Reject populism and credit growth, promote competitiveness

Speaking at a TDRI seminar on “New Model for Quality Growth Development through Enhancement of Productivity” yesterday, Kosit Panpiemras said Thailand needed to find a way to boost growth and avoid the middle-income trap, while abandoning populist policies and credit expansion as means of development.

“The experience of other countries across the world shows that healing or speeding up economic growth through populist policy and credit expansion has only short-term impacts. Its result is that the country cannot expand at its full potential in the long term. Aside from other countries’ experience, Thailand itself has witnessed an economic slowdown this year,” he said.

The Kingdom needs a development model based on improved competitiveness, which has proved successful for economies including South Korea, Taiwan and Israel, he said.

The World Economic Forum recently ranked Thailand 37th out of 148 countries for competitiveness. The country’s readiness for infrastructure was positioned at 47th, but its education and training efficiency at 66th. Technology was graded 78th.

“Such information shows that infrastructure is not the main point for Thailand in terms of its future competitiveness. However, Thailand’s major problem remains that it is a laggard on the world stage in education and technology,” Kosit said. 

The proposed new economic development model consists of improvement of Thai operators’ technology competitiveness, balance in the world’s export markets, investment at the regional level and domestic purchasing power, and enhancement of labour productivity and remuneration.

“Thailand has high potential. However, in light of the global economic uncertainty, major economies’ likely lower expansion and higher competition, Thailand may need to make adjustments in its private and public sectors for a quality economic drive.” 

He suggested that improved productivity should be a major driver of sustainable long-term economic expansion. 

Next year could see improvement in the global economy, which could have a knock-on effect on Thailand depending on how Thai operators adjust, he said. If they can adjust themselves, the Thai economy is expected to grow in a range of 4-5 per cent in 2014.

However, Kosit personally expressed uncertainty on Thai operators’ capability for adjustment, given the high costs they face, including wages. 

Narongchai Akarasanee, chairman of the board of directors at MFC Asset Management, said the government’s populist policies distorted the pricing mechanism for particular products, especially agricultural goods. For example, Thailand used to be renowned for supplying good-quality rice to the world market. However, the quality of Thai rice has dropped significantly since the government launched the rice-pledging scheme.

Narongchai, a former commerce minister, suggested that the government adopt three policies to improve efficiency. First, promote fair competition in the marketplace without any controls on the pricing mechanism. Second, support investment to strengthen the society and give commercial knowledge to local entrepreneurs. And third, promote innovation and modern business theories in the private sector with the focus on design and marketing. 

In the world economy next year, the Bank of Thailand has anticipated that the real business sector, such as manufacturing and trading, will improve significantly. However, the fiscal and monetary sector is still having problems, especially in the United States. As a result, the overall world economy might not be any better than this year. Local enterprises should undertake measures to shield themselves from disturbances in the exchange rate.