Govt must review its policy agenda for the next three years

opinion September 05, 2012 00:00

By Chodechai Suwanaporn

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Last year on August 23, Thai Prime Minister Yingluck Shinawatra made her administration's policy statement to the Parliament, marking the beginning of the current government's full assumption of administrative power.


Now we have passed the one-year anniversary of the current government. I think we all agree that the past year has indeed been an eventful one for all of us. The severe flood crisis resulted in an economic contraction late last year, and as we move forward the Thai economy is experiencing significant headwind from the unfolding euro sovereign debt crisis. The euro crisis has showed its effect in stagnating local export performance.  
The future direction of the global economy remains cloudy at best with the prospect of slowing economies in China and the Asean countries as well as continuing uncertainty in US economic trends.
In any case, the above factors are beyond our own control. What we, or the Thai government, can do to make a difference is to continue steering Thailand with our minds focused on a long-term vision for the country despite the periodic domestic nuisances.  
Personally, I think the government should not get bogged down with yearly export growth numbers or GDP numbers while forgetting to set our longer-term vision for the country – enhancing our competitiveness and the productive capacity of Thailand.  
Only if Thais can produce more and be more productive can our standard of living truly and sustainably improve. We have now reached US$5,000 income per capita, and some economists have suggested that Thailand may be in the “middle-income trap”. We are now in the classification of a “upper middle income” country with income per capita ranging from $4,000 to $12,500. We are still quite some way from the World Bank threshold definition of “high income”, which is $12,500 income per capita. From this figure alone, it seems that Thailand will be “trapped” as a middle-income country for a long time to come.  
But what can we do to accelerate our progress towards higher income?  Social subsidy programmes, while I personally agree in principle are a means to reduce social inequality, should be considered only as a short-term solution, not the curing panacea that will help Thailand achieve economic prosperity. As a next step, we truly need a set of policies to enhance productive capacity and to give Thais the incentive to produce more and become more productive.           
The latest Bangkok poll surveying prominent Thai economists has quite interesting results. Thai economists generally find the current government policies to be a mixed bag of good and bad – but over 58 per cent of them believe that the government’s populist policies will not lead to the increasing competitiveness of the Thai economy.  
Most economists gave their overwhelming support for an old-age pension scheme, a free WIFI programme and the Bt30 healthcare programme, while they express disagreement with the rice price guarantee scheme, tablet PCs for schoolchildren and financial breaks for first-car buyers. At the same time, they agree with some reservations on major government policies such as the Bt300 daily minimum wage policy and the Bt15,000 minimum monthly salary for university graduates. 
In my view, I think the government needs to review its policies for the remaining three years of its term. The policy framework should not just aim at short-term gains without sufficient long-term benefits. Therefore, I think that government policies should re-orient towards three policy agendas:
1. Social welfare spending should be targeted more towards the needy segment of Thai society. There should be further analysis on how diesel excise tax reduction benefits the poor; whether the first-car policy really benefits low-income earners at the expense of government loss of revenue and worsening traffic congestion. It would be interesting to see an analytical study of whether the Bt61 billion budget appropriated for the rice price guarantee scheme for fiscal year 2013 is value-for-money spending to help “poor” Thai farmers at the expense of market distortions and export performance.   
2. Except for specific cases of “market failures” in a free capitalist system, the government should unleash the power of the free market. Government intervention should be the exception and not the rule. Market competition should be promoted and prices should be determined in a free market system. Policies and regulations should aim at correcting specific cases of market failures not interfering with the work of the free market. Protective policies in certain industries should be reviewed.   
3. Public investment should be increased from the current low level of 6-7 per cent of GDP. Our infrastructure is truly in need of a major overhaul to be competitive. At present it is a major impediment to long-term growth for Thailand. For year two of this government, I hope that our leaders will be able to further enhance their performance with concrete programmes to overcome our existing economic bottlenecks – to say the least. There is a severe shortage of skilled labour, with only 15 per cent of our current labour force holding university and vocational degrees; and a high logistics cost at 19 per cent of GDP relative to 5-10 per cent of GDP among developed economies.  
We should all hope that our leaders can look beyond short-term popularity gains and fluctuating business cycles and see what Thailand really needs – a long-term vision.       
Dr Chodechai Suwanaporn is executive vice president, economics & energy policy at PTT Public Company Limited.