Thaksiomics no help to the poor
Thanong Khanthong, The Nation, Asia News Network, Bangkok
Thaksinomics has set off rather ambitiously to breath new life into the grassroots economy through its populist programs. Yet we are seeing the opposite result. Instead of having more money in their pockets, the folks living upcountry are saddling themselves with debt that they won't be able to pay back. Household debt is growing at an alarming rate, threatening the solvency of the rural sector.
What has gone wrong with the rural track of Thaksinomics?
First, you have to take a close look at Wednesday's report of the Bank of Thailand's Monetary Policy Committee. Among other things, it highlights grave concern over the build-up of household debt, which is threatening to get out of control. According to Bandid Nijathaworn, the Bank of Thailand's deputy governor, a central bank survey has found that the ability of rural people to service their debt has weakened very significantly.
"Before they might have been able to pay their installments for nine to 12 months, but now we have more cases when they can only pay them for three to four months before defaulting," he said.
Details of the survey were not revealed, but the issue of household debt has been one of the major causes of concern of Pridiyathorn Devakula, the central bank governor. Pridiyathorn has come out a number of times to warn about the rising household debt, the surge of imports which might affect Thailand's current account balance, and the rapid rise of asset prices in the stock market and the real estate sector. He is also keeping a close watch on potential bubbles in other areas such as personal loan or credit card growth.
If these potential bubbles are not controlled in timely fashion, they might pose a risk to the Thai economic recovery.
The latest statistics show that household debt in 2002 soared to Bt82,485, up 20 percent from 2000's Bt68,405. The figure should be significantly higher when the Office of National Statistics releases its 2003 survey.
To begin with, Thaksinomics prides itself on the refocusing of resources into the grassroots economy. So far some Bt300 billion, drawn either from the national budget or state-bank lending, has been pumped out in the name of populist programs. This huge spending is aimed at creating investment in the grassroots economy. But as it has turned out, the money mostly has gone to refinancing the old debt of rural folks or for mobile phones, electrical appliances, motorcycles or pickup trucks.
The economists who advise the government on economic policy consider domestic consumption as a way out for Thailand to balance exports, which have to depend on unpredictable overseas markets. The Thaksin government is the first to have successfully boosted domestic consumption to spur growth at a time when other economic engines were sputtering.
But as Pridiyathorn has pointed out rather correctly, Thailand is not like the United States which depends on consumer confidence and consumer spending to boost its economy. The US can rely on domestic consumption-led growth because it has a rather flexible job market.
But the flexibility of the Thai job market is incomparable. Thailand also needs huge private investment flooding in to sustain job creation and the kind of huge consumption that drives the economy ahead.
As we have learned, any policy remedy has its consequences. State-directed spending in the rural sector might create a multiplier effect in boosting domestic consumption and rebuilding confidence. But it has also created debt for rural Thais.
The modern urban sector, which is another track of Thaksinomics, has benefited from the populist program spending the most.
The stock market has risen several-fold, from slightly more than Bt1 trillion in market capitalization three years ago to Bt4.7 trillion. Banks racked up a combined profit of Bt40 billion last year alone, up more than 200 percent. Real estate operators have seen their profits jump by more than 50 percent. Car sales will breach pre-crisis levels this year at 600,000 units.
You can see that rural Thais have shouldered the burden of reviving the entire Thai economy. They might get some mobile phones, DVD players or motorcycles, but they end up with huge debts. On the contrary, the Thais in the modern sector (the stock market, industries, manufacturing, businesses, retail) are saying thank you to the rural consumers who have helped them to live in grand style.
Pity the poor Thais. You may guess that the government might have to come up with another round of compensation for them through debt relief, debt forgiveness or another hand-out coupon. Thaksinomics has indeed produced the opposite result from its initiative to save the poor.