New govt should make reconciliation priority, advisory council says

Economy January 11, 2014 00:00


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AFTER A THREE-HOUR discussion with representatives from the public and private sectors, the National Economic and Social Advisory Council suggested that the next government make reconciliation its first priority.

It should also promote the export sector, as NESAC believes it will be the main driving force for the economy this year, the council said.

After the election, the new government should immediately come up with concrete solutions to the political conflict in society through reconciliation policies and other mechanisms, such as executive decrees if need be. It should bring together all sectors, conflicting parties, and the public to seek solutions that will end the current rifts in society.

“The new government should not come up with any policy, regulation, or amendment that will create conflict or favour any side in particular, because the government should represent the people of the whole country,” said Tanit Sorat, vice chairman of the council’s economic and financial team.

In terms of the economy, NESAC is worried about sluggishness in the export sector and suggests that the new government help exporters deal with rising costs and other obstacles.

NESAC also suggested that the new government set up a committee, consisting of representatives from both the private and public sectors, to seek ways to boost the export sector by limiting trade obstacles and promoting export “clusters” that will bring similar products together and group them before shipping to help lower costs.

“Orders from Japan and the United States have not picked up as expected in the first quarter, since new buyers are unsure about the political situation,” said Tanit, who is also vice president of the Federation of Thai Industries.

“Some [trade] exhibitions have been delayed, which means that negotiations for new orders are also delayed. Many new faces will decide to go elsewhere for business, such as Indonesia and Vietnam, if the political uncertainty is prolonged.”

He also suggested that the new government maintain progress on a new free-trade agreement with the European Union that looks set to be completed by late in the year, because it would certainly help Thai exporters through the reduction of taxes.

The new government should also help small and medium-sized enterprises that have been affected by the slowing of the economy in the past two years, which has led to a lack of capital fluidity in their businesses.

“The new government should make sure that SME operators can access funding more easily to help boost domestic consumption, which is lower because of the high level of household debt. It has soared to Bt9.33 trillion and accounts for 81 per cent of gross domestic product,” Tanit said.

“The new government should increase the purchasing power of the people while trying to avoid any actions that would burden citizens with more debt.”

NESAC also suggested that the new government quickly find ways to regain the confidence of investors and tourists while coming up with measures that will help business operators in the tourism industry that have been affected by the political instability.

Apart from the low level of domestic consumption, inactivity in government spending is another concern for NESAC. Tanit noted that currently, the government was spending 20 per cent less than expected because of the political conflict, which has hampered its ability to make payments.

“The new government has to hurry with disbursing the budget, since its spending window has been shrunk by the absence of a permanent government in the past months. The new government has to spend in order to boost public consumption and investment or else it will obstruct plans to expand and increase private consumption,” he said.

A member of the National Farmers Council, Amnuay Patise, suggested that the new government should rethink costly policies that distort the price of agricultural products.

“If the government wants to help farmers it should help them lower their production costs [in ways] that will not affect the price structure,” Amnuay said.

One last major concern of NESAC is the use of populist policies, such as increasing the minimum wage, as political tools because these raise costs for the private sector and can also lower the country’s competitiveness and ability to attract investment.

Lack of unskilled labour was also discussed, since much of the construction and service workforce consists of foreign workers who will most likely return to their own countries once the Asean Economic Community is established.

“All the suggestions that we have made today will be forwarded to all political parties, including the Democrats, in order for them to understand our concerns,” Uthai Sornlaksab, a senior member of NESAC, said at the end of the conference.

In a separate forum yesterday, Bhanupong Nidhiprabha, dean of Thammasat University’s economics faculty, said he was concerned that the “Bangkok shutdown” beginning on Monday could set the stage for a coup, which would affect the economy.

He cited the case of the coup in September 2006, which cost Thailand economic growth opportunities in the following year. While overall Asian GDP in 2007 rose by 5.3 per cent and the global economy 5.1 per cent, Thailand registered economic growth of only 4.5 per cent.

He added that personally he believed there was a high chance that GDP growth this year would be 1 percentage point lower than the forecasts of many economic houses. The present political situation has severely affected consumers’ confidence.

He said the Bank of Thailand’s policy rate, which is already low, should not be lowered further or it would prompt further capital flight, while inflation is also on the rise. The current policy interest rate is 2.25 per cent.

He added that the main driver of the economy this year would be the export sector., which is expected to expand on the V shape basis. The weakening baht will benefit exporters.

Meanwhile, HSBC cited in its global research report “2014 Outlook: Survival of the Fittest” that if political uncertainties lead to further delays in the government’s Bt2-trillion, seven-year infrastructure plan, there could be another drag on growth. This would in turn make it difficult for the government to achieve its goal of a balanced budget by 2017 and keep public debt below 50 per cent of GDP.

In general, Thailand’s debt profile has worsened as a percentage of GDP over recent years. This means banks’ asset quality and corporates’ earnings could be negatively affected should global interest rates start to rise this year.