It will take more than 'Somkid-nomics' to lift us up

In a clear bid to shore up flagging public support, Prime Minister Prayut Chan-o-cha’s military-led government is attempting to revive the sluggish economy with the same brand of populist policies that its deputy premier, Somkid Jatusripitak, previously deployed during the Thaksin Shinawatra administration.

“Somkidnomics” – basically a sub-set of the “Thaksinomics” once vaunted throughout the land that still retains many admirers today, though it’s regarded with contempt by others – extended to village funds, loans to small and medium-size businesses and the One Tambon One Product scheme, all subsidised from the taxpayer’s pocket. Those sorts of policies, however, will not work this time around.

Somkid was Thaksin’s right-hand money man in the early 2000s and together they implemented what was called a “dual-track economic policy”, in which the export sector drove GDP growth while populist domestic policies aided entrepreneurs at the grass roots, from village craftsmen to the SMEs. The average citizen soon found he had more purchasing power and small and medium businesses flourished.

The global economy, buoyant in the advent of a new millennium, was strong and favourable to such undertakings, allowing Thai exporters to play a leading role in contributing to GDP growth, which rose as high as 5 per cent per annum. The Village Fund, Otop and other schemes were just as successful in driving the domestic economy. With both tracks functioning robustly, hand in hand, Gross Domestic Product surged.

Today, however, the global economy is in trouble, with fresh concerns arising over China’s worse-than-expected slowdown. Given its importance to the world economy, China’s problems inevitably hurt everyone, and particularly exporting nations like Thailand and its Southeast Asian neighbours.

Statistics confirm the peril facing Thai exporters: Shipments dropped by 4.6 per cent in the first seven months of this year compared to the same period last year, an unprecedented loss of momentum.

With exports accounting for 60 to 70 per cent of Thailand’s GDP, the negative effects of our spluttering export engine are unlikely to be offset by any gains made through the populist policies now being implemented by the government’s new economic team.

The Somkid team has vowed to add Bt130 billion to the economy with an initial cash injection, comprising Bt60-billion soft loans disbursed through the Village Fund. Another Bt36 billion will be distributed on a fast-track basis through provinces and municipalities to assist low-income earners and farmers hit hard by the depressed market prices for rice and other commodities. Finally, Bt40 billion is earmarked for small investment projects, again under the purview of local government. Additional measures are also planned to bolster investment and other financial activities.

The initial Bt130-billion stimulus package will account for just 1 to 3 per cent of GDP, with some multiplier effects. It is unlikely that the positive effects will be enough to compensate for the loss of the export sector’s massive contribution to GDP. We have lost the combined power of the dual-track approach that succeeded so well in the early 2000s.

Nor is domestic consumption expected to improve much as a result of the new stimulus policy, largely because household debts have risen so significantly in the past several years. They currently account for 88 per cent of GDP, meaning consumers will be unable or unwilling to take on further debt as they did in the far more optimistic times of the early 2000s.

The unavoidable conclusion is that “Somkidnomics” is highly unlikely to restore even a semblance of Thailand’s former prosperity. The government is wasting time with wishful thinking.