Responsibility is needed, not more reckless spending

Massive selling on the Asian stock markets on Monday should serve as a warning sign to the Thai government to implement cautionary economic policies in order to provide greater immunity for the Thai economy amidst the ongoing global financial turbulence.
The regional sell-off earlier this week was a result of international investors’ concerns over the European sovereign debt problem. European leaders are still dithering over ways to solve their financial problems, with Greece on the verge of being bankrupted.
The fears over a possible Greek default on its debts has sparked concern over the possibility of a worsening global downturn. The Greek financial crisis could have repercussions throughout Europe, as large European banks have had exposure to massive Greek debts since the southern European country became a part of the euro zone in 2001.
The lesson from Greece is: Don’t take it for granted that massive fiscal spending will lead to more income. It is not always the case.
While no one can predict how the Greek crisis will evolve, the best strategy for the rest of the world is to remain cautious to enhance their immunity to withstand the global economic woes.
The panic share sale showed how vulnerable the markets can be. After all, the international markets are now very closely linked, and a crisis in a southern European country like Greece can send shock waves across the Atlantic and into Asia.
While the US domestic economic malaise has yet to be remedied, the European debt crisis could have a more severe impact and trigger a world recession. Countries with high public debt and a weak fiscal stance will be more vulnerable to external crises, as in the case of Greece, because they have no real weapons to mitigate the negative affects of the global financial turbulence.
The Thai government meanwhile plans to implement a number of controversial populist policies to boost economic growth amidst growing concern from many sectors that these policies will simply add a burden to our fiscal spending. The government hopes that its populist schemes such as a subsidy programme for first-time buyers of cars and houses will create multiple knock-on effects to promote growth. But no one can guarantee that these policies will yield the results that the government hopes for.
Greece once hoped for the same thing when it borrowed money to finance the government’s budget deficit. Greece’s public debt now stands at more than 140 per cent of its GDP, compared to the requirement that euro zone countries should not have public debt exceeding 60 per cent of GDP.
Thailand’s public debt currently stands at a satisfactory level of 41 per cent of GDP. But that level could increase rapidly. If the government implements its massive spending programmes – which could fail to produce additional revenue – then we will be faced with a high budget deficit that could trigger further financial woes.
The Yingluck government has said on different occasions – in spite of criticism over the necessity for and consequences of its populist policies – that it has to honour its pledges made during the election campaign.
However, the situation has drastically changed over the past few months. And it would not hurt if the Yingluck government shifted its stance to be more cautionary.
Greece may still hope that European leaders will help save the country from falling apart, because what happens in Greece will affect the integrity of the euro. European leaders have sent the signal that they will not abandon Greece. But if Thailand has to face a new financial crisis because of our massive fiscal burden, the rest of the world may simply ask if we have not learned anything from the Greek lesson.