The government and private sector need to be well prepared to survive the second global crisis expected to hit the world in the second half of next year, Dr Somkid Jatusripitak, former finance minister and deputy prime minister, warned yesterday.
Many countries, especially those in Europe, have been using a demand-driven strategy to solve the recession by allocating huge sums on stimulating liquidity and domestic consumption. However, they are not addressing the real structural problems of the country.
Somkid, who was sharing his ideas at the "CEO Talk with Dr Somkid" forum hosted yesterday by Signature Brand, an importer of kitchen appliances from Italy, said Thailand needed to change if it wants to become competitive among neighbouring markets. Malaysia, for instance, is set to be a high-income country by 2020.
"The government should not wait for ideas from the public about how the country should be reformed, but instead they should get involved in the reform process and immediately deal with urgent issues such as education, research and the development of skilled labour," Somkid advised.
He added that for reform to work, the government needed to solve the problem of poverty and focus on fair dispersal of income.
"The Thai economy relies too much on export. We need to focus on stimulating the domestic market by empowering and encouraging development and welfare outside the capital. The purchasing power of provincial consumers should be stimulated," he said.
According to Somkid, there are three major mechanisms that fuel countries - natural resources, efficiency and innovation.
He added that the countries powered by natural resources would have a per capita GDP of less than US$2,000 (Bt64,840), while per capita GDP in efficiency-driven countries would stand at between $3,000 and $9,000, and more than $17,000 on average for innovation-driven nations.
"Thailand's per capita GDP exceeded $2,000 in 2002, reached $3,000 in 2006 and is now at about $4,000," Somkid said, adding that the per capita figure in Malaysia was twice as high at nearly $9,000.
"Malaysia has created a good balance between domestic consumption and export. They have a concrete policy to reduce the income gap and focus on proactive investments, especially in terms of research and development as well as university education," Somkid said.
"If Thailand wants to take the step of changing from an efficiency-driven country to an innovation-driven one, we need to urgently reform our education system. We need to invest heavily on research and development, especially bio-technology," he added.
He said Thailand's global ranking for research capability was between 60 and 70, because it only spent 0.02 per cent of its GDP on research. In comparison, Singapore spends more than 3 per cent of its GDP in research.
"The government needs to have clear directions about bringing the country forward and should allocate resources to achieve this objective," Somkid said.
He said the 1997 financial crisis had been brought on by the failure of the banking and financial system. Many businesses suffered from non-performing loans and the unemployment rate was very high.
"After that recession, many entrepreneurs spent between three or four years reshuffling their businesses and preparing for any upcoming economic challenges such as last year's global recession," he said.
Somkid added that Thailand still had a very good foundation in terms of economy and export. He said the country should be able to achieve its targeted GDP growth of between 5 and 6 per cent in the first half of this year, though it would still need time to restore its tourism and foreign investment.
He said Goldman Sachs, a global investment banking and securities firm, predicted that in the next two decades about half of the global GDP would be in the hands of Brazil, Russia, India and China, along with N11 countries, including Indonesia, the Philippines, Vietnam, Mexico, Egypt, Iran, Pakistan and Bangladesh.
"Thai investors and exporters need to shift their focus to these potential markets as purchasing power will shift from developed markets to these countries," Somkid said.