will have immense difficulty, and it will be very messy and painful for many individuals, when they have to re-invent the Sustainable Sufficiency Economics that they had about seven generations ago. But Thailand still has that to a good extent in many, and the folk-memory of it is still strong amongst the rest.

Provided Thailand keeps its 'bureaucratic polity' (i.e. governing oligarchy) up to strength and doesn't let a bunch of elected 'representatives' do daft things, it can be steered comfortably away from that fragile fiscal position. Much will depend on the quality of the Senate, but the present Government seems to have made good provision for a strong, sensible Senate to keep a grip on things.

Of course, it would be a better outlook if Thaksin's credit-led boom hadn't been overdone and enticed a lot of people into a fragile personal fiscal position; but even that isn't as bad as it is in so-called 'developed' countries where the levels of indebtedness are so much greater, and negative equity is looming large on the horizon.

This economist is doing right to warn of the dangers of letting Thailand's fiscal position deteriorate any further. But there are those in the West, who are having to run the risks that come from speeding up their banknote printing presses, who would envy him in having a containable problem.

[plachon]

But the outlook for Thailand's fiscal position is way, way more favourable than for, say, the USA or the UK.

Thailand's economy is basically straightforward. The labour of the yeoman peasants and their landless helpers produces a surplus beyond their needs, as does the labour in the factories. Everybody else lives by catching ahold of a bit of that surplus in one way or another. Most get their bit by providing a service-- be it teaching, law enforcement, health care etc. Or legislating, or preaching, or reigning. All that 'service provision' has got a bit out of hand and Bangkok is somewhere around twice the size that the country can support in the long term.

But that is not a long term problem. There is enough land for the excess Bangkokians to come to 'Ban Nork' and grow their own food and have a surplus to buy their other necessities.

Contrast the UK and USA that are so dependent on imports of fuel, and have a horrendous fiscal overburden from what their populations have been promised in state pensions and healthcare provision. They will have immense difficulty, and it will be very messy and painful for many individuals, when they have to re-invent the Sustainable Sufficiency Economics that they had about seven generations ago. But Thailand still has that to a good extent in many, and the folk-memory of it is still strong amongst the rest.

Provided Thailand keeps its 'bureaucratic polity' (i.e. governing oligarchy) up to strength and doesn't let a bunch of elected 'representatives' do daft things, it can be steered comfortably away from that fragile fiscal position. Much will depend on the quality of the Senate, but the present Government seems to have made good provision for a strong, sensible Senate to keep a grip on things.

Of course, it would be a better outlook if Thaksin's credit-led boom hadn't been overdone and enticed a lot of people into a fragile personal fiscal position; but even that isn't as bad as it is in so-called 'developed' countries where the levels of indebtedness are so much greater, and negative equity is looming large on the horizon.

This economist is doing right to warn of the dangers of letting Thailand's fiscal position deteriorate any further. But there are those in the West, who are having to run the risks that come from speeding up their banknote printing presses, who would envy him in having a containable problem.

I thought UK was able to export a bit of oil from its North Sea reserves, but maybe that was a few years ago and now it is deficient in oil? But don't worry about its "fiscal overburden" - so long as London is the virtual trading centre of globalisation's goods, then it will keep its secure position and huge cash surpluses which means it will not have to rely on growing food for many years to come. Very unsustainable and fragile on the surface, but there seems to be stronger foundations than one imagines.

But Bangkok, that's one fragile city, which if an earthquake doesn't reduce it to rubble, global warming and environmental decay will in the long run. And I can't see all those factory workers just jumping on a bus and picking up a hoe and growing food again. For a start, many don't have land to grow on anymore, and those that do are finding it harder to eke a living off their degrading land (if it's not covered in rubber or eucalyptus plantations).

And i'd say the debt to income ratios of Thais are far worse than Western Europe, with less job security and far more debt on rapidly wasting assets like cars and TVs, unlike the West where it will mostly be on houses. I see a different picture in the crystal ball than you Martin for sure.

[JimsKnight]

Hmm I agree with Martin and Plachon on this one. The UK does still have a lot of oil and gas bringing in the money to the UK government (much more than Thailands which is only gas and has a lower yield).

It is an excellent financial base for the big boys to play in London. Some consider London to be the Financial Capital (maybe, maybe not) of the world, or at least Europe. Interest rates are much higher, making foreign investment a big thumbs up.

The sterling is strong and some countries reserves have switched to sterling from dollars.

The big downside as has been pointed out is the welfare states burden on the treasury, slightly falling oil and gas yields from the North Sea and the overpopulation for such a small Island. Yes what many do not realise (especially in the UK) is that overcrowding, especially in the Midlands and South-East is horrendous. Credit crunch, although most of this was in mortages.

Thailand has the potential to soar in growth and benefits as a transport hub (although not THE major transport hub).

