Details missing in fiscal plans

Prime Minister Samak Sundaravej was upbeat on his prospects of implementing key economic policies in his first year in office that would restore investor confidence and boost the domestic economy. In his policy address to Parliament, Samak spelled out his government's mega-project investment plans and its economic populist policies modelled after those of the ousted Thaksin government. The question is whether the Samak government can really push these policies forward as it has promised the Thai people it would?

Investors are asking this very question. They wonder if the coalition government really has a specific time frame in mind and the political will to implement the key economic policies and public investments needed to stimulate the domestic economy. Moreover, they also ask whether the coalition government is stable enough to do its job.  On paper, Samak's address to Parliament looks good. He said his government would speed up investments in rail projects, boost foreign-direct investment, promote tourism, restructure rural debt and provide soft loans to villages and small businesses.

Samak said the government would introduce pro-growth policies amid pressure from rising global oil prices and mounting inflation. He touched on the country's monetary policy, saying that it would be managed to ensure economic stability and help stabilise the baht as well as to bring inflation under control. Thai companies would be encouraged to invest overseas, while Thailand would also continue to attract foreign investment.

He didn't mention how his government would deal with the capital controls. During the election, the People Power Party pledged that once it was in power it would remove the 30-per cent reserve requirement. Both Samak and Finance Minister Surapong Suebwonglee said that the capital controls would be removed to restore investor confidence. But now that they are in power this issue has returned to haunt the government. After discussing capital controls with the Bank of Thailand's top policy-makers last week, Surapong appears to have decided to back off - at least until March or April before he embarks on his international roadshow.

The government's policy address lacks the details over how the economic programmes outlined will be implemented, specific timeframes for completion and also the financing that would be involved.

Both Democrat Party leader Abhisit Vejjajiva and Korn Chatikavanij, another key member of the Democrat Party, made interesting points during the parliamentary debate on the government's policy statement. Abhisit said he would like the government to take a clear stance on capital controls. If it would like to remove the capital controls, it should go ahead and do it. If it is not sure whether it should, it should make it clear that it would like more time instead of allowing uncertainty to continue.

Abhisit supported both the mega-project investments and the populist programmes proposed by the Samak government. On the mega-projects, he said he would like the government to consider whether they are worthwhile and also to implement them with transparency. Populist policies help stimulate the grass-roots economy only in the short term. The key question is how to monitor the progress of populist programmes to see whether they are really cost-effective and provide long-term growth for the grass-roots economy.

Korn was right to have asked whether the government was considering the financing factor carefully enough. At present, the public debt to GDP ratio stands at about 38 per cent. If off-balance sheet spending were to be included, the debt to GDP ratio would be around 40-42 per cent. As a result, the government is left with around 8 per cent of the GDP to create additional debt for spending before the country's debt to GDP ratio would exceed 50 per cent. Thailand is pursuing the economic sufficiency model, in which the public debt to GDP ratio must not be allowed to surpass 50 per cent.

In that particular case, the government would have between Bt600 to Bt800 billion to invest in the infrastructure projects. Yet the rail-project alone would cost Bt500 billion. Where will the money come from for other populist programmes? The Samak government will have to spell out its spending programme clearly by matching its spending with both revenue and the debt ceiling put in place to maintain Thailand's fiscal discipline.

The Nation