We now have a govt; what's next?

For almost seven months, the economy operated with no driver behind the wheel against the backdrop of the slowdown following a collapse in agricultural prices and exhausted domestic demand from over-stimulation in the year after the flood disaster. So, having a fully functioning government once again is definitely good news for the economy. And now it is even better, as the government is equipped with policies.

You may wonder: “How will this be different for the economy from the past three months, in which executive orders were given directly from the leaders of the National Council for Peace and Order?” Believe it or not, quite a lot, actually. 

We must bear in mind that the economy is not a machine. It is made up of the collective interactions of individuals making millions of decisions. The economy isn’t simply a GDP figure, but that figure is rather a summary of production and expenditure behaviour incorporating individuals’ expectations and information flow.

But under the NCPO, things were happening at lightning pace. At the flick of a finger, things got approved, obstacles got removed, and messes were rearranged. Hence we hear the proclamation of great efficiency by those involved in the process. Yet the structure of the process itself was not lucid, especially to the eyes of outsiders.

Now that we have a government, two key facts are about to change. The process will be clearer but more rigid. Proposals will be made to the Cabinet ministers. If agreed, ministers will submit the proposals to the full Cabinet. The Cabinet will make decisions. Some will move on to the National Legislative Assembly, while others will go back to the ministries for implementation. In other words, the structure of the process now returns to a more “business as usual” (BAU) model, which is much better for anchoring the expectations of the masses, both domestic and foreign.

Unfortunately, the expressway to decision-making no longer exists. So approvals will take longer than before, but we in fact should not be too surprised with this. The only reason for the lightning pace under the NCPO was the full integration of the executive and legislative branches of the government into one. So they could work faster than any previous governments, getting done in three months things that typical governments would take at least a year to do. But now that we are back to the BAU model, we should expect no better than the BAU pace.

As for the government policies, however, there was no big surprise. On September 12, the prime minister gave a full outline of these. In short, they are a continuation of work already begun under the NCPO, but now even better under a well-defined structure of a full government, a whole lot more familiar to consumers and businesses. 

Recent evidence confirms that despite the recovery in consumer and business confidence, the Thai economy itself has hit rock bottom. It won’t go deeper, but it’s not recovering very quickly either. Consumption is slow and in a limited scope, while investment and exports continue to contract. So clearly, reviving confidence wasn’t enough.

Thus the economic policies are separated into three phases: Short-term for immediate actions, medium-term for resolving structural impediments, and long-term foundation of growth.

The set of short-term policies is aimed at getting money flowing through the economy as soon as possible. This will be done both with state expenditures and providing incentives to induce more private spending, without adding to debt burdens. The government bases its hope on the advent of high season for tourist arrivals and regional exports.

In the medium term, say within a year from now, the government wants to carry out some needed structural reforms, such as in water management, energy subsidies, and multiple tax laws. Much of the focus will be on resolving inconsistencies and inequitable treatments of laws and regulations.

Finally, for the longer term, the government wants to sow seeds for long-term growth. However, all of these policies will likely spill over to the next couple of governments, hence a mechanism to ensure continuity of plans is needed. The good news is that these policies revolve around common themes of the Asean Economic Community, higher efficiency and value addition, and upgrading technology. Very few people will be against such principles, but the devil will eventually be in the details that are yet to be disclosed.

The lesson is learned: Having a government is far better than the absence of one. Despite the complaints of inefficiency, long-winded bureaucratic processes, and even corruption, the state of vacuum without a fully functioning government is more damaging than good for the economy. 

Now that we have a government and a set of policies, this will definitely bode well for the economy. Confidence has responded well, the financial markets have rebounded, but the last real test is getting the economy off the ground. And it’s not a matter how, as we know the policies, but when.

 

The views expressed in this article are those of the author and not of TMB Bank or its executives. Dr Benjarong Suwankiri, head of TMB Analytics, the economic analysis unit at TMB Bank, can be reached at [email protected].