The fact that there are jobs a-plenty in the homegrown sector and self-sufficiency, proximity to China and other fast growing countries, lack of reliance on a welfare state means that there is little burden on the economy. Finally the climate of Thailand tends to be a lot more benign than UK and is therefore more conducive to agriculture (and way-of-life:))

The downsides, reliance on easy credit, low interest rates for wily nily items is a ticking timebomb.

Interest times for both countries....

[Martin]

I don't disagree with 'plachon' about the previous, and present, foreign currencies earning capacity of the financial services industry of the City of London. Just over thirty years ago, when OPEC brought on a big rise in the price of oil, the UK Chancellor (and, arguably, the best Prime Minister that the UK never had) Dennis Healey saw that 'recycling the petrodollar' was a business opportunity that London had to grab.

But, for the future, it is work that any bunch of graduates and adequately-educated assistants can do. (In fact, the City is already outsourcing some of the work to Asian graduates and their assistants).

The huge numbers of undergraduates coming through Asian universities is the threat that now overhangs the future earning power of the UK financial services sector.

Because they will be able to live as comfortably in simpler housing, without heating bills, and won't have to fund a welfare state, the educated Asians will be in a strong position to underbid the UK financial services firms for the future work.

The size of this coming competition came home to me when I enrolled to do an MA-by-research at Khon Kaen University. Khon Kaen is only a provincial city in an impoverished region of Thailand, but I found that the University was huge (30,000 undergraduate and 3000 postgraduate students) and there are also the Northeastern and the Northeastern Technological Universities in the city. A lot of that remittance money sent back home by migrant workers is being invested in the education of the youngsters, not all is going on motorbikes and mobile phones.

That is a big part of the basis of my feeling that the UK has bigger coming fiscal problems than Thailand.

Obviously, I hope that, somehow or other, I am proved wrong, as the result would be that my pension pounds would trade for less and less bahts as the years went on.

But just in case I am right, we will work to keep our rice fields and fruit and vegetable garden in good shape. The house is paid for, thank goodness.

[esbobes]

thought UK was able to export a bit of oil from its North Sea reserves, but maybe that was a few years ago and now it is deficient in oil?

Martin is Correct.

I have heard That Prince Harry and Prince Andrew are leaving UK and moving to Thailand.

We get them both and UK gets Thaksin.

[Martin]

"Martin's notion that the UK will need to rely on future imports of fuel...."

Martin has no such notion.

Martin knows full well that the UK won't be able to rely on what it won't have the foreign currency to buy.

Martin is quite optimistic, though, that the generation that have to cope with that will do so quite successfully.

These are what is called 'The Millenials' (born between 1985 and 2015), and include Martin's greatgrandchildren.

They are showing great promise that they will see the error of their parents' and grandparents' ways (i.e consumerism, and the idea that something can be got for nothing, just by borrowing against the notional price of the domicile).

The Millenials are the generation that will re-discover thrift, frugality, 'putting something aside against a rainy day', and the pride that comes from knowing that they are doing right and living within their means.

(It is a pity that the Millenials will have to put up with a load of disgruntled members of the baby-boom generation and Generation X who will be disappointed in how little purchasing power their pensions have, compared to what they expected. But the Millenials will cope with that, too. And, who knows, even some of those two earlier generations may come to their senses in their later years.)

When the UK has to manage on what fuel it still has (which will be mainly King Coal) and on what food it can grow for itself, there will be a different atmosphere to its society.

You (not me, probably, as the Grim Reaper will likely have taken me away by then) will know it is happening when you see the first Golf Club re-invent itself as an Allotment Association. (Many seem to be practising already, judging by the size of their divots).

[naka]

Contrast the UK and USA that are so dependent on imports of fuel, and have a horrendous fiscal overburden from what their populations have been promised in state pensions and healthcare provision. They will have immense difficulty, and it will be very messy and painful for many individuals, when they have to re-invent the Sustainable Sufficiency Economics that they had about seven generations ago. But Thailand still has that to a good extent in many, and the folk-memory of it is still strong amongst the rest.

The UK produces about as much oil as it consumes whereas Thailand

only produces about a quarter of it's own consumption.

Where does this "Expert" get his info from ?

Guess he's never heard of google.

And here we go again about "Thai Wisdom" and "Folk-Memory" ... this does not seen to have helped Thailand

in the past ... So why would it now ? Sad really.

Naka.

[Martin]

You are right, 'naka', about the present situation.

But the production of the UK oilfields is decreasing, and it looks as if it won't be many years before the position is quite different from what it is now.

You are also right that Thailand needs to wean itself off dependency on oil imports. But that is exactly what, on the national scene, Sustainable Sufficiency Economics is largely about. And wiping out the fiscal 'overburden' ahead of the time when it could be really hurtful to the country is another, albeit smaller, part of it.

My interest lies in Futures Studies. Note the plurals. Of the many possible futures for Thailand, there is a feasible one of Thailand coming through quite successfully, provided the right contingency plans are made and implemented at the appropriate times. But there are also a number of far less optimistic scenarios that are also possibilities.

