[Thailand] Controversial policies may do long-term damage

August 19, 2011
By Thanong Khanthong
The Nation

The Pheu Thai government has introduced several controversial economic policies.

Let me go through them one by one.

1. Most people don't notice that an offshore oil deal is on the cards. Fugitive ex-prime minister Thaksin Shinawatra and Cambodian Prime Minister Hun Sen are now trying to strike an offshore oil deal. The defence minister, the foreign minister and the energy minister have got a mandate to work with Cambodia on offshore oil operations in the Gulf of Thailand. The change of government from Democrat to Pheu Thai has facilitated this business deal. Chevron, the US oil company, is waiting in the wings for this project.

This oil production will take place in the overlapping maritime area as a joint operation between Thailand, Cambodia and the United States. However, offshore oil drilling is now very risky, given the frequent occurence earthquakes and natural disasters. Shell is now trying to control an oil spill in the North Sea. BP created a huge oil spill in the Gulf of Mexico a year ago. A court in Ecuador earlier this year fined Chevron US$8 billion for polluting the Amazon region.

The oil giants have bad records in offshore drilling when it comes to safety and care for the environment. Any monetary compensation cannot write off the massive damage being done to the environment. If a huge oil spill were to happen in the Gulf of Thailand, it would spell doom for Pattaya, Hua Hin and other resort areas along our coast. Thailand's tourism industry would basically come to a grinding halt.

2. The government plans to implement a minimum wage of Bt300 a day. I don't think this is feasible. For the private sector - not the government - is doing the hiring of workers. The smaller and weaker companies simply won't be able to hire at this rate. They will have to fold their businesses. The government is acting more like a player in the economy rather than a facilitator.

3. The government plans to reduce the corporate income tax rate from 30 per cent to 23 per cent. Given the budget deficit and spending obligations in the future, the government should rather raise the tax instead of cutting it. We can collect tax at only 16 per cent of the gross domestic product.

4. The government will introduce a rice pledging scheme in which white rice is guaranteed at Bt15,000 per tonne and jasmine rice at Bt20,000 per tonne. This scheme involves a massive budget, and similar schemes in the past have been subject to corruption and abuse. The rice price guarantee scheme initiated by the previous government is a better method. The government will pay only the margin of difference from the guaranteed price. If farmers can sell rice at higher price, the government will not have to pay anything.

5. The government will implement a minimum Bt15,000 salary for college graduates. Again, fixing salaries is not the job of the government. On the other hand, the government should be trying to trim its workforce, rather than hiring new staff, to reduce the budget and tackle the problem of a bloated bureaucracy.

6. The Finance Ministry would like the Bank of Thailand to expand the band of its inflation targeting, now set at 0.50 per cent to 3 per cent. It would like the central bank to keep the interest rate at this low level in view of the economic turmoil in the US, Europe and Japan. But the Bank of Thailand is now trying to normalise the interest rate, which now yields a negative return when inflation is taken into account. High inflation will also undermine the competitiveness of the country in the long term.

Rather than introducing economic programmes that might have negative consequences, the government should focus on productive investment spending to help increase our competitive strength in the future. We need investment in alternative energies, water resources and an upgrade of our agricultural methods. These areas are the future of Thailand - not social spending for short-term political gain.