thegreglowe.com

By GREG LOWE
IN BANGKOK

ECONOMISTS lambasted the Thai government’s 115 billion baht (S$4.9 billion) fiscal stimulus package for being populist and insufficient to revive the country’s failing economy, when it was announced last week.

Prime Minister Abhisit Vejjajiva defended the 18-project supplementary spending budget, which includes 19 billion baht in one-time handouts to low-income earners. He said it would inject liquidity where it was most needed to boost domestic demand.

However, his economic team drew criticism from the private sector, which said direct payments to the poor were politically motivated while businesses were not being supported.

‘The (stimulus) amounts to 1 per cent of GDP and is mostly populist spending rather than anti-recession measures,’ said Phatra Securities. ‘There is very little help for businesses.’

‘The aim of this package is political not economic,’ said Sakon Varanyuwatana, an associate economics professor and public finance specialist at Thammasat University, Bangkok. ‘Its main agenda seems to be gaining popularity with the poor, not alleviating the economic crisis.’

Some economists fear that the cash stimulus would evaporate within two months of implementation, leading government to raise taxes to fund more packages.

Deputy Prime Minister Kobsak Sabhavasu, who oversees economic policy, said that the 2,000-baht handouts to 9.4 million workers and civil servants were justified.

‘We’re not just standing on street corners handing out baht notes,’ he said, as direct payments to low- earners would avoid inefficiencies in budgetary disbursement. ‘We’re giving the money directly (to those who need it) so that none of it falls through the cracks, or goes to middle men.’

Finance Minister Korn Chatikavanij said that the government had learnt from mistakes abroad where economic initiatives had failed to boost consumption. Corporate tax rates and VAT would not be cut, as the government would lose valuable tax revenues because businesses would use the reduction to strengthen their balance sheets rather than invest, he said, while slashing VAT was unlikely to reduce retail prices.

Targeting people earning under-15,000 baht per month was more effective as they save between 10-30 per cent of their earnings, he said. Based on this premise, around 70 per cent of the handouts would be immediately returned to the economy, increasing demand.

‘The fiscal stimulus will take time to impact the economy, it’s unlikely to be implemented before the second quarter, March soonest,’ said Usara Wilaipich, senior economist, Standard Chartered Bank (Thai). ‘There’s still no real detail on the package and it’s not enough to cope with the economic situation.’

The government drew flak for only setting aside 500 million baht to help SMEs, which need direct support through soft loans from state-owned banks.

The government said its stimulus package could see the economy grow by more than 2 per cent this year, but many economists are more pessimistic.

Stanchart (Thai) forecasts 2009 GDP at 1.3 per cent, assuming the Bank of Thailand cuts interest rates further to one per cent, from 2 per cent.

‘The government is too optimistic, it only thinks the crisis will last for the first quarter, whereas it may last much longer,’ said Prof Sakon. ‘The economy is unlikely to grow little more than one per cent even with the package.’ Long-term initiatives to improve human capital should be included, he added.

Some sectors support the government’s plans. Leading Thai retailers said the stimulus would help restore investor confidence and boost domestic demand. The Consumer Confidence Index saw its first increase in December, rising to 74.8 per cent, when the Democrat-led coalition government came to power.

Kasikorn Research Centre said that the package was well timed and would help cushion the impact of sagging GDP. ‘Against this backdrop, the Thai economy this year may not show negative growth as many fear,’ it said.

The government said that it could boost the economy further if necessary and that public debt would not be more than 42 per cent of GDP.

Published January 20, 2009
© The Business Times