PM me, with an e-mail address, if you would like the article that I have written about my MA thesis on the subject.

[farmer floyd]

I just read in the wall street journal that UK had more personal debt then US. and all of europe. Houses are in a bubble also adv $330K where us was 228K. way over priced. A bunch to come down and how fast ,how hard will they hit? Did not sound good and I was very surprised. I know us lives way over there heads on your borrowed money.

That is way the whole world got hurt from us sub-prime mess. Us was loaning 110% of what a house was worth, advertising this. How long could that last. about 2 years.. and then it blew up with the sub prime. How long will the world remember this and shy away from american mortgages. Uk is in a bit of trouble also, when ???? who konws.

Edited October 7, 2007 by farmer floyd

[usatrader]

If I may interject a bit of perhaps informative context into this discussion.

Oil- that which is encompassed as part of the price of one gallon of Gasoline or Petro.

2000-2001

Average retail Price $1.51

Taxes –------------------------- 42.4 Cents or 28.1%

Distribution & Marketing—18.9 Cents or 12.5%

Refining------------------------- 24.9 Cents or 16.5%

Crude Oil costs---------------- 64.8 Cents or 42.9%

2006 –2007

Average retail Price $2.62

Taxes –--------------------------- 44.5 Cents or 17.0%

Distribution & Marketing— 29.6 Cents or 11.5%

Refining------------------------- 45.6 Cents or 17.4%

Crude Oil costs---------------- $1.42 Cents or 54.3.9%

Source Department of Energy

http://www.eia.doe.gov/

Top World Oil Producers, 2006

1 Saudi Arabia 10,719

2 Russia 9,668

3 United States 8,367 * 40% of its consumption

4 Iran 4,146

5 China 3,836

6 Mexico 3,706

7 Canada 3,289

8 United Arab Emirates 2,938

9 Venezuela 2,802

10 Norway 2,785

11 Kuwait 2,674

12 Nigeria 2,443

13 Brazil 2,163

14 Algeria 2,122

15 Iraq 2,008

Top World Oil Net Exporters, 2006

1 Saudi Arabia 8,651

2 Russia 6,565

3 Norway 2,542

4 Iran 2,519

5 United Arab Emirates 2,515

6 Venezuela 2,203

7 Kuwait 2,150

8 Nigeria 2,146

9 Algeria 1,847

10 Mexico 1,676

11 Libya 1,525

12 Iraq 1,438

13 Angola 1,363

14 Kazakhstan 1,114

15 Canada 1,071

Top World Oil Consumers, 2006

1 United States 20,588

2 China 7,274

3 Japan 5,222

4 Russia 3,103

5 Germany 2,630

6 India 2,534

7 Canada 2,218

8 Brazil 2,183

9 Korea, South 2,157

10 Saudi Arabia 2,068

11 Mexico 2,030

12 France 1,972

13 United Kingdom 1,816

14 Italy 1,709

15 Iran 1,627

Top World Oil Net Importers, 2006

1 United States 12,220 * 60% of its consumption

2 Japan 5,097 >97% of consumption

3 China 3,438 >47% of consumption

4 Germany 2,483 >94% of consumption

5 Korea, South 2,150 >99% of consumption

6 France 1,893 >95% of consumption

7 India 1,687

8 Italy 1,558 >91% of consumption

9 Spain 1,555

10 Taiwan 942

11 Netherlands 936

12 Singapore 787

13 Thailand 606

14 Turkey 576

15 Belgium 546

* EU (6) 8,971

http://www.eia.doe.gov/emeu/cabs/topworldtables1_2.htm

Albania

Austria

Belgium

Bosnia and Herzegovina

Bulgaria

Croatia

Cyprus

Czech Republic

Denmark

Faroe Islands

Finland

France

Germany

Gibraltar

Greece

Hungary

Iceland

Ireland

Italy

Luxembourg

Macedonia

Malta

Montenegro

Netherlands

Norway

Poland

Portugal

Romania

Serbia

Slovakia

Slovenia

Spain

Sweden

Switzerland

Turkey

United Kingdom

Europe – 2006- Consumption 16,327,250,000 Barrels per day. ( 135% > than US Oil imported for consumption)

http://www.eia.doe.gov/emeu/international/...rrelsperDay.xls

[OlRedEyes]

Fiscal security greatly depends on the population's ability to generate new wealth. I'd bet on the UK's population any day over the Thai population.

And why the desperate need to always drag in the UK/US into every single Thai topic? Nervous?

[JimmyCA]

As always The US is #1 in every category good and bad.

[Martin]

Spot on, 'OlRedEyes'.

Nervous because I live in Thailand, but my pensions are paid in UK pounds and so many of my friends get theirs in US dollars. If the US dollar tanks, the UK pound won't be far behind.