Economic bubbles and miracles

[en184]

Heard on CNBC, Thailand is forecasted for up to 9% GDP growth this year.

Is this possible?

[Butterfly]

Heard on CNBC, Thailand is forecasted for up to 9% GDP growth this year.

Is this possible?

No. Must be annualized growth based on 4th quarter

It's meaningless. A trick often used by economists in the US to estimate growth. It's not actual growth.

[plachon]

Butterfly, the crime rise you notice has got little to do with the state of the economy, but far more to do wth the state of social capital (and quite likely moral decline), I suspect. The economy can be singing (on paper), but as the few prosper at the expense of the many and material possessions become the measure of a man (or woman), then crime is the inevitable consequence. This is not meant to be preachy, just a general observation of what's considered important, whether in good old Bud-land (ain't that guy priceless?) or Singh-land.

[davidm]

Even Toxin hasn't claimed 9% growth is achievable anytime soon. It's a sad fact that foreign publications -even the Economist - often just takes the official line on growth forecasts and publishes it. They're just as bad as the local press, although not always for the same reasons. Believe it or not, years ago some hack in the Bangkok Post actually wrote an article which went along the lines "the industrial sector grew by 8% and the agriculture sector by 4%, therefore Thailand's economy grew by 12% this year..."

Stock brokers have the same faults. Years ago, I was the editor for Barings' Thai office, and the analysts just took whatever they were given by government or industry sources and wrote their "analysis". No wonder they went bust.

[Spellbound]

Bangkok households straining under massive debts

Published on Oct 1, 2003

angkokians are amassing huge debts because of the recent boom in personal lending, Abac researchers warned yesterday.

A survey of 450 Bangkok residents on September 15-25 found that 35.6 per cent of the respondents had major debts with a staggering average of Bt426,000 per head.

"They are spending way beyond their means. If this grass-roots bubble bursts, it could be worse than the corporate crash in 1997," said Sumas Wongsunopparat, an Abac researcher who led the survey.

Echoing the parliamentary opposition, Sumas blamed the sharp rise in personal debts on the government's strategy of using low-interest or easy loans to stimulate the economy and the hot competition in the credit-card market.

The opposition raised similar concerns during the recent budget debate, warning that the apparently rosy economic-growth figures came at the expense of grass-roots financial foundations.

According to the survey, the average debt of Bangkokians with monthly incomes of less than Bt10,000 is Bt140,000. Those earning between Bt10,000 and Bt20,000 have an average debt of Bt330,000. The average jumps to Bt710,800 for people earning between Bt20,000 and Bt30,000.

The easy-to-get personal loans are also creating an illusory demand for goods, misleading manufacturers into thinking that the economy is doing well and that people are spending, said Sumas.

"Some [manufacturers] are expanding their businesses because of the superficially fantastic consumption figures. If for some tragic reason the debtors can't repay what they owe, it will be double jeopardy," the researcher said.

He warned that becoming indebted was infectious: just as companies scrambled for cheap foreign loans before the 1997 meltdown, the public seems afraid to miss the opportunity to secure easy loans or become credit-card holders.

"More than 40 per cent of those surveyed have credit cards. And 45 per cent of credit-card holders want the borrowing ceiling to be twice their regular income, while 26 per cent want the limit to be three times their income," Sumas said

http://203.150.224.53/page.ne....rsess=1

[Butterfly]

I give it one more year not two as I was expecting earlier. The SET is almost at 600 and I was not expecting this before next year mid year

We have a 8 months lead in terms of speculations. The bad news is that the locals are back into the SET game and they are gambling on the SET companies like they were lottery tickets. Not good. My portfolio has gained another 30% in less than 2 months and this is worrysome. I am not even trading actively.

If SET reached 800, get out !!!

[Heng]

This is the time for the haves to acquire more real estate.   "I'd be happy to refinance your loan.   I'll need to see some land deeds as collateral though."  

[MaiChai]

I would agree with that Heng, the root to true wealth in Thailand must be leading small amounts of money to those willing to surrender their land deeds

Gosh a money spinner was staring me right in the face!

All bubbles invariably burst. Its a matter of time, and everyone will be lulled into the false sense of security thinking it will never happen.

Owning all those things people think you should have is not the true path to happiness.

[Spellbound]

Fixing holes in a leaky bucket

Sanitsuda Ekachai

Can this administration solve the problem of poverty and indebtedness? Can we fill a bucket full of holes?

