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Sufficiency economy meets megaprojects WICHIT CHANTANUSORNSIRI The 1.7-trillion-baht investment megaproject programme was floated by the Thaksin Shinawatra government in 2005 as a grand initiative to modernise the Thai economy and pave the way for future economic growth.
With the change in government following the Sept 19 coup, the real need for the country to upgrade its ageing infrastructure remains. But spending priorities will be reviewed and reprioritised to fit with the new government’s philosophy of sufficiency economics. M.R. Pridiyathorn Devakula, the deputy prime minister and finance minister, argues that the sufficiency economy is not a new economic model but a philosophy applicable from the individual and household to the entire nation. ‘‘Market economics has helped lead to the growth of the economy,’’ he said. ‘‘And sufficiency economics will help ensure our long-term sustainability. It’s not a concept that is opposed to the forces of globalisation or an open economy.’’ Under the new concept, only proposed megaprojects that offer a direct benefit to national economic growth and are financially self-sustaining will be approved. This applies to every sector, whether it be projects involving mass transit, transport, public housing or water management. Some public investment projects in the water, education and public health sectors will no longer be classified as megaprojects per se, but will continue under the government’s normal investment strategy to improve public services and utilities. For instance, 200 billion baht in new water-management projects are no longer bunched together with other megaprojects, and have been put under the auspices of the Agriculture Ministry and other state agencies. To be called a ‘‘megaproject’’, proposals must be self-financing and offer a rate of return that can be calculated, according to Pongpanu Svetarunvra, the director-general of the Public Debt Management Office. ‘‘Mass transit, for instance, can tap capital outside of the government budget, including investment by the private sector. And we can calculate a clear rate of return from the project itself,’’ he said. Mass transit programmes for Bangkok and nearby suburbs have retained megaproject status. The government has allocated 165 billion baht for five new light rail projects stretching a total of 118 kilometres. The new routes, approved by the cabinet in November, are considerably more modes than the seven new routes costing 555.7 billion baht proposed by the Thaksin government. M.R. Pridiyathorn said the cost was cut significantly by changes in how the rail projects are managed. Instead of soliciting bids for contractors to design and build routes, the government will issue its own detailed design specifications, allowing greater control of costs. Project designs, environmental impact studies and public hearings will be completed in early 2007, with contract bids accepted in March. Construction is expected to take three to five years. Financing is expected to come from a variety of sources, including international agencies such as the Japan Bank for International Co-operation. The government will be responsible for civil construction and rolling stock, with the private sector taking care of the train carriages and operating systems. Taming the baht CHIRATAS NIVATPUMIN Thailand’s financial markets were turned upside-down on Dec 18 after the Bank of Thailand announced that capital inflows would immediately be subject to a 30% reserve requirement. The draconian measure was the third, and most comprehensive measure taken by monetary authorities in late 2006 to help stem capital inflows that had been helping push the baht up against a US dollar that has been weakening against all world currencies.
The baht had been one of the strongest currencies in the world throughout 2006, with a gain of nearly 15% for the year to mid-December, when the rate reached a nine-year high of 35 to the dollar. Capital flows have increased as the trade and current account swung into a sharp surplus in the second half on lower imports. Portfolio investments have also increased as part of a global shift in funds away from the US dollar. The stronger baht, while helping reduce import costs, raised concerns among exporters and economists that the country’s price competitiveness would decline steadily in the world market, despite the fact that export growth in 2006 remained strong at 17%. OnNov7, the central bank announced that it was seeking ‘‘co-operation’’ from financial institutions not to issue and sell baht-denominated bills of exchange to non-residents. A 50-million-baht limit was also imposed on banks providing baht liquidity or credit to non-residents without underlying trade or investment based on transactions with a maturity of less than three months. Onemonthlater,onDec4, the central bank further tightened its measures, imposing an outright ban on financial institutions buying and selling debt securities through sell-and-buyback transactions with non-residents. Financial institutions could only sell and buy foreign currencies in transactions with non-residents, or credit and debit non-resident baht accounts for settlement related to investments in bonds and notes with terms longer than three months. Banks were also allowed to borrow baht from non-residents without underlying trade or investments for maturities of longer than six months, compared with three months previously. Thai businesses were also asked to not issue or sell short-term debt securities to nonresidents. But the measures did little to stem capital inflows. The Bank of Thailand said that inflows in the first week of December rocketed to $950 million, compared with $300 million per week in November.
