Improve supply side policies to sustain growth: BOT governor

Innovation and resource reallocation are key to breaking through barriers to economic and social development and setting the country on a sustainable growth path, Bank of Thailand Governor Prasarn Trairatvorakul said yesterday.

Supply-side policies are needed, as macroeconomic policies have limitations and cannot address the problems at their roots. And overuse could cause undesirable side effects, he said at the opening of the BOT Symposium under the “Lifting Barriers to Sustainable Growth” theme.

“Monetary and fiscal policies are the means to steer a plane through turbulence, to allow normal business activities ... But to speed up the transcontinental flight and reach the destination with less fuel, we need an engine upgrade or supply policies. 

“Sustainable and high growth can be assured by an efficient manufacturing sector. Strengthening the foundation will not only lift productivity and the quality of life in the long term, but also provide a cushion against new challenges and automatically strengthen economic stability.”

Echoing Thailand’s need for innovation, Somkiat Tangkitvanich, president of the Thailand Development Research Institute, said the country spent too little in the past on research and development. For every Bt100 in gross domestic product, only 24 satang has been invested in R&D, he said. 

Businesses have been growing mostly by government-stimulated capitalism and connections. 

“The two types of capitalism have pressured investment in R&D and this affects per-capita income,” he said.

Without competition, there are few incentives for R&D investment. For sustainability, the economy should rely more on the strengths of the private sector. 

While big companies must explore new markets, small and medium-sized enterprises must improve products and the government must ensure a level playing field, Somkiat said. Without change, in 10 years the economy would show a slower growth rate. 

Prasarn sees room for productivity improvement. The agricultural sector employs 40 per cent of the workforce but generates only 10 per cent of GDP, while manufacturing contributes 40 per cent with only 15 per cent of the workforce. 

Innovation should be introduced into the production system to create added value. The focus of economic policy must be adjusted to promote structural change. For example, there would be a big change if Thailand became part of the smartphone or tablet supply chain or if its logistics system were improved to allows the country to become the transport hub of Asean. 

Yet for a smooth transition, all parties must brace for changes, he said. Business operators must take risks in upgrading themselves, workers must adjust to new innovations, the government must design new incentives to promote competitiveness and the general public must open their minds to new ideas that will lead to social changes – particularly awareness of corruption and good governance.

There would be both winners and losers from structural change. To neutralise the impacts, inclusive policy planning will ensure that the benefits are equally distributed and the affected can seek new opportunities.

“The challenges can’t be addressed by an individual organisation, but it needs collaboration from all parties which share the same vision. This will unlock the bottlenecks,” Prasarn said.

A change is necessary given that average annual GDP growth weakened from 9 per cent before the 1997 economic crisis to 4 per cent from 2000-12. 

Thailand’s per capita income has stalled at 15-20 per cent of the United States’, while some neighbours such as Malaysia, South Korea and Taiwan, starting off at the same level, have enjoyed improvement. 

Unequal income distribution is apparent, as the top 20 per cent of the population controls half of national income, while the bottom 20 per cent are left with less than 5 per cent. These bottlenecks need correction, or they could intensify and impose risks to social and economic development and could exacerbate social divisions. 

Increasing productivity is crucial for improving the quality of life, the BOT governor said.