Amending our economic rules - a few proposals
Discussions about amending the Constitution will heat up in early 2013. Against this background, I call on all knowledgeable Thais to debate how the country's economic rules should be amended so as to really benefit the public.
I emphasise economic rules because all previous amendments have concentrated on vote buying, selecting ethical people for government, preventing conflicts of interest, etc. Economic rules have never been adequately emphasised.
I propose rule changes on three issues: a) framework governing populist policies, b) framework to fight corruption, and c) protection of civil servants.
A framework to regulate populist policies is urgently needed. In the future, more and more political parties will compete using such policies. Such competition will burden the country with excessive debt.
Anti-corruption measures are necessary. Businessmen have told me that demand for under-the-table payments has risen as high as 40 per cent. This will bankrupt our country.
Protection for civil servants is important. They need to be helped to stand up to politicians' improper demands.
POPULIST POLICY FRAMEWORK
1 Limit government borrowing for non-essential policies: We should not disallow populist policies altogether, because some policies may be useful in rebalancing wealth or opportunity. But we should dictate the source of funding. It is safe for the government to fund populist policies from additional taxes or other revenues, or by reducing other expenditures. But the risks multiply if they are funded by debt.
We should therefore divide populist policies into two types, a) essential for life, such as medical necessities, educational policies, etc, and b) non-essential for life, such as help to farmers, refinancing loan shark debts, etc.
Funding by public debt should be allowed only for the essential type. Non-essentials should be funded by revenues.
2 Political parties should declare their sources of finance for populist policies: Political campaigns that feature populist policies should declare a) the amount of money to be used, b) the sources of finance, c) what additional taxes will be raised and how much, or d) what other revenue will be found.
3 Pledging should not exceed market prices: Help for agriculture should strictly comply with three principles: a) it is transparent, b) prevents corruption, and c) ensures that the full amount ends up in the hands of farmers.
Help for agriculture falls into two categories, which must not be mixed. The first is help with cash flow. This type of assistance can be done through pledging schemes. The second is subsidies. This should have nothing to do with pledging. We should therefore amend the laws to prevent any government offering a pledging scheme that sets the price above 80 per cent of the market price. Pledging should only cover cash flow, and the new law should ensure this. However, governments should not be prevented from helping farmers at price levels above market prices, no matter how high.
But all future governments should be required to be straightforward and buy the produce directly. For subsidy, pledging has been used to twist the facts. In future, all governments should no longer be allowed to disguise purchasing as pledging.
Forcing governments to adopt the method of purchasing instead of pledging will prevent corruption because all relevant parties have to follow rules set by the Ministry of Finance in the purchasing and the safekeeping of produce. It will also ensure that the money ends up in the hands of farmers and not mill owners.
4 Tighten definition of govt to govt sales: Current regulations require that all government sales of stocks be done through bidding, to ensure maximised prices. Only government-to-government sales are exempted. There have been controversies, however, as to what defines govt-to-govt sales. The definition should therefore be tightened: a) Sale contracts must be done with a Thai governmental entity, b) Money from abroad must be paid directly to a governmental entity, and c) The export procedure must be done by a governmental entity.
Any sale not covered by a, b and c must be done through bidding.
5 Full, up-to-date accounting must be made: In the past, some pledging schemes took more than a year to officially close their books, hence delaying the recognition of losses. We should therefore change the rules to require Bank of Agriculture and Agricultural Cooperatives, or other relevant agencies, to estimate all losses and file claims at the end of each year. The government should be forced to pay up immediately, with adjustments to be made later after the official closing of the books.
6 Parliament to have more control over revenue and debt: Currently Parliament exercises close control over government expenditure through the budget procedure. But control over revenue collection and debt creation is still weak. The government should be accountable to Parliament each year on: a) its target for revenue collection, and b) its public debt limit.
There should be further study on whether Thailand needs "fiscal cliff" rules. When the government fails to stick to budget targets, it should be temporarily disallowed further expenditure unless and until it proposes an acceptable solution to Parliament.
7 Declare government's contingent liabilities regularly: The Ministry of Finance should be required to make mark-to-market estimates of all potential losses and future burdens to government finances from all populist policies, and declare the figures to the public quarterly.
8 Estimate capital impairment of government banks: Semi-populist policies have been conducted through government banks, reducing their profits and causing non-performing loans. All future burdens to government banks will eventually be passed on to government. Government banks that make losses will have to be recapitalised by future governments. Therefore, the Ministry of Finance should be required each year to estimate the amount of capital increase that will be needed to comply with Bank of International Settlement standards. This should be added to the government's contingent liabilities to be declared quarterly.
1 Regular declaration of median prices
In 2011, the National Anti-Corruption Commission called on the government to make regular declarations of median prices for government procurements. But this has been not yet been complied with. We should therefore amend the rules to require the government to do so.
2 Comply with the Transparency Pact:
In 2011, a committee within the Ministry of Finance, experts from the private sector and the Federation of Board of Trade agreed on the Transparency Pact. It proposed regular disclosure of all major government procurements. Disclosure is to include such information as a) names and bids of all bidders, b) name and bid of winners, c) delivery and performance by winner, etc.
We should require the government to immediately adopt the Transparency Pact. Information disclosure should be made simultaneously on two websites at a) the Comptroller General and b) the department that acquired the goods or services.
Access to the websites should be free, without the need for prior registration.
3 Disallow linking to locked specification: There have in the past been instances where the specification for a major product was written to link up with a minor product. This minor product would be restrictively sold only to a certain bidder and no other, however. This practice must be stopped. The amended rules should also apply to all governmental entities.
4 Company auditors to declare expenses in cash, and expenses paid to private individuals: Most under-the-table payments are done in cash because a bank transfer or cheque can be traced. Companies that make large cash payments for expenses should therefore come under scrutiny. Also, corrupt payments tend to be recorded as paid to private individuals, who are in fact just names concocted by the business so as to disguise the money trail to the actual beneficiaries.
We should require the external auditors of larger business companies that have incomes in excess of, say, Bt20 million per year, to declare in their annual accounts a) the ratio of expenses paid in the form of cash, and b) the ratio of expenses paid to private individuals.
5 Revenue Department to audit suspect companies: Companies that have ratios of cash expenses higher than, say, 10 per cent of revenue, should be closely scrutinised. If they cannot be adequately explained, the Revenue Department should suspect those cash payments to be for illegal purposes, and thus not tax deductible. Companies with exceptionally high ratios of expenses paid to private individuals without adequate explanation should also be closely audited.
PROTECT CIVIL SERVANTS
1 Bar politicians from promoting or transferring civil servants: I propose that promotions and transfers of higher civil servants be made by committees that do not allow participation of politicians.
2 Separate certain agencies into independent entities: Certain government agencies should be spun off into independent entities, governed by their own boards. This will prevent political interference in personnel transfer, while their own sources of income independent from the government budget will also allow better recruitment of capable personnel. One suggestion is to separate out the task of tax collection.
3 Protect whistleblowers: Civil servants and personnel in government enterprises should be encouraged to send evidence of wrongdoing to investigating units and receive protection from persecution for this.
I eagerly invite feedback from all knowledgeable Thais on my ideas, and welcome any ideas that could benefit our country.
Thirachai Phuvanatnaranubala is a former Finance Minister.