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2 ASIA
HAND The urge
to splurge in Thailand By Shawn
W Crispin
BANGKOK - All of the main
political parties set to contest Thailand's
December 23 polls have vowed to ramp up spending
and put the economy back on track. Yet the odds
are against the country's next democratically
elected government lasting long enough to honor
those populist pledges.
The Thai economy
has slipped under the junta's watch, lagging
behind
the economic growth rates seen in several other
regional economies. Meanwhile, foreign investors
have openly lamented the military-appointed
government's economic management since coupmakers
seized power from deposed prime minister Thaksin
Shinawatra in September 2006.
Those
complaints have centered on the decision to impose
capital controls on equity, bond and currency
transactions, the central bank's unorthodox and
restrictive handling of interest rate policy,
nationalistic proposals for amending the Foreign
Business Act and the politicized cancellation of
certain state contracts and seizure of certain
foreign-held assets.
The still unresolved
political situation, including lingering concerns
that the junta might backtrack on its previous
promise to restore democracy through new
elections, have weighed against local business and
consumer sentiment. Private investment contracted
in the third quarter, while whole segments of the
local economy are in recession. Mobile telephone
companies have reported for the first time ever
declining usage rates.
Some economic
analysts believe the Thai economy could slip
further as a slowing US economy starts to drag on
exports, which have recently been strong and
contribute 70% of gross domestic product. There
are concurrent concerns that spiking global oil
prices will start soon to take a heavier toll on
Thai industry, considering the country ranks as
the largest oil importer as a percentage of gross
domestic product (GDP) in Asia.
The poor
economic news has been factored into political
parties' electoral strategies, with all of the
main contenders avowing vigorous fiscal pump
priming if elected. They have universally adopted
Thaksin's past successful campaign strategy,
entailing promises of government handouts for the
rural poor. While there is some financial space
for more government spending, with official public
debt at 37% of GDP and near 44% when including off
balance sheet liabilities, the next government
will be constrained by scheduled fiscal deficits
of 1.7% and 1.8% of GDP for this year and next.
Populist consensus The previous
opposition Democrat Party is promising to restore
the country's neo-liberal credentials and usher in
a new era of economic optimism, by making amends
with alienated foreign investors topped up with
aggressive public spending. Democrat party leader
Abhisit Vejjajiva has said that if his party wins
enough votes to form the next government, he will
prioritize scrapping the current government's
capital controls policy.
Deputy party
leader and former investment banker Korn
Chatikavanij, who would presumably take the
finance portfolio of any Democrat party-led
coalition, said during a recent private
presentation to foreign investors in Bangkok that
he would aim to quickly ramp up infrastructure
spending, including plans for at least three new
mass transit train lines in Bangkok, a major
renovation of the country's decrepit railway
system and an expansion of irrigation systems in
rural areas.
The party is also offering a
raft of populist spending policies, including a
new universal education system, an extension of
the low-cost universal health care scheme first
implemented by Thaksin's government, and other
schemes targeting the rural poor. To finance those
schemes, Korn said the Democrats will be willing
to pump up public debt to between 55%-60% over the
next five years.
That, of course, all
rings familiar with the People's Power Party
(PPP), the newly formed incarnation of Thaksin's
disbanded Thai Rak Thai (TRT) party. The PPP says
it plans to maintain the TRT's past policies,
including a heavy new dose of populist spending
programs and a new push to follow up the ambitious
infrastructure spending plans Thaksin first
proposed but never implemented, which before the
baht's recent appreciation was scheduled to amount
to about US$44 billion over five years.
The PPP's populist programs include the
continuation of the TRT's former revolving village
fund, a debt moratorium for farmers, as well as
the establishment of a new so-called People's
Bank, which would be charged with providing
start-up capital to budding rural entrepreneurs.
The policies also include agriculture price
supports, which historically have proved costly
and done little to address underlying economic
weaknesses in the rural economy. However, the
policies are designed to give cheer to the PPP's
faithful supporters in the poor north and
northeastern regions of the country, which
proportionally accounts for about 260 of the Lower
House of Parliament's 480 seats.
Post-coup
party defections and the ban on 111 former TRT
executive members, including former finance
minister Somkid Jatusripitak, raises new questions
about the PPP's technocratic competence and
ability to manage spending. It's unclear who
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