Yingluck Govt's Proposed Economic Measures Raise Serious Concerns

[webfact]

Pandering to voters has high cost

By Achara Deboonme

The Nation

Yingluck govt's proposed economic measures raise serious concerns

After the chaotic policy testimony last week in Parliament, the administration of Prime Minister Yingluck Shinawatra is set to kick off new measures amid concerns over |the repercussions on economic |stability.

All should be concerned given the blind ambition to please voters, shortsightedness, and a number of missing links. Coupled with the large amount of money involved and unclear financing and revenue-generating plans, this could land the Kingdom into the debt abyss that engulfs several advanced economies, as well as an unstable economic landscape in years ahead.

One of the concerns lies in Energy Minister Pichai Naripthaphan's plan to increase energy security through foreign reserves. Theoretically, foreign reserves could be invested for a better return. Through Temasek Holdings, Singapore has established firm roots in overseas industries, chiefly telecommunications. Through China Investment Corporation (CIC), China has acquired interests in a variety of projects, including oil companies and firms that invest in solar and wind power.

But Singapore has more than US$250 billion (Bt7.5 trillion) in foreign reserves while China has more than $2 trillion, against Thailand's $189 billion. To establish CIC, China allocated $200 billion, which was less than 10 per cent of its foreign-reserve wealth. By the same ratio, the size of Thailand's sovereign wealth fund would be just $18.9 billion. PTT Exploration and Production spent $2.28 billion for a 40-per-cent stake in an oil-sands project in Canada. Given the expected increase in oil-pumping costs, if energy sources are our target, how many oilfields could the Thai sovereign wealth fund invest in?

As Thailand is considered poor in infrastructure, if reserves are to be invested, they should be spent on projects to benefit the Kingdom as a whole. What about the mass-transit routes or high-speed rail, which could promote tourism as well as reduce logistics costs - a major hindrance to boosting Thailand's competitiveness? In a country where more than 80 per cent of energy is imported, it is better to look at managing the demand side (by cutting consumption) rather than the supply side.

Another energy-related policy is equally worrisome - the plan to suspend the Oil Fund levies on non-ethanol petrol. This will benefit owners of motorcycles and old cars who fill up their tanks with such fuels, aside from some rich people. Yet, given the higher frequency of natural disasters caused by global warming, the entire world is trying to become greener. This policy runs against that trend. The suspension of levies will bring the prices of 91- and 95-octane petrol closer to those of gasohol, making the more environmentally friendly and less petroleum-dependent ethanol-content fuel less attractive.

This makes a direct mockery of the Energy Ministry's effort to promote gasohol use by motorcycle owners. It will hurt ethanol producers, and provide another example to investors as a whole that Thailand's policies can be changed to please politicians regardless of their investment. More important, as noted above, it runs against the global trend to become greener. So even if the levy suspension is temporary, the impacts are huge.

The government delivers another disappointment when it comes to the rice-pledging scheme. Guaranteeing farmers' income is one thing, but the government totally forgets something more important - sustainability. That will be achieved only when we invest more in research and development. The business sector has complained about the low R&D budget, which is less than 1 per cent of gross domestic product. Farmers, enduring floods and drought, should also complain that the government does nothing to offer them better rice breeds that could withstand the changing climate. With sustained output amid surging demand for food worldwide, they should enjoy the most benefits, and in a sustainable way.

The government pleases the elderly with the promise of an allowance that steps up according to age. Yet some elderly people say they will not live as long as 90 years to enjoy the Bt1,000 monthly allowance. They yearn for a maximum flat rate for all aged over 60. What does this show? They don't realise that 10 million of Thailand's population are over 60 and would be entitled to such an allowance. At the rate of Bt1,000 per head, that would amount to Bt10 billion a month or Bt120 billion a year.