The Thaksin Administration must be credited for its resolve to fill this leaking bucket. No preceding administrations have displayed such comprehensive policy packages to tackle the poor's perennial problems of landlessness, debts and lack of credits. But back to the same question. Isn't it better to mend the holes in the bucket first?

Let's look at who made these holes. By defining poverty as lack of money, all previous governments pursued economic growth by opening the forest frontiers to export cash crops and minerals.

The consequences are devastating. Massive deforestation and destruction of natural resources through state-promoted land clearing as well as big development projects forced the majority poor to lose their sources of sustenance. More debts from low commodity prices led to more poverty and landlesness.

Equally devastating are the state's policies to push consumerism. While the education system makes rural youths look down on cultural roots and ways of life, the consumer culture makes them feel life is intolerable unless they possess the modern products and lifestyles they saw on the tube.

Hardship and raised aspirations led to the poor's massive migration to feed the industrial sector. But their search for greener pastures is marked by state policies to keep wages low to attract foreign investment while turning a blind eye to widespread industrial hazards.

Widespread prostitution, drugs, domestic violence and alienation are the products of broken families and broken dreams caused by the money-driven policies which destroy the rural folks' livelihoods, confidence and their old frugal ways.

With materialism reigning, how many choices do the rural folks have to restore their dignity but to try to have the same gadgets as the city folks. After all, society judges people on what they have, not who they are.

In short, the problem is no longer absolute but relative poverty _ the belief that one is poor unless one can keep up with the Jones's.

It's why despite the increase of incomes, people's debts have increased alarmingly.

In 2000, a household's average annual income was about 145,000 baht. It has since increased to 164,000 baht.

In 2000, about 9.5 million households are in debt, an average of 68,000 baht per family. In 2002, the number of indebted families rose to 11.1 million in 2002, with an average household debt of 82,000 baht compared to 31,000 baht in 1996.

A recent survey by an advertising company on rural folks' spending behaviour is eye-opening. About 49% of rural families have mobile phones, many having more than one in a household. The survey said 56% have home entertainment equipment. And 75% of the households have an average debt of 77,862 baht. A recent Bangkok survey reveals city folks also carry huge debts from overspending. For example, those earning less than 10,000 baht have an average debt of 140,000 baht. Those in the 10,000-20,000 bracket have an average debt of B330,000. For those in the 20,000-30,000 bracket, the average debt rises to 710,800 baht. The state pushes for excessive consumption which spurs overspending and debts. These are some big leaking holes in our poverty bucket.

Yet, the government continues telling people to keep buying and borrowing to pump up the economy. It extols excessive materialism as a model lifestyle although it demands more exploitation of nature at the expense of the poor. In this environment, many fear the government's asset conversion scheme to give the poor more credit lines will put yet more holes in the bucket. Unless the government questions past policy mistakes, it's possible to see another round of debt bubbles that will soon break.

Sanitsuda Ekachai is assistant editor, Bangkok Post

http://www.bangkokpost.com/News/02Oct2003_news41.html

[Butterfly]

Nice story. Thanks.

It's not like they are paying everything with a credit card like it is overdone in the US and still accounted for as debt. These are massive debt.

[Heng]

The Thaksin Administration must be credited for its resolve to fill this leaking bucket. No preceding administrations have displayed such comprehensive policy packages to tackle the poor's perennial problems of landlessness, debts and lack of credits. But back to the same question. Isn't it better to mend the holes in the bucket first?

Let's look at who made these holes. By defining poverty as lack of money, all previous governments pursued economic growth by opening the forest frontiers to export cash crops and minerals.

The people who dig holes for themselves are responsible for themselves.   The government doesn't "teach" people to be financially irresponsible, and certainly does not need to take responsibility for each invidual's personal lapse of judgement.   One shouldn't (IMO anyway) blame the casino for an individual's gambling problems, the telecoms provider for people making more calls than they can afford, or the credit card companies for people living beyond their means.  

It takes absolutely NO education to understand that one should not spend more than they make.    There are swaths of Thai society that are completely debt free and saving upon savings upon savings.   And these aren't just the aristocracy and those who own 100+ rai of land... they include shop owners/families who have the most modest of 3 story shop houses that they own outright and make a living from.    

[caughtintheact]

It takes absolutely NO education to understand that one should not spend more than they make.    

That might be true if there were no such thing as credit, but when people with little or no education are given credit they start to think that they are getting free money - there is no "truth in lending" in upcountry Thailand.

