Regional News
Yingluck Government’s Moves, Including Measure to Make Fuel Cheaper, Raise Concerns Over Fallout
BANGKOK—Thailand’s new government said a quick set of aggressive measures will ramp up economic growth rates next year, but economists worry that Prime Minister Yingluck Shinawatra’s populist policies are storing up trouble for months to come.
Ms. Yingluck, a 44-year-old business executive, was elected in a landslide in July after pledging to reprise the kind of free-spending policies popularized by her elder brother, Thaksin Shinawatra, who was ousted in a military coup five years ago. Among other things, Ms. Yingluck plans to raise Thailand’s minimum wage next year and slash corporate tax rates in a bid to perk up local consumer spending and wean the country off unpredictable export markets in the U.S. and Europe.
Her economic point man, Commerce Minister Kittirat Na Ranong, told reporters in Bangkok on Wednesday that the policies will drive up growth rates by an additional 2.5 percentage points next year. The Thai central bank has previously projected Thailand’s economy will expand 4.2% in 2012.
The program is sparking widespread concern among economists and policy analysts, though. Most recently, Ms. Yingluck’s moves to suspend the collection of an excise tax on gasoline and diesel sales has prompted criticism that the government is reverting back to market-distorting subsidies at a time when other Asian nations are trying to shake off their dependence on state-funded measures to keep fuel prices down. Cutting the excise tax makes fuel cheaper for consumers while depriving the government of revenue for its oil fund, which it uses to lower the cost of other fuel products such as liquefied petroleum gas.
Both Indonesia and Malaysia are slowly moving toward removing fuel subsidies. Indonesia’s government last week introduced a new pilot project aimed at limiting the use of subsidized fuels, and aims to cut its subsidy bill to 123.6 trillion rupiah, or $14.5 billion, next year from the 129.7 trillion rupiah it expects to pay this year. Malaysia’s leaders, meanwhile, are gradually attempting to withdraw subsidies on natural gas in order to push up prices to market-determined levels.
Ms. Yingluck argues that suspending excise taxes on diesel, gasoline and biofuels will help temper inflation, and Mr. Kittirat said Tuesday that inflation wouldn’t rise much beyond the 4.1% increase recorded in July. The recently suspended levies cut the retail price of 91-octane fuel by 7.17 baht, or 24 U.S. cents, a liter. They also lowered 95-octane gas costs by 8.02 baht and reduced diesel by 3 baht a liter.
Some economists question the timing of the fuel subsidies. Inflation, while still a threat, appears to be ebbing in Asia as the U.S. and Europe struggle to cement a fragile economic recovery. “The risks appear to be more on the growth side than on inflation,” said Tim Condon, an economist with ING in Singapore.
Thanomsri Fongarun-rung at Bangkok’s Phatra Securities said she views the timing of the fuel subsidies as having more to do with politics than economics. “There is no real need for it now,” she said. “But it will take some time and some hard work and discussion before the government can increase the minimum wage, so it is doing something immediately to avoid disappointing the people who elected it.”
One common concern is that by suspending excise taxes, Ms. Yingluck is borrowing from the future to cement her political standing now. This could create a burden on the government at time when it is preparing to cut the corporate tax rate to 23% from 30% to help offset the impact of raising Thailand’s daily minimum wage to 300 baht—up 35% to 90% from current levels in various areas—at the beginning of 2012.
Finance Minister Thirachai Phuvanatnaranubala has stressed that the country will do its best to maintain its financial stability as it pursues its aggressively pro-growth stance. Analysts say that while Ms. Yingluck is attempting to build bridges with Thailand’s armed forces and is unlikely to remove pro-coup officers such as army chief Gen. Prayuth Chan-ocha, the run-up to the shuffle remains a potentially volatile period.
Some economists, including Usara Wilaipich at Standard Chartered, say inflation is under control and there is little risk of government spending getting out of hand. In fact, Ms. Usara and her colleagues suggest that the Thai government should take advantage of its relatively strong currency to step up state investment in infrastructure projects.
Thailand’s political environment remains unpredictable, though, which could potentially undermine the government’s policy-making clout despite Ms. Yingluck’s breakthrough victory at the polls in the July. Her brother’s political opponents remain highly sensitive to any sign that the former premier might return to the political fore in Thailand and continue to raise complaints about Ms. Yingluck’s populist leanings.
Mr. Thaksin currently lives abroad to avoid imprisonment on a corruption conviction that he says was cooked up to justify the 2006 coup.
One potential flash point: the annual army shuffle coming up in September. The shuffle has been a source of friction in the past. The 2006 coup was triggered in part because top army officers believed that Mr. Thaksin was preparing to sideline them in that year’s reassignments.
Write to James Hookway at [email protected]
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By: James Hookway
Source: The Wall Street Journal, Sept. 1, 2011
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