More important, unlike the West, a majority of Thai elderly are supported by their children. If the allowance is to equip them with financial power over their grandchildren, it would be better to channel the spending for something sustainable. How about leisure and therapy centres across the nation? If the government stays in power for four years, Bt480 billion should be enough to create such centres nationwide plus an endowment fund for their management.

Much of the debate last week was about the plan to increase the daily minimum wage to Bt300. Deputy Prime Minister Kittirat na Ranong claimed the business sector welcomed the move, in return for lower tax rates and other benefits. Notably, these two policies are intertwined. Still, he gave no definite time frame when that would happen. It is also clear that the wage hike will occur first in the civil service.

It is easy to see why the business sector is doubtful. Like food prices, minimum wages, once increased, cannot be cut. However, corporate tax rates and other accommodating measures - such as financial assistance to affected small and medium-sized enterprises - can be adjusted at any time.

Certainly, Thailand's corporate tax rates need to be cut. According to Deloitte, in Southeast Asia, Laos levies the highest rate at 35 per cent, against 30 per cent in the Philippines, 25 per cent in Cambodia, Indonesia and Malaysia, and 17 per cent in Singapore. But to attract investment, lower taxes alone won't help. Have any Thai politicians or officials ever wondered why Royal Dutch Shell invests as much as $4 billion in Singapore? Or why Rolls-Royce sets up a regional centre in that country? Both reached those decisions because of the Singaporean government's support, as well as the abundance of skilled labour and intellectual-property protection. Aside from tax rates, Thailand is inferior to Singapore on all counts.

Last but not least, there is a funding mismatch. Against a tonne of spending schemes, the government fails to show how it plans to finance them.

Former finance minister Korn Chatikavanij envisaged that in 2012 alone, about Bt300 billion would be included in the annual budget while about Bt500 billion would be booked as off-budget. If that is the case, the programmes will be financed in later years.

The ruling Pheu Thai Party's economic strategists are hopeful that their policies will boost the economy. In time, they say, revenue will rise to catch up with the spending. But such optimism is not justified, particularly when many countries are on the brink of collapse. With huge public debts, they are printing more money only to drive up global liquidity and inflation. Too much spending at home will aggravate this, and revenue will be unable to keep pace with the spending trend. Worse, Thailand is guaranteed a problem with higher public debts.

In all, it was not convincing when Yingluck said all these policies were built around the sufficiency-economy philosophy. Politicians should know that all voters want freebies, but it is their duty to pave the way to a brighter future in the long run.

-- The Nation 2011-08-29

[Colin Yai]

I just cannot understand what the fuss is all about, Yingluck and her bevy of very able cabinet ministers will receive instructions from the " real" PM into solving this problem almost overnight, "Oh ye of little faith" !!!!

Edited August 28, 2011 by Colin Yai

[kraplung]

With big brother to guide her Yingluck will put her best slingback forward and make good on her promises just as Thaksin himself did when he solved Bangkok's traffic problems and rid Thailand forever of drugs.

This is Miracle Thailand remember.

Edited August 29, 2011 by kraplung

[animatic]

Pandering in most countries is considered ilegal,

but in this country it gets Aunty Yingluck and Uncle Chewy elected.

[SiriusBlack1]

Ah yes, 'pandering' ... we can't have democratically elected governments giving the people what they want, can we?

Oh wait, the Democrats and Yellow Shirts wouldn't know anything about that, so we shouldn't ask them.

What's next? An end to some of the OTHER protectionist taxes that place unnecessary burdens on citizens, hurt tourism and encourage smuggling?

[whybother]

Ah yes, 'pandering' ... we can't have democratically elected governments giving the people what they want, can we?

Oh wait, the Democrats and Yellow Shirts wouldn't know anything about that, so we shouldn't ask them.

What's next? An end to some of the OTHER protectionist taxes that place unnecessary burdens on citizens, hurt tourism and encourage smuggling?

No. The PTP are planning to bring the rice pledging program back, which will encourage smuggling of rice from places like Cambodia.

