Thailand is heading for a crisis (part 1)
If the Yingluck government stubbornly sticks to its current financial and economic policies, it will cause lasting damage to the country. Dan steven Thailand heading for a crisis within a few years.
In a thorough and clear analysis, Korn Chatikavanij, finance minister under the previous Abhisit government, mentions four issues: the mortgage system for rice, off-budget lending, influencing the Bank of Thailand's monetary policy and expensive, ineffective debt support. Point by point Korn's arguments:
Mortgage system
- Exports have fallen by almost 50 percent this year.
- The loss is almost 100 billion baht.
- Only one third of farmers benefit from the system.
- The loss is not taxable, because it is borne by the Bank of Agriculture and Agricultural Cooperatives (BAAC).
- Farmers are not encouraged to improve quality, because the high guaranteed prices are paid regardless of the quality of the rice. [Only the humidity level plays a role.]
Off-budget loans
Investments in infrastructure are necessary, you can borrow money for that, but the appropriate way to do this is through the budget procedure. However, the government has decided outside parliament to borrow 350 billion baht for anti-flood measures. That would be rushed.
Only 700 million baht has been allocated so far. The terms of reference for projects are not yet known; it is also unknown which projects are eligible. According to senior officials, that will not be until next year.
That money must be borrowed no later than June 2013, but then the works have barely started. When the government borrows the money, it saddles taxpayers with another $12 billion in annual interest payments. As if this were not insane enough, the government also wants to borrow 2 trillion baht for infrastructure works, albeit not outside parliament this time.
Bank of Thailand
Internationally, there is great confidence in the monetary policy of the Bank of Thailand. Thanks to a restrictive interest rate policy, Thailand's inflation is lower than that of comparable countries. The desire of the government not to use inflation but to use the exchange rate as a criterion in determining interest rates is unnecessary and dangerous. Although Singapore uses that system, Singapore's exports amount to 200 percent of the gross domestic product against 70 percent for Thailand.
Debt moratorum
This government lacks real concern for the financial well-being of the grass roots. The debt relief program penalizes both creditors and the bank. The BAAC loses 10 billion baht in interest income per year and the people in debt pay 3 years extra interest, albeit slightly less. But they still have to pay off their principal afterwards. Moreover, only creditors who are not in arrears are eligible; those who need the money the most because they have borrowed from loansharks are left empty-handed. This shows that the government does not understand the priorities.
Tomorrow part 2: What should the government do according to Korn Chatikavanij?
(Source: Bangkok Post, August 21, 2012)
I wouldn't expect a yellow shirt like Korn Chatikavanij to applaud Yingluck's policy either. You must therefore ask yourself how much value this criticism has.
Although I must admit that Yingluck's economic policy is mainly based on quick scoring and populism. No different from what almost all politicians do. After all, elections are held every few years and then scoring in the short term is more convenient than a long-term vision.
@Khun Peter and Tjamuk. These are reactions of the type: not playing the ball, but the man. I would challenge both of them to respond to Korn's arguments.
I think Korn is broadly right. I myself recently made a statement that the current government is not a blessing for Thailand.
But the message gets less across because he may have a double agenda. If his statements had been made by a leading Thai economist with no political background, I would have taken the message more seriously than I do now.
Everyone has their own opinion about a political party. Three days ago (20 -8) stood
a very different story about Thailand's economy. In the second quarter, the Thai economy grew by 3.3%. Analysts had forecast growth of 1.7%.
Thailand is one of the most resilient countries compared to other Asian countries
economies in terms of risk and headwinds, said Philip Wee of DSB bank.
That Thailand is heading for a crisis? As long as there is still growth here in this country, where each
EU country can be jealous of, there is no one who knows.
Jogchum, growth and debt are two different things. It is indeed possible that the Thai economy is currently growing fast and that the government is spending so much money that the country will run into problems in the longer term.
Dear Tjamuk,
I agree with you that Bangkok Post is more pro-yellow than pro-red. But the newspaper has often enough criticized the Abhisit government when it was in power.
I don't mind if a newspaper takes sides, provided there are good arguments for doing so. And with those arguments you as a reader can agree or disagree. I don't think that's a reason to continue ignoring the newspaper. Long live the critical newspaper reader!
