Populist policy doubts eroding public confidence

Prime Minister Yingluck Shinawatra may say that rising living prices exist in the public’s imagination but there may be sources of truth in complaints about prices of goods soaring.

Yingluck may simply want to dodge the question by dismissing such claims, by suggesting the public imagines that prices have increased. But she, and her economic team, cannot be complacent with this issue.

In fact, if the cost of goods increases in line with an increase in people’s income and production, that should not be worrisome. Yingluck may be right in saying that the cost of most products has barely increased. But there is also another factor to drive prices up – that is the expectation of inflation.

A series of incoherent populist policies has helped to create uncertainty among the public over the consequences in the medium term from the government’s policies.

 

 

Poor scores

 

A recent survey by economists at leading Thai organisations gave poor scores for the government’s performance in dealing with the country’s economic problems. The survey by Bangkok University’s Research Institute or Bangkok Poll gave an average score of 3.83 out of 10 in key economic areas. It gave the government only 3.03 points in fuel price management, only 3.75 for how the administration has dealt with public debt and 3.17 for how it has tackled rising consumer prices.

The low scores in these key areas illustrate the factors that create a public perception about the cost of living in the future. The government said that costs have not actually increased. But the market prices are dictated by various factors such as actual demand and supply, as well as public expectation.

These economists gave the government 3.17 out of ten for the way it has managed consumer product prices. The Commerce Ministry said that the cost of many materials had barely increased. But consumers feel the value of money in their wallets is decreasing because the cost of a product has increased sharply from its original source to the end of the supply chain, partly because of ineffective energy consumption. 

In addition, there has also been inflationary pressure from the 40-per-cent rise is the minimum daily wage.

 

 

Minimum daily wage in Malaysia

 

By comparison, Malaysia introduced a minimum wage for the first time. From the first of this month, Malaysian workers now earn a minimum monthly pay of 900 ringgit ($297) in peninsula Malaysia and 800 ringgit ($264) in the poorer eastern states of Sabah and Sarawak. Malaysia’s minimum wage is almost the same level as here. (One Malaysian ringgit is around Bt10.2). 

While Malaysia’s minimum wage level is thus almost equal to that received by Thai workers who get Bt300 per day, although Malaysian GDP per capita is much higher than Thailand’s. According to statistics from the International Monetary Fund (IMF), Malaysia’s GDP per capita in 2011 was estimated to be around US$8,616, compared to Thailand’s $5,281. 

Even with that, it was reported that some small and medium sized companies in Malaysia were concerned about diminishing cost competitiveness.

In other categories, in the Bangkok Poll survey, the government received 3.75 for is management of public debt and only 3.47 for its effort to tackle economic inequality. 

The government cannot simply ignore the views from these surveyed economists nor dismiss the criticism by saying the reality is different from what the public perceives. If the public feels they are adversely affected, the government should look at flaws in the system and fix them. It would be wise to accept that things are as bad as people may think. 

In this case, the government can address the expectation of inflation by facing the issue head-on and answering every doubt the public has regarding implications of the daily wage rise or how the government will finance its mega-policies without hurting the fiscal stance of the country. 

Uncertainty breeds negative anticipation. And politics is, in the end, all about public perceptions.