Weak govt clueless on tackling oil, inflation problems

The government of Prime Minister Samak Sundaravej has been off to a shaky start, clearing the crucial first 100 days in office without any direction or political will to tackle the huge political and economic problems facing Thailand.

Samak's hands-off style of management fails to take into account the gravity of the energy crisis and the threat of runaway inflation. Most Cabinet ministers, who come from different political parties, do not work as a team.

The oil price has hit US$130 a barrel and Thailand is edging into a dangerous zone of stagflation - high inflation with sluggish economic growth. At this pace of oil imports, Thailand might end up losing another US$10 billion (Bt320 billion) in foreign exchange in a hurry.

Domestic prices, including food prices, are also rising and hurting Thai consumers. Although the Commerce Ministry has attempted to curb the prices of 60 consumer products, it is only playing on psychology. The reality is that upward price pressure is now in the range of 6 per cent.

The world now needs Thai rice. Ironically, the rice price, which has surged from US$500 a tonne from last year to almost US$1,000 a tonne, has not yet benefited the farmers. Milled rice might have higher price, but paddy price remains low.

So what is the government of Samak Sundaravej doing? The answer is nothing much.

"The size of the economic problem is huge, with the high oil prices and surging domestic prices. At this annualised rate of oil imports, we would have to pay another US$10 billion in deficit. To tackle the energy crisis, the government may need to provide assistance to selective sectors of society," said Dr Suvapud Saicheua of Phatra Securities.

So far the Samak government has pumped in some Bt150 billion to help increase the purchasing power of the grass-roots people. But the stimulus package, which also benefits the middle-class, represents only a short-term measure.

As the Thai government has been running a budget deficit for three years in a row, it is not in a position to provide subsidies to all sectors of the economy during this time of rising cost of living and higher oil prices. But it can target its assistance to the living poor, such as selling cheap rice or consumer products to the needy, issuing coupons for bus fares or for other food.

As a longer term measure, the Samak government will have to plan seriously to reduce Thailand's dependence on oil. This means the economic system must be restructured away from oil imports. Investing in public transport and in alternative fuels such as biofuels or nuclear energy are other options.

Equally important is the Bank of Thailand's monetary policy, which must be tightened to reign in inflation rather than accommodating economic growth. Lax monetary policy will feed inflation, which is hurting not only Thailand but also the rest of Asia and the world. High inflation will hurt the poor the most because it eats into their income as they spend 30 per cent of their income into food.

"I think the main agenda of the Samak government is political rather than economic," said Dr Teerana Bhongmakapat, dean of Chulalongkorn University's Economics Department. "If we look at all the key men in the Cabinet, they all are political veterans. They have laid less emphasis on the economic team, which works in a defensive manner."

Teerana views the Samak government as weak because it has failed to chart out a clear policy direction and lacks the political will to follow through with its programmes.

"Instead of tackling the energy crisis or high inflation, the government is paying more attention to going on road-shows to attract investors to the stock market. I think it is hitting the wrong target," said Teerana.

--First of a series.