What I blame Bangkok Post much more is for the sloppy reporting, contradictory information and the use of anonymous sources. And the newspaper can't do math either, I've often found out.
Most recently: Senator Boonsong is said to have shot dead his niece and secretary. That erroneous message has never been rectified. A correct reconstruction of the incident appeared days later, but again no word about the first incorrect reporting.
It is a pity that Mr. Korn ends his piece by saying that the policy of this administration is only aimed at pleasing Thaksin and is not at all aimed at improving the welfare of the country. He thereby detracts from the objectivity of his story. It is also a pity that the BP has not invited someone from the opposing party, the Pheua Thai, to write an answer. That usually happens in Matichon.
The various points: The entire rice mortgage system is pernicious. What the farmers need is quality improvement, reparcelling, use of fallow land and fewer farmers. It is simply impossible to provide all farmers with a good living with their current amount of land, no matter what you do. But no government dares to say this.
Loans for infrastructure outside the budget do not seem to me to be a problem. That happens all over the world.
And the government should not try to influence the Bank of Thailand's policy.
And the debt restructuring, well, I don't know enough about that.
So I think Mr. Korn is largely right. But the doomsday scenario: Thailand is heading for a crisis, I have yet to see that. There are plenty of positive economic factors, low inflation, growth of 4 percent, increasing domestic consumption.
Peter and Tjamuk, it's not about the color, it's about the arguments, is it? The story is clear and is supported by clear figures.
Incidentally, since the start of the Pheu Thai government there have regularly been 'independent' economists who have voiced the same criticism (I put independent in quotes because you never know how independent one actually is). I haven't read any strong counter arguments to the criticism yet.
I have also read criticism from foreign analysts about, for example, the rice mortgage system and interference in the Bank of Thailand. I consider them independent.
Thailand has been called the Greece of Asia for a few months now. This is because of the large national debt that people are creating. There is some growth on the other hand, but that has been reversed somewhat for this year. The current government borrows far more than it takes in.
In order to finance the populist business and especially that rice mortgage scheme, Thailand has to borrow huge sums on the capital market. And that while exports are decreasing, the euro countries and the US are decreasing and the prospects are not too good.
And as for the Bangkok Post. With that newspaper, which I read with pleasure and certainly for the sport, one has to read between the lines. Just like you should read De Telegraaf.
The national debt is okay. It now amounts to 41 percent of GDP, while a limit of 60 percent is applied. Korn has no objection to extra borrowing, but it must be reflected in the budget.
Korn's conclusion that Thailand is heading for a crisis seems far too exaggerated to me. But it is obvious that the current government is taking major financial risks with so-called open-ended schemes (mortgage system, car plan, house plan) and financing through funds (including State Oil Fund) and state banks.
And Mr Chaliow: in my opinion, the cabinet in the Netherlands does not take out loans for investments on its own. These can be found in the budget and the investment plan.
What makes Korn's analysis sympathetic to me is that in part 2 he also puts his hand in his own bosom.
I don't have enough insight to discuss this subject with you, but I do want to ask is it as bad as I read; eg Thailand is a second Greece and the national debt is rising enormously. Thailand has to borrow large sums, .
What about the "water management" of especially central Thailand and Bangkok. That's a huge project, which they can't afford if I hear it like that. I'm just mentioning one thing. What about funding other major projects???
Surely this is not pleasing Taksin. When Taksin comes back, he doesn't want to clear up any rubble.
What about tourism then? For example, there is almost no chicken in Greece now. (uncertainty and money problems) How will it go with all those Dutch people who live in Thailand. Will it be as expensive as in the Netherlands. ???
Wouldn't be a pleasant prospect.
So there are more questions I think.
I hope it's all looking a bit black and if not it's sad. Sun beautiful country.
Ruud Louwerse
Economic crisis in Thailand?
In case it has not yet reached the general public, the crisis is developing furiously, the loud expressions can be heard in full in the Isan, Khon Kaen for example.
