Korn frets over risk of zero-growth economy
FORMER finance minister Korn Chatikavanij is more troubled by the country’s sluggish economic growth rather than the prospects for a repeat of the Asian financial crisis that broke out in 1997.
Korn expressed his concerns about persistently low economic growth at a forum yesterday that marked the 20th anniversary of the crisis.
The economy has been ex-|panding at a rate of about 2-3 |per cent over recent years, compared with the expansion of about 10 per cent seen before the crisis flared up.
Thailand could potentially suffer a sustained period of no growth that had been experienced in some African countries and which entrenched widespread poverty, Korn told the forum, which was hosted by Infinity Global Investors.
Korn, who was finance minister from 2008 to 2011, said the country faced a loss of competitiveness due to factors such as the low skills of the workforce, a poor education system and a squeeze in exports from trade rivals.
While Korn noted that the government’s Thailand 4.0 technology vision is aimed at supporting innovative industries, he said there may not be sufficient people capable of contributing to these sectors. “Has anyone asked farmers if they are ready to switch over?” Korn said.
Only relatively few people will be able to take advantage of the new government policies, he said.
Government investment in infrastructure projects makes up only a part of the whole economy, he told the forum. The former minister cited demographic changes in Thai society as key concerns. The ageing of the population that will coincide with shrinkage in the ranks of those of working age will be a negative factor felt over the next 20 years.
The ratio of working-age people to seniors is 4:1; the ratio will be 2:1 in the next 20 years. Social welfare costs will rise significantly, putting great pressure on the government budget, he said.
Korn also expressed concern over the impact of what he describes as the vast liquidity in the global system.
“How is that Argentina over |the past few weeks could sell government bonds with 100 years of maturity with coupon rate of 8 per cent?" he said. Investors oversubscribed to the bonds to the tune of four or five times the amount of debt issued.
This market response suggests that too much liquidity is available in the market and investors are too willing to take on risks, he noted. Over the past 200 years, Argentina has defaulted on its eight times, he said.
Korn warned that the massive injections of funds into the mar-kets by the central banks in |Japan, Europe and the United States could lead to a global financial crisis. “It might be the most severe crisis the world has ever seen,” he said.
He pointed to what he called a weak spot in Thailand’s financial markets, with the Deposit Protection Agency holding only a small amount of funds to protect bank depositors in the event of an emergency.
Meanwhile, former central bank governor Prasan Trairatvorakul warned that the next crisis could come in a different form to the 1997 crisis, so the country should not be complacent.