Govt must change its course: DBS
The following is the exerpt of DBS Research's comment towards the government's economic policies. The house suggests the government review its policies, in light of a spike in inflation.
"Some dire consequences if the current course is not changed: the fiscal front could suffer, inflation pressures from the hit to supply could be exacerbated, and worst of all, foreign investors could lose patience having waited for about five years for Thailand’s political crisis to be resolved.
The recovery of Thailand from the flood crisis crucially depends on the government’s response and policies ahead. The government needs to prioritise near-term rehabilitation and chalk out credible plans for longer-term flood management and prevention. As things stand now, there is little reason to doubt the willingness or ability of the government to deliver on both the short-term and the long-term policy response. Neither ideas nor money nor public support are running low at this juncture. Thailand has spent the past decade deleveraging and its debt and deficit levels are low. At the same time, with most of the nation having suffered from the floods, even political uncertainties may not come in the way of necessary infrastructure expenditure.
However, in order to prudently manage finances, it may be necessary to postpone the implementation of the slew of electoral promises such as subsidies / tax incentives (for home, car, fuel), corporate tax cuts, rice price support scheme, civil servant wage hikes etc.
Remember the chief criticism of these policies is that they support the demand-side of the economy when what’s ailing the economy is the supply-side, notably the lack of investment since 2006 (in contrast to 2001 when ex-premier Thaksin’s policies supporting domestic consumption spurred growth). If anything, the floods further underscore the lack of appropriate infrastructure investment and the urgency and importance of prioritising investment spending over consumption.
Unfortunately, while the government is keen to spend on flood management, it has shown no intention of postponing or abandoning its electoral promises. There are a few consequences if the course is not changed: the fiscal front could suffer, inflation pressures from the hit to supply could be exacerbated (we push our 2012 inflation forecast higher to 4.5 per cent from 4 per cent), and worst of all, foreign investors could lose patience having waited for about five years for Thailand’s political crisis to be resolved."