[MaiChai]

Wish my wife was frugal. How do you get a Thai to become frugal?

Spellbound, excellent post.

The government could do more to promote being responsible. There is too much emphasis on impressing others rather than being sensible with the income people have. Is there anything in the standard Thai education that teaches teenagers how to manage their finances? Its seems to come down to individuals who have the personality to sensible; the rest could do with some guidence. I do believe many don't understand what credit is all about, and give up title deeds, etc, for small amounts of credit.

[Heng]

It takes absolutely NO education to understand that one should not spend more than they make.    

That might be true if there were no such thing as credit, but when people with little or no education are given credit they start to think that they are getting free money - there is no "truth in lending" in upcountry Thailand.

There has been "credit" since the days money was beads and silver nuggets.    And since those days, there have been those who spend more than they can afford.    They have been private loans and money clubs in every single corner of Thailand long before plastic was even invented.  

[caughtintheact]

True, but there's still a "sucker born every minute"

[plachon]

The people who dig holes for themselves are responsible for themselves.   The government doesn't "teach" people to be financially irresponsible, and certainly does not need to take responsibility for each invidual's personal lapse of judgement.   One shouldn't (IMO anyway) blame the casino for an individual's gambling problems, the telecoms provider for people making more calls than they can afford, or the credit card companies for people living beyond their means.  

It takes absolutely NO education to understand that one should not spend more than they make.    There are swaths of Thai society that are completely debt free and saving upon savings upon savings.   And these aren't just the aristocracy and those who own 100+ rai of land... they include shop owners/families who have the most modest of 3 story shop houses that they own outright and make a living from.    

You're only seeing one side of the coin Heng. Personally I don't know any Thais that are not in debt for one thing or another, but then I don't know many Brits either. The main difference  is that the govt. in Britain mostly encourages people through policy to mostly be in debt for appreciating assets like land and property. (This is not defending the situation in Britain where credit is still too easy to come by for many who lack the restraint to match their debt to income ratio).  But in Thailand the poor majority are mostly in debt for depreciating assets like car, motorbike, TV, stereo, etc. etc. and the other debt that nobody has yet mentioned, but is huge in Thailand - education. In theory, this should be a worthwhile thing to risk debt for - intellectual capital, but in the Thai case, I fear people are being encouraged to borrow far more than they'll ever sensibly be able to pay back for their kids education. It'll hang around their necks like millstones and eventually will either fuel the suicide rate or lead to a massive default and the govt. writing off billions (more likely). If this happens to coincide with the crash that is acoming then it will lend more fuel to the fire of a crisis that makes '97 seem like a picnic in the paddies.

Sadly, the dilligent savers that Heng knows will not come off unscathed, as although they probably do not know it, they are all equally responsible for the national public debt which is huge and growing. Even erstwhile intnl. banks like HSBC refused to honour saver's deposits when the shit hit the fan in Argentina a few years ago. So don't even think you're safe in the so-called "respectable" ones. Correction then: nobody in Thailand is "debt free" in reality.

[pnustedt]

I don't know any Thais that are not in debt for one thing or another, but then I don't know many Brits either.

Money lending in Thailand doesn't seem to be controlled in any way. Many village people borrow from a few locals with money at rates of about 6-7% PER MONTH and they sign their land title over to the lender as security for the loan. Such lenders end up acquiring a lot of land at minimal cost and the borrowers end up destitute.

At least in the UK there are rules and regulations that are designed to protect the consumer.

[Heng]

I don't know any Thais that are not in debt for one thing or another, but then I don't know many Brits either.

Money lending in Thailand doesn't seem to be controlled in any way. Many village people borrow from a few locals with money at rates of about 6-7% PER MONTH and they sign their land title over to the lender as security for the loan. Such lenders end up acquiring a lot of land at minimal cost and the borrowers end up destitute.

At least in the UK there are rules and regulations that are designed to protect the consumer.

The default rate for those loans is actually pretty low.   Yes, some lose their land and homes.   If anything these types of loans "educate them" about the evil of irresponsible consumption more than a public service campaign would.   It's real and it's close to home for them.  

Rules and regulations aside, these loans have ALWAYS been demand driven.   It's not supply side.   Yes, we have the funds, but it's those who want the funds that seek us out.   Like many of the ills of the world, the cure is to curb the demand.

:cool:

[Heng]

Wish my wife was frugal. How do you get a Thai to become frugal?

Spellbound, excellent post.

