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Published on September 3, 2007

The next government may find two major constraints in formulating economic policies: a coalition government and the Constitution's emphasis on discipline.

Politically, the next government is unlikely to be formed by a single party, and under a coalition government, parties must make compromises to reach a common policy agenda, said Chulalongkorn University economics lecturer Sompop Manarungsan.

He added that the stability of the coalition government would be the weakest link and possibly obstruct economic progress.

About 56 per cent of eligible voters accepted the draft charter on August 19, paving the way for the general election. However, legislators said a number of relevant laws were expected to be introduced soon to outline appropriate details, in accordance with the concepts laid down by the Constitution.

However, several economists believe the new charter, which promotes public participation in the government's key decision-making process, may turn out to place constraints on the speedy execution of economic policy, because of the requirement for cross-examination by the House and the public.

National Economic and Social Advisory Council vice chairman Vorapol Socatiyanurak said the new Constitution might slow down fast implementation of economic policies. For example, the government must seek approval from Parliament when it wants a mandate to negotiate a free-trade agreement (FTA). It will also allow people access to information before the government can make a treaty with trade partners. The Constitution also requires the government to compensate private companies and people negatively affected by the FTA.

Freedom in annual budgeting may be limited, said Vorapol. The Constitution requires the government to create a national savings mechanism, in order to provide adequate welfare for retired workers. The Constitution also leads to the introduction of another piece of legislation to ensure the government's fiscal and monetary discipline.

It also demands the government make tax laws more just. The new government must also balance the sufficiency-economy philosophy with a market economy.

However, Vorapol is optimistic the next government can put forward innovative policies. There is no contradiction between a sufficiency and a free-market economy, he added.

Revenue Department director-general Sanit Rangnoi said there was room for the new government to cut taxes or run populist policies but that such policies must be limited by a framework of fiscal discipline.

Finance permanent secretary Suparut Kawatkul said the new Constitution would make annual budgeting more transparent and plug loopholes in existing laws and regulations. He said the Finance Ministry was considering revisions to many laws and regulations, in order to make them conform to the Constitution, including revenue tax codes, public-debt management and budgeting Acts.

"I think it has good intentions regarding building up long-term fundamentals in terms of founding quality human resources for the country," said MFC Asset Management president Pichit Akrathit. "However, the government may not be able to honour its promise, especially when it comes to people's rights specified under the Constitution, due to restraints on the government. For example, if the government's tax collection fails short of its target, the government will not be able to afford to provide 12 years of education.

"Therefore, the Constitution is just a guideline for good. But practically, management is the key. The organic laws must be well planned; otherwise, the government will unavoidably face a huge burden."

Standard Chartered Bank senior economist Usara Wilaipich said the draft Constitution's content regarding people's welfare would benefit Thais in terms of education and healthcare, particularly the disadvantaged. She said she could not detect any hidden agenda for populist policies. The country's fiscal policy will also be more flexible, allowing the Finance Ministry to conduct policy that is more in line with changes in the environment.

For example, the Finance Ministry will have greater flexibility in building public debt, such as through issuing bonds, even though the country's fiscal budget is showing a deficit. The country's public-debt ceiling will be expanded in accordance with the current situation, she said.

BankThai executive vice president Bunluasak Pussarungsri said the Finance Ministry's spending already had a system of checks and balances for examining the country's budget spending. Under fiscal discipline, the government should not build up public debt in excess of about 60 per cent of the country's gross domestic product (GDP). And the Kingdom's fiscal deficit should be no more than 3 per cent of GDP.

"As a result, there should not be a drastic change," Bunluasak said. "However, it also depends on the legal interpretation whether people want to avoid the discipline framework."