[SiriusBlack1]

Ah yes, 'pandering' ... we can't have democratically elected governments giving the people what they want, can we?

Oh wait, the Democrats and Yellow Shirts wouldn't know anything about that, so we shouldn't ask them.

What's next? An end to some of the OTHER protectionist taxes that place unnecessary burdens on citizens, hurt tourism and encourage smuggling?

No. The PTP are planning to bring the rice pledging program back, which will encourage smuggling of rice from places like Cambodia.

No idea what "rice pledging" means, but I like your signature.

[Deez]

All valid points. The threats will be coming soon against this reporter.

[whybother]

No idea what "rice pledging" means

Google is your friend. A search brings up an interesting Bangkok Post article on how it's "back firing on farmers".

but I like your signature.

:jap:

[kinmaew]

Thailand is truly amazing isnt it? They are expert on bringing in incompetent corrupt leaders, and subsequently expert on providing all the analysis and opinion on the huge mistake they have just made. Perhaps someone from the Nation should be running the country.

[OzMick]

Ah yes, 'pandering' ... we can't have democratically elected governments giving the people what they want, can we?

Oh wait, the Democrats and Yellow Shirts wouldn't know anything about that, so we shouldn't ask them.

What's next? An end to some of the OTHER protectionist taxes that place unnecessary burdens on citizens, hurt tourism and encourage smuggling?

Good governments provide the people with what they need, not what they want.

[Mitker]

All valid points. The threats will be coming soon against this reporter.

It's sadly likely.

Big Brother Santa Klaus Proxy doesn't like criticism. In the family genes.

[Mitker]

Ah yes, 'pandering' ... we can't have democratically elected governments giving the people what they want, can we?

Oh wait, the Democrats and Yellow Shirts wouldn't know anything about that, so we shouldn't ask them.

What's next? An end to some of the OTHER protectionist taxes that place unnecessary burdens on citizens, hurt tourism and encourage smuggling?

Good governments provide the people with what they need, not what they want.

Exactly. And that's why the words "demagogy" and "populism" have been created.

So it still amazes me to see that Thailand is the only country I know where a positive perception is given to "populist policies".

[SICHONSTEVE]

I have a couple of good jokes:

Yingluck - Ha Ha Ha Ha!!!!

PTP - Ha Ha Ha Ha!!!!

When will the people learn?????

The government should be turfed out immediately before it's too late - this is for Thailand's sake and not mine as we will actually benefit from these ludicrously damaging policies as the Baht will sky rocket!!!!

[whybother]

...

When will the people learn?????

The government should be turfed out immediately before it's too late - this is for Thailand's sake and not mine as we will actually benefit from these ludicrously damaging policies as the Baht will sky rocket!!!!

The people will only learn when they have been shown.

Turfing out this government prematurely will just bring out the protesters.

Unfortunately, we need to wait 4 years before they can be turfed out. We will see if they will have learnt by then.

Edited August 29, 2011 by whybother

[drdoom6996]

This makes a direct mockery of the Energy Ministry's effort to promote gasohol use by motorcycle owners. It will hurt ethanol producers, and provide another example to investors as a whole that Thailand's policies can be changed to please politicians regardless of their investment. More important, as noted above, it runs against the global trend to become greener. So even if the levy suspension is temporary, the impacts are huge.

Yeah, lets put food into our gas tanks. Brilliant. The US sold it and now every bodies buying in on a global level. gasohol cost more than gas because of the process to turn food into something that wilol burn in an engine. When will people learn. Do you only use the internet to complain?

[scorecard]

I just cannot understand what the fuss is all about, Yingluck and her bevy of very able cabinet ministers will receive instructions from the " real" PM into solving this problem almost overnight, "Oh ye of little faith" !!!!

Plus, everybody will be rich within six months, so why worry?

[hanuman1]

Pandering in most countries is considered ilegal,

but in this country it gets Aunty Yingluck and Uncle Chewy elected.

Dear me, do you know how desperate you sound here?