– In recent months, dozens of companies, large and small, have closed, resulting in an increase of more than 6000 unemployed. (source: Amphur, Chamber of Commerce)
– The unlimited growth in the number of food stalls on the side of the road is a good indication of the growth in unemployment. (source: eyes)
– The large number of unlet shops in the smaller shopping centers that are due to close. (source: eyes)
– Many can no longer pay their rent and/or installments. (source: hearsay)
– Thanks to the enormous construction frenzy, more and more older and newly completed houses and condos are empty. (sources: eyes, ears, condo landlord, condo tenants)
– Various larger and smaller shops are completely devoid of patronage, even things that always had a large influx. (Source: complaints from acquaintances/shop owners)
– It has never been so busy at the social services in Khon Kaen, the growth in the number of applications is insane. (source: social service)
The most dangerous indicator is of course the enormous vacancy rate of homes and buildings and the growth in the number of applications to the social services.
The current government of Thailand, according to the UN, is really busy with one thing, be it directly or indirectly, the return of Uncle TS (source: UN, CIA monthly report)
And everything has to make way for that, if necessary the country in civil war.
Bad case.
Incidentally, the situation in the south of Thailand is starting to resemble Iraq.
And you can count on the fact that much remains unreported.
And what will that mean for Thailand?
In conclusion, might I say that economic numbers can be “massaged” and indeed adjusted to a government's wishes.
This is the case in the Netherlands, where parliament and the Court of Audit still have some degree of control over the figures produced
But also in Thailand where I feel some doubt about the figures produced, especially when I see different results here and there from the same source and on the same subject.
Of all the reactions I have read so far, Hans's is the most realistic and close to the visible truth. I would like to add the following:
Of course it makes a lot of difference whether you live in Bangkok and respond from the observations there, or from the heart of the Issaan (Udonthani)
I invite everyone to take a tour of the village on a motorcycle and then record the observations objectively. You then observe an infrastructure that desperately needs overdue maintenance. There is also a lot of hidden unemployment, supplemented with small businesses that are very locally present, such as many of the same kind of street shops, etc., but that do not give an impulse to the state economy.
Also, do not underestimate that the Issaan covers a third of Thailand's territory.
20 million people live there, so almost a third of the population. One for almost 100 percent agricultural area, small-scale agriculture. There are actually no companies that produce high-quality technology.
Although the street scene sometimes suggests otherwise, cars big, bigger, biggest, just about everything has been bought with borrowed money. This has to go wrong at some point and is almost predictable.
In my view, other inhibiting factors for the Thai economy include:
– World economy is in a slump, declining exports
– Corruption and the lack of a driving middle class in Thailand
– Poor education, as a result of which future generations are still lagging behind in knowledge.
– Backlogs in maintenance infrastructure, railway, water management and roads
– Much was paid with borrowed money, interest pressure
Finally, a growth percentage in percentages usually gives an optimistic picture for emerging economies, from nothing to something soon gives an optimistic percentage, whether this is also the case in absolute numbers remains to be seen.
Thailand can be a very prosperous country, but then certain population groups, natural resources must be treated differently and wealth must be distributed more fairly on all fronts.
The question of whether Thailand is heading for a crisis can, I think – at least partly – be answered by asking why Thailand has so far experienced relatively little hindrance from the credit crisis in America and the debt crisis in Europe. The reason, in my view, is that (although the Thai economy is still very dependent on exports) compared to a decade ago, much of the exports are now regional or intra-Asian. In other words, Thailand is very conveniently located geographically; in the midst of growing economies such as China, India and other Asian countries. This makes the Thai economy more resilient.
Furthermore, the worldwide stagnation of the economy (and associated inflation) has mainly resulted in higher food and energy prices. Thailand suffers from higher energy prices, but higher food prices (corn and soybean prices are up 70-80% this year) are not necessarily detrimental to Thailand. Thailand produces a food surplus. That is, it produces more food than it consumes (it is the largest rice exporter in the world). This shields Thailand from the current global crisis.
Thirdly, last year's floods provided a boost to the economy, or rather, the reconstruction activities that followed. In the short run, the economy typically benefits from disasters as the government is forced to initiate reconstruction projects; and this creates employment, and a demand for goods and services. Naturally, the growth resulting from reconstruction is at the expense of a country's debt position, but it nevertheless increases a country's output in the short term (Gross National Product).
