Prasarn Rips Into Upswell Of Populism

[Flashermac]

Shifting Thailand's economic and social development to the next level will require genuine statesmanship from the country's political leaders, Governor of the Bank of Thailand Prasarn Trairatvorakul says.

 

The myopic vision of policymakers reflected the short-term goals and needs demanded by the voters.

 

"Politicians are benchmarked on short-term targets, on meeting short-term needs. Hence, the growth of populist programmes," Mr Prasarn said in an interview with the Bangkok Post.

 

"I understand that politicians need to meet their election promises, and put in policies to secure their popularity. But there also is a need to consider long-term challenges."

 

Education, for instance, ranks among the most critical of challenges for the country's future competitiveness.

 

"The quality of people is fundamental to future growth," Mr Prasarn said. "But no one really wants to tackle the issues affecting our education system, where the real benefits won't be seen for five, 10 years down the line."

 

Thailand's ageing society is another future trend that will have a profound impact on the economy, considering that social safety nets are still woefully insufficient and too many people remain outside of any formal retirement savings system.

 

Studies estimate that by 2017, the number of workers will drop to just four per retiree, compared with six in 2007. An ageing populace will impose higher costs on the country's healthcare system and public services, costs which must be met from taxes paid by a shrinking workforce.

 

Mr Prasarn said added public investment and social spending costs in turn made it important to consider an overhaul of the tax system and introduce asset-based taxes to supplement existing income-based taxes.

 

Another long-term challenge is the need to rationalise existing subsidy programmes. The rice mortgage scheme, for instance, will impose massive costs on the government if market prices fail to rise over benchmark prices, set at 15,000 baht a tonne for paddy.

 

Research spending also needs to rise if the country is to move up the value chain. Mr Prasarn cited South Korean giant Samsung, which allocates some 3% of spending toward research and development, as a role model.

 

"Samsung last year generated profits on par with the total profits of the entire Japanese electrical appliance sector. Research spending in Thailand, unfortunately, stands just to the right side of the decimal point, at only 0.2% of gross domestic product," he said.

 

"The political leadership needs to look beyond the next election and consider the long-term issues."

 

Mr Prasarn played down questions about a rift with the current administration, in particular finance minister and deputy premier Kittiratt Na-Ranong. Over the past several months, Mr Kittiratt and Mr Prasarn have had a number of public tussles about the direction of interest rates, foreign exchange rates and economic policy, raising concerns about the independence of the central bank.

 

"There may be a perception that the central bank and the government have opposing views," Mr Prasarn said, adding that the policy debate in fact highlights the checks and balances in the system.

 

In any case, he welcomed the government's commitment to reduce the budget deficit. Other immediate challenges include ensuring that flood prevention investments are made expeditiously and efficiently to help rebuild investor confidence and spur a rebound in manufacturing activity.

 

Mr Prasarn said the recent minimum wage hike to 300 baht a day also needed to be monitored to gauge the impact on local businesses, particularly small- and medium-sized firms.

 

"Singapore attempted a similar policy several decades ago and [the wage hike] touched off a recession," he said.

 

But Mr Prasarn acknowledged the country's wide income gap came partly from the fact that wages have not risen in line with prices in recent years.

 

"It's clear the benefits from economic growth have gone to the owners of capital, not to labour," he said.

 

"Thai companies do need to adjust. High-labour industries will have to relocate [to other countries]. If they can't adjust, then it will be a concern."

 

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