Whatever next? Bring charges of pedophilia against Peua Thai/Thakisn for GROOMING Yingluck to be the new PM?

The mind boggles.

[hammered]

Ah yes, 'pandering' ... we can't have democratically elected governments giving the people what they want, can we?

Oh wait, the Democrats and Yellow Shirts wouldn't know anything about that, so we shouldn't ask them.

What's next? An end to some of the OTHER protectionist taxes that place unnecessary burdens on citizens, hurt tourism and encourage smuggling?

Good governments provide the people with what they need, not what they want.

Not in any democracy, they dont. All governments and wannabe governments pander to people for votes, whether it be handouts, tax cuts, neo-nazi immigration rubbish, change or whatever. No political party in a democracy is going to say anything that isnt popular with the majority of the electorate and they spend loads on having experts find out exactly what people want or want to hear. Nothing about needs in a modern demcoracy

[Ricardo]

I just cannot understand what the fuss is all about, Yingluck and her bevy of very able cabinet ministers will receive instructions from the " real" PM into solving this problem almost overnight, "Oh ye of little faith" !!!!

Plus, everybody will be rich within six months, so why worry?

Only four months, and a few days, to wait now !

[Colin Yai]

Ah yes, 'pandering' ... we can't have democratically elected governments giving the people what they want, can we?

Oh wait, the Democrats and Yellow Shirts wouldn't know anything about that, so we shouldn't ask them.

What's next? An end to some of the OTHER protectionist taxes that place unnecessary burdens on citizens, hurt tourism and encourage smuggling?

Sorry SB1, giving the people what they want?, don't you mean "promising" them what they want?, the time for Yingluck is over , She and her party have "talked the talk" now its time they "walked the walk" , In my neck of the woods in Darkest Manchester England we always say talks comes cheap .promises are somewhat more expensive!!!, and so far I ain't seen any time frame on what she promised, Have you???

[OzMick]

Ah yes, 'pandering' ... we can't have democratically elected governments giving the people what they want, can we?

Oh wait, the Democrats and Yellow Shirts wouldn't know anything about that, so we shouldn't ask them.

What's next? An end to some of the OTHER protectionist taxes that place unnecessary burdens on citizens, hurt tourism and encourage smuggling?

Good governments provide the people with what they need, not what they want.

Not in any democracy, they dont. All governments and wannabe governments pander to people for votes, whether it be handouts, tax cuts, neo-nazi immigration rubbish, change or whatever. No political party in a democracy is going to say anything that isnt popular with the majority of the electorate and they spend loads on having experts find out exactly what people want or want to hear. Nothing about needs in a modern demcoracy

I don't believe my post mentioned democracy.

But, as you have raised the subject - for democracy to work it requires an informed populace able to make rational decisions about what is good for the nation. In turn, that requires a good basic education available cheaply, if not free, to every citizen, and a widespread free and critical press. These conditions are not available in this country.

In democracies where such conditions exist (Utopia?) would be governments can explain the why, how, cost and effect of unpopular policies and have them accepted. Or more usually, get elected for a term and install them, then explain the whys and wherefores. Hopefully then over the term of the government the policy can bear fruit and be accepted, or not. and the government can be re-elected, or not.

Pander The People party has a number of policies which if carried out will bear very ugly fruit. They certainly show no indication of moving towards the conditions required for a workable democracy, in fact, quite the opposite. Those without the education to make rational informed judgements proceed by trial and error, which can be a costly and painful way to learn. Ask the Greeks.

PTP is now in a cleft stick. Do they install unsustainable policies (even if only in the short term), deplete their foreign reserves, empty the Treasury, balloon public debt, and stuff the economy (which could lead to something very ugly), or do they abandon their populist promises (which could lead to something very ugly)? May they live in interesting times.

[indyuk]

Ah yes, 'pandering' ... we can't have democratically elected governments giving the people what they want, can we?