Other indicators also seem to indicate that the Thai economy will not soon fall into recession. Unemployment is between 1 and 2%, and economists speak of “full employment” in that case (since unemployment can never be 0%). Yet all this does not mean that there is no mismanagement – on the contrary, in my view there is. Nor does it mean that Thailand could not go into crisis in the medium term (2-4 years). But both positive and negative policies often determine the long term rather than the short term. And it's not all-important as far as that long term is concerned, it's more one of the factors that play a role in that.
Dear Thaitanicc, Thailand's unemployment figures are of course a farce. To begin with, only employees of private sector companies participating in the Soc. sec. Fund (SSF) eligible for benefits. Walk into any shopping street and you will understand that the vast majority of shops are not participants in the SSF; in other words, the people who are fired there are not registered and are therefore not included in the statistics. So if you ignore the vast majority of the working population, you can get to these kinds of seemingly fantastic results.
Another striking fact in the unemployment figures is that despite the fact that the Thai economy was flat for several months in 2011 as a result of the floods, unemployment actually fell during that period (compared to 2010). In every country where such a disaster occurs, you see reversed effects/figures.
In short: those unemployment figures do not reflect reality in this respect and are certainly not an indicator of the economy in Thailand.
The question is also whether the economy will receive a boost from the increasing government spending as a result of the floods, as less than 350/1 of the estimated 3 billion Baht has been spent and many are already asking whether anything will happen. ?
The Thai economy is highly dependent on foreign manufacturers, particularly in the automotive industry and electronic goods. Another such debacle as in 2011 and they all leave for neighboring countries, insofar as that is not likely to happen in the future anyway given the wage developments in Thailand.
Thailand's geographical location does not make it immune to the prevailing crisis in Europe and America either. The economies in China and India are already weakening, putting even greater pressure on the global economy. All this will really not pass the door of Thailand.
As I said in my earlier response, I dare not make any predictions as many factors play a role, especially in Europe and America. However, I do wonder whether the current Thai government is capable enough to prevent a possible crisis. They have not shown more than a few populist measures so far. Time will tell!
Dear Bachus,
The official unemployment figures in Thailand will undoubtedly be slightly higher, but I'm pretty sure that they are currently considerably lower than in Europe and America (in Spain it is 25%, in the north of Europe around 5-8%). And that seems to me to be indicative of the state of the economy. Because the fact that the unemployment rate in Thailand will not be entirely accurate does not mean that it cannot be used as an indicator at all; that is a very radical way of reasoning. After all, government statistics, wherever they are in the world, have limited value. And yes, in some countries you should take them with a larger grain of salt than in others; but I take them with a grain of salt in every country…
Take the inflation figures in the Netherlands… They are really not calculated on the basis of all available goods and services (but on an index) and can therefore never be a correct representation of inflation. You may remember that after the introduction of the euro, many Dutch people complained that inflation was much higher than authorities reported, which is quite possible since inflation can never be accurately measured. It's just an estimate, and all politicians and bank executives - anywhere in the world - are always out to manipulate those numbers. In addition, the Greeks have been fooling us for years with false statistics, and more recently the banks in London have been manipulating LIBOR interest rates. In other words, I'm sure every government and bank is messing around with numbers and statistics - not just the Thai government. The Thai government is at most a bit clumsier…
I agree with you that reconstruction after the floods is slow and that the possible departure of Japanese automakers would be a disaster for the Thai economy. But I don't see this happening in the very short term (on a large scale). Also, only a third of the 350 billion of reconstruction funds has been spent, but that still means that about 110 billion (which has already been spent) has flowed into the economy. People have been paid for this, bought sandbags, and God knows what else. China and India are indeed weakening, but still growing at a respectable 6-7% (compare that to Europe!). So personally, I don't see a crisis unfolding in Thailand in the very near term. Maybe later. Although I agree with you that the policy being pursued is extremely lousy.
Bacchus,
Only people who pay tax in Thailand receive benefits. This is also how the unemployment figures are calculated. I live in the countryside, don't think many people here
pay taxes. Yet everyone does work here. Farmers are busy in the rice fields,
and when the work is done, one simply becomes a construction worker. So it is with small shop owners who lay off staff. They are ready for whatever is offered to them
also adopt.