The government could do more to promote being responsible. There is too much emphasis on impressing others rather than being sensible with the income people have. Is there anything in the standard Thai education that teaches teenagers how to manage their finances? Its seems to come down to individuals who have the personality to sensible; the rest could do with some guidence. I do believe many don't understand what credit is all about, and give up title deeds, etc, for small amounts of credit.

The frugal people I know (myself included), have learned frugality from their parents and friends.    It should be taught in the home.   The government as mum and dad is not a good idea, IMO.

[pnustedt]

The default rate for those loans is actually pretty low.

I think that, because such loans are unregulated, nobody really knows the true default rate.

I agree that the situation is demand driven. My wife started lending money in her village at 5%/month (undercutting the market rate) and had people queuing up. I initially misunderstood what she was doing, I thought she was charging 5% p.a. However, a large percentage of the borrowers are defaulting.

Hopefully, I have stopped her making further such loans, not least because her father was murdered when she was 7 years old by debtors who did not want to repay loans he had made.

[Heng]

The default rate for those loans is actually pretty low.

I think that, because such loans are unregulated, nobody really knows the true default rate.

I agree that the situation is demand driven. My wife started lending money in her village at 5%/month (undercutting the market rate) and had people queuing up. I initially misunderstood what she was doing, I thought she was charging 5% p.a. However, a large percentage of the borrowers are defaulting.

Hopefully, I have stopped her making further such loans, not least because her father was murdered when she was 7 years old by debtors who did not want to repay loans he had made.

Yeah, I don't know the national numbers either.   I was speaking from personal experience as well.    These people fight pretty hard to keep their homes.    They fight pretty hard to keep their car titles as well.    Another reason why default rates are low (IMO), is because lenders are usually willing to extend the terms of the loan indefinitely (UNLIKE most banks and finance companies).    The thinking is that "we already have plenty of land, so we won't foreclose unless you REALLY quit."   Liquid interest revenue is always preferred.

Again, I don't believe it's the government's place OR the loan holder's place to pass judgement on each individual Thai's needs.    A guy walks into our pawn shop for a loan, we're not going to start "teaching" him on how he shouldn't gamble at the snooker hall so often.  

:cool:

[Heng]

The people who dig holes for themselves are responsible for themselves.   The government doesn't "teach" people to be financially irresponsible, and certainly does not need to take responsibility for each invidual's personal lapse of judgement.   One shouldn't (IMO anyway) blame the casino for an individual's gambling problems, the telecoms provider for people making more calls than they can afford, or the credit card companies for people living beyond their means.  

It takes absolutely NO education to understand that one should not spend more than they make.    There are swaths of Thai society that are completely debt free and saving upon savings upon savings.   And these aren't just the aristocracy and those who own 100+ rai of land... they include shop owners/families who have the most modest of 3 story shop houses that they own outright and make a living from.    

You're only seeing one side of the coin Heng. Personally I don't know any Thais that are not in debt for one thing or another, but then I don't know many Brits either. The main difference  is that the govt. in Britain mostly encourages people through policy to mostly be in debt for appreciating assets like land and property. (This is not defending the situation in Britain where credit is still too easy to come by for many who lack the restraint to match their debt to income ratio).  But in Thailand the poor majority are mostly in debt for depreciating assets like car, motorbike, TV, stereo, etc. etc. and the other debt that nobody has yet mentioned, but is huge in Thailand - education. In theory, this should be a worthwhile thing to risk debt for - intellectual capital, but in the Thai case, I fear people are being encouraged to borrow far more than they'll ever sensibly be able to pay back for their kids education. It'll hang around their necks like millstones and eventually will either fuel the suicide rate or lead to a massive default and the govt. writing off billions (more likely). If this happens to coincide with the crash that is acoming then it will lend more fuel to the fire of a crisis that makes '97 seem like a picnic in the paddies.

Sadly, the dilligent savers that Heng knows will not come off unscathed, as although they probably do not know it, they are all equally responsible for the national public debt which is huge and growing. Even erstwhile intnl. banks like HSBC refused to honour saver's deposits when the shit hit the fan in Argentina a few years ago. So don't even think you're safe in the so-called "respectable" ones. Correction then: nobody in Thailand is "debt free" in reality.

IMO, those who will have to bite the bullet this time around will be these "light" finance companies (Aeon, QuickCash, etc.).   They are playing a high risk high return game.    If they get wiped out, they get wiped out.    The banks and more traditional finance companies are more selective than they have ever been.  

Curiously, who do you think is "encouraging" consumerism?