Prommin backs govt's economic strategy

 Its rice-pledging scheme is costing tens of billion of baht, while threatening Thailand’s position in the global rice market due to the extraordinarily high pledging price. The financial market complained about its heavy-handed transfer of the Financial Institutions Development Fund’s debt obligations to the Bank of Thailand. Those in the manufacturing sector cried foul over the minimum wage hike. Consumers are crying foul over skyrocketing goods prices. 

Prommin Lertsuridej, the mastermind of Thaksinomics, admitted that the policies appear misguided, but attributed this to poor implementation and a failure to explain the measures to the public. Yet, he said, all are part of a grand scheme based on three pillars – raising incomes, reducing expenses and increasing opportunities. 

In an interview last week, he said that it is important for Thailand to follow the economic framework. Given the global uncertainties, particularly in the US and the euro zone, Thailand will not be able to rely so much on its export sector, which now contributes 70 per cent of gross domestic product. Domestic demand must be stimulated to balance the impact on exports, if Thailand wants to sustain economic prosperity. 

“Given the sub-prime and euro crises, more focus must be placed on the domestic economy, to reduce export dependence. All the policies are designed to expand the domestic market to cope with global uncertainties,” he said. 

The highlights of the first pillar, raising incomes, are the pledging schemes for agricultural crops and the higher minimum wage, which is supported by a corporate tax cut. These will bring economic benefits to provincial people, Prommin said, adding that such distribution is necessary, as Bangkok is the biggest economic centre and the entire economy was crippled when floods hit the city.

He admitted that the minimum wage policy was poorly executed, without packages to promote new technology and enhance productivity. An incubation fund has been established, though, as a shock absorber. Among the government’s remedial measures, he opposed placing controls on cooked-food prices, saying offering choice and allowing competition was a better option. Fuel prices should be liberalised to reflect actual costs, Prommin said. 

To help SMEs control costs, he said financial costs should be looked at, as – given their high earnings – banks’ net interest margins could be lower. 

Looking at the second pillar, reducing expenses, the three-year debt moratorium for farmers is an important policy. It is considered a grace period for farmers, who normally reap returns three years after plantation starts.

“Moral hazard? After the 1997 crisis, while non-performing loans accounted for 48 per cent of total loans, NPLs in the agricultural sector were below 10 per cent. Most farmers honour their debt obligations,” he said.

Meanwhile, the government has reduced parents’ expenses by making unused textbook funds available for purchasing tablet computers and software, he said.

Increasing access to education and information is a way to help people expand their opportunities, he said. 

“Looking at bits of the picture, flaws prevail, but overall the picture is OK. In the interval, there may be casualties but that could be adjusted, as long as there are indicators of improvement in the big picture. What needs to be done is to balance the gap between incomes and prices. There must be shock absorbers put in place.”