Oh wait, the Democrats and Yellow Shirts wouldn't know anything about that, so we shouldn't ask them.

What's next? An end to some of the OTHER protectionist taxes that place unnecessary burdens on citizens, hurt tourism and encourage smuggling?

Sorry SB1, giving the people what they want?, don't you mean "promising" them what they want?, the time for Yingluck is over , She and her party have "talked the talk" now its time they "walked the walk" , In my neck of the woods in Darkest Manchester England we always say talks comes cheap .promises are somewhat more expensive!!!, and so far I ain't seen any time frame on what she promised, Have you???

Brilliant; your last line 'Cuts to the chase'. I was hoping that someone would make a meaningful point in response to this thread.

[ToffeEFCpower]

The quicker Thailand goes broke the better. Bring back 74+ baht/£ = more tourists will come, happy days once more

[Samuian]

Yippie, Songkran all year round! And it will be raining good great fortunes on everyone, forever!

[DP25]

Certainly, Thailand's corporate tax rates need to be cut.

No, that isn't certain at all. Taxes in this country are ridiculously low and ineffective already. They shouldn't be lowering one of their main sources of revenue, as a reward to the wealthy in exchange for Thaksin's pardon and returned money, when they've proven unable and uninterested in collecting others. Tax revenue as a percent of GDP is one half the US and one fifth of some EU countries already, and in reality is even lower given how large the grey economy here is. Tax revenue needs to increase dramatically to pay for the social programs, infrastructure, and education that is desperately needed. Singapore can have lower corporate taxes because they force the rich to pay taxes, which PTP is not interested in doing.

There is no need to lower corporate taxes to compete, they beat Singapore in size and low wages and the rest of the region except Malaysia doesn't have the infrastructure to compete in high value industry and won't for many years. Vietnam will take lower value based on wages already and lowering taxes won't bring them back.

Edited August 29, 2011 by DP25

[blazes]

This article is economically illiterate. I will choose just two examples:

1. apparently, when you increase the minimum wage, says our brilliant journalist, it never comes down again. Well, there are many jurisdictions where that is fairly common...and I live in one such: British Columbia, which in 2001 elected a neo-con government which immediately went to work to cut the minimum wage (which it did by 25%).

Second, to quote the article:

Farmers, enduring floods and drought, should also complain that the government does nothing to offer them better rice breeds that could withstand the changing climate.

Here there is no indication by the journalist that the floods that affect Thailand have little to do with the 'changing climate' but rather with the deforestation that has occurred after important local landowners have blithely clear-cut millions of acres of forest land, thus making flooding in heavy rain a foregone conclusion.

[anterian]

Farming for fuel not food is a bad idea, encouraging increased consumption of oil derived fuel is a bad idea also. A year from now which will take the biggest bite out of the family budget, fuel or food? Any predictions?

[lannarebirth]

Farming for fuel not food is a bad idea, encouraging increased consumption of oil derived fuel is a bad idea also. A year from now which will take the biggest bite out of the family budget, fuel or food? Any predictions?

Let's be honest here. This is merely a way to loot an existing cache of money, while penalizing southern voters and southern palm oil producers. That's OK until the world price of oil climbs again, and then there's no reserve to stabilize prices and you'll see prices at the pump never before seen in Thailand.

[noahvail]

Farming for fuel not food is a bad idea, encouraging increased consumption of oil derived fuel is a bad idea also. A year from now which will take the biggest bite out of the family budget, fuel or food? Any predictions?

Let's be honest here. This is merely a way to loot an existing cache of money, while penalizing southern voters and southern palm oil producers. That's OK until the world price of oil climbs again, and then there's no reserve to stabilize prices and you'll see prices at the pump never before seen in Thailand.

On your first point, history is repeating itself. On your second point - that's just simple logic. Recently the price of oil has been dropping, but the pendulum will swing once again and fuel prices climb close to those in the West (which will probably be higher because of the various taxes on fuel in Western countries).