Dear Jogchum, you only receive a benefit if the employer is affiliated with the Social Security Fund (SSF) and pays contributions. In my opinion, the contribution to the SSF is mandatory for employers with 10 or more employees. Paying taxes by the employer is therefore not the only criterion.
The unemployment figures come from the Social Security Office, which also manages the SSF.
By saying that everyone works, you paint a very rosy picture. When I talk about work, I'm not talking about day laborers at subcontractors; it is bursting at the countryside. These people have no security whatsoever, let alone entitlement to benefits. This is precisely what makes them so willing; if one has nothing, one has to tackle everything, and that is abused considerably. This willingness is therefore driven by the lack of (permanent) work.
Bacchus,
Throughout rural Thailand, most people work without subcontractors.
Work enough in construction. I see many new houses being built around me.
I myself do not have the impression that these people are exploited en masse. Have 2 brothers-in-law who will not work below 300 baht net per day.
They are not employed by a couple boss, but by someone who houses for a fixed amount
assumes. A kind of contractor. No, they are not entitled to benefits, no work in construction, no problem for them. They then go fishing on the great Mekong River or one
side arm thereof. The figures of the Social Security Office therefore seem to me to be incorrect
The question is, of course, always how reliable figures are. We need only look at the situation in Europe. In a country like Thailand, billions go outside the budget. The problem here is that the same baht may have to be spent twice; there is no reliable insight into expenditure. Also in Greece, Italy, Spain, Portugal, Ireland, Cyprus, I forgot one more, the scholars did not see a crisis coming; how different it turned out. I dare not make a prediction for Thailand, but tend to believe this gentleman.
I don't pretend to be an economist or a financial expert. I have only one comment to make with regard to Thaitanicce's second paragraph. There I read: “She (Thailand) is the largest rice exporter in the world”. I have been reading for quite some time now that Thailand is no longer that.
@ Willem It is quite possible that Thailand will lose the number one position this year. But even then it is a significant exporter, which is what I was referring to (a food surplus). That Thailand would have lost that status for quite some time, something you claim, seems very unlikely to me. Below is an excerpt from the Reuters website.
BANGKOK, Aug 9 (Reuters) - Thailand runs the risk this year
or losing its position as the world's biggest exporter of rice
because of high prices brought about by a government
intervention scheme.
Forecasts from the United States Department of Agriculture
(USDA) show India could leapfrog Thailand this year, having
resumed exports last September after a four-year gap. Vietnam
could also ship more than Thailand to retain its second place.
India pulled out of the market in 2007 because of concern
about food shortages that in April 2008 pushed Thailand's
benchmark 100 percent B grade white rice to a record high of
$1,080 per ton.
The benchmark has not returned to anywhere near that level
this year and now stands around $580 a tonne.
Here are USDA rankings and forecasts for the world's top 10
rice importing and exporting countries.
World's top 10 rice exporters (in million tonnes):
Country Exports Forecast
(2011) (2012)
1.Thailand 10.64 6.50
2.Vietnam 7.00 7.00
3. India 4.63 8.00
4.Pakistan 3.41 3.75
5 Brazil 1.29 0.90
6. Cambodia 0.86 0.80
7.Uruguay 0.84 0.85
8.Myanmar 0.77 0.60
9 Argentina 0.73 0.65
10.China 0.48 0.50
Dear Thaitanicc, this time I have to assist Willem because he has not claimed anything at all! All he says is that he has read other posts about this on this blog. I support him in that. I just checked and there was a posting about this on eg July 27, 2012. Who is right I leave it in the middle because I have not specifically looked into it.
@Math
Dear Math, but who cares? I assume Willem agreed with what he had read and wanted to hear my opinion on it. And I gave it to him. If he himself did not agree with what he had read, nor did he wish to hear my opinion, then I apologise. But then I don't understand why he even bothered to write it down...
Moderator: Math, thaitanicc and others. I now want to close the discussion about and with Willem. It's just off topic bullshit. All comments about Willem will no longer be posted. Also applies to Khun Peter. Please respond to the topic of the post and not to each other.