Local media describe the proposals as offering the benefits of a casino without individual risk to voters, but perhaps a collective risk to the Thai economy.
The top proposals are: doubling the minimum daily wage to 300 baht (US$10) per day in some parts of the country; rice price guarantees, building 10 lines of Bangkok’s elevated train with fares of 20 baht ($.67); a high-speed rail system to Korat, Rayong and Chantaburi; expansion of the current airport rail link to Pattaya; construction of land bridges in the south of Thailand; all illegal drugs to “disappear within 12 months; poverty eradicated by 2020; local governments will receive 25 percent more funding; credit cards to farmers to buy planting supplies; reduction of the corporate tax from 30 percent to 23 percent; employees with bachelor’s degrees will start work at 15,000 baht per month ($500); students receive a free tablet PC; free Wi-Fi in public places and the salaries of government workers and those in state enterprises will be raised and establishing capital venture funds for each province.
However, efforts by Thailand’s incoming government to spur growth and raise incomes may accelerate inflation, forcing interest rates higher and increasing business costs even as a rising baht threatens exports.
Thai inflation held near a 32-month high in June after food prices increased, the Ministry of Commerce said July 1. The Bank of Thailand last month raised the nation’s benchmark interest rate for the fourth straight time to 3 percent, and signaled further increases may be needed to curb rising prices.
The Thai economy has been doing relatively well with the economy expected to expand 4.5 percent this year. However, the Democrats’ inability to control the price of basic food items such as eggs and palm oil may have played a factor in their defeat.
However, the proposed programs come with a price tag and they could destabilize the Thai economy. Of greatest concern is that there is no clear-cut plan by the Pheu Thai party to pay for the proposals
The 2012 annual budget, which will have to be finalized by the new government, should not allow the deficit to exceed 350 billion baht ($11.3 billion) as planned currently, he recently said. The government should also avoid huge spending by other fiscal means or short-term measures to inflate people’s incomes, he added.
“The fiscal deficit should not be extended much more [than 350 billion baht in the next fiscal year]. There is no need for much more economic stimulus. Otherwise we are sending inappropriate signals to the market while inflation risks are already high,” said Dr.Prasarn. “The economy has sound growth momentum, but inflation risks persist.”
High food and fuel prices as the economy percolates have led the central bank to increase the policy interest rate by a total of 1.75 percentage points to 3 percent since July 2010.
Generous campaign promises have run counter to plans for a balanced budget, excluding debt repayment, by 2015, according to Dr. Prasarn. Some of the more substantial short-term public spending plans involve simultaneous investments in transport routes and big increases in the minimum wage and salaries of new graduates.
Dr. Prasarn added that Thailand’s ageing society was placing more pressure on fiscal expenditures.
Dr. Somchai Jitsuchon, of the Thailand Development and Research Institute, said the future of the Thai economy was especially dependent on political stability during hard times in the global economy, given the huge importance of exports. He believed most investors would have preferred a Democrat-led government, if only for continuity in policies already introduced.
A Pheu Thai administration, he said, could raise concerns among investors over the political stability of the new government. The solid majority of the new government may have quashed those fears, however.
Much depends on how quickly Pheu Thai implements its policies.
Economists propose a gradual approach, however, most say it appears that the party wants proposals to be put in place quickly.
It would seem that the stage is set for tensions to grow between the Bank of Thailand and the new government. These tensions may be the first indicator of dissatisfaction with the Pheu Thai government’s economic policies, particularly if they stimulate inflation..
Page 3 of 4 Next >>