M.R. Pridiyathorn Devakula, the finance minister and deputy finance minister, said the steady pressure building on the baht ultimately forced the central bank to take more drastic action. The Dec 18 measure was drastic indeed, imposing a 30% reserve requirement on all foreign inflows against the baht. The reserve would be refunded without interest for transactions based on underlying trade and investment, and could also be returned if the investor submits documents proving that the funds have remained onshore for one year, with shorter investment periods subject to a 10% tax. Authorities said the rate was calculated based on carrying costs and investment returns over the past year, and insisted that the measure would not deter genuine long-term foreign investment. The investment community begged to differ, with the Stock Exchange of Thailand suffering its largest one-day loss in history the following day, as local and foreign investors alike dumped stocks for fear of a weaker baht, slower foreign investment flows and policy uncertainties. While the government eased its stance the following day to exempt foreign direct investments, property and stock investments, the damage to the country’s credibility and image as an investment haven in Southeast Asia was done. Although authorities succeeded in their ultimate aim in pushing the baht lower, with the unit trading at 36.50 by Dec 21, most analysts predict that the impact of the reserve policy will dampen investment and economic activity well into 2007. Populist policies get a facelift WICHIT CHANTANUSORNSIRI It seemed obvious that the populist policies of the elected Thaksin Shinawatra government would be among the first casualties after the military seized power on Sept 19. Critics had long accused Mr Thaksin of ‘‘policy corruption’’ and vote-buying through initiatives . The One Tambon, One Product project will be maintained and expanded, but only for products that sell. This differs from the supply-side approach taken by the previous government. such as the 30-baht health care programme, the Baan Ua-arthorn housing scheme and the village investment fund.
The new army-appointed government’s focus on sufficiency economics also suggested a shift away from Mr Thaksin’s pro-growth strategies fuelled largely by boosting domestic consumption through credit. But pulling the plug on these popular programmes will not be easy. While Gen Surayud Chulanont, the military appointed leader of the interim government, does not necessarily have to tailor policy with an eye toward the next election, the former army chief understands well that upsetting the rural poor by scrapping the Mr Thaksin’s popular programmes will hardly serve the junta’s stated goals of achieving national reconciliation and restoring confidence in the political process. As a result, social programmes such as universal health care and subsidised housing are expected to be maintained. They will, however, likely be revamped, repackaged and rebranded to let the public know who’s in charge. Several programmes that have been cancelled outright include the Education
Ministry’s One Laptop Per Child programme, an initiative aimed at procuring
250,000 low-cost notebook computers for schoolchildren nationwide. Education Minister Wijit Srisa-arn defended his decision to scrap the programmes, saying they were a poor use of state resources. ‘‘We should bring in high technology only once the foundation of our education system is ready and we have the funds,’’ he said. The scholarship programme similarly was viewed as a misallocation of resources in the face of more pressing needs. Under the Thaksin government, some two billion baht had been spent since 2003
on 8,000 scholarships nationwide. Other policy initiatives have been scrapped,
downsized or modified. The heavily criticised Bangkok Fashion City programme,
aimed at boosting the garment and design industries, was eliminated by the
Industry Ministry The Kitchen of The World programme, an initiative to support
Thai restaurateurs abroad, was substantially downsized. The Agriculture Ministry
ordered the One Cow, One Household programme to be suspended pending a formal
review. M.R. Pridiyathorn said the cost of state subsidies to rice farmers was more than 18 billion baht as the state-owned Bank for Agriculture and Agricultural Co-operatives previously set rice mortgage prices 20% to 30% over market prices. Farmers were upset at the move, but martial law ensured their reaction was muted. On the other hand, the 30-baht health care programme, launched in 2002 as
one of the highest-profile initiatives of the twice-elected Thai Rak Thai,
will continue under the new government with modifications. Patients will no
longer need to pay the 30-baht fee, while the overall annual budget for the programme will be significantly increased to help alleviate the financial burden on rural hospitals.
The Finance Ministry has approved an increase in construction funds of 80,000 baht per unit for some 50,000 to 60,000 units. The interim government also kept the village investment fund programme, under which one million baht each was given to 78,000 villages nationwide to support small business growth. In the 2007fiscal budget, the appointed policymakers approved an allocation of 13.15 billion baht for the programme, with another 16.2 billion to be committed in fiscal 2008-09. The One Tambon, One Product campaign will also be maintained and expanded, with a new directive to focus production on meeting genuine market demand. This differs with the supply side approach taken by the previous government. Analysts say that many of the policies initiated by the Thaksin government created genuine benefits for the rural poor, despite the army’s allegations of misuse. For instance, while the village fund programme has seen cases of misuse of funds by borrowers and growing problems of household debt, in some communities, the initiative has succeeded in giving rural villagers access to capital to finance business ideas or education. Many of the populist programmes also tried to bypass the state bureaucracy —which the military leaders are again expanding—and directly empowering communities to take responsibility for themselves. This concept supported the longstanding goal of decentralising power from the central government in Bangkok. New markets counted on for export growth WORANUJ MANEERUNGSEE Promising sales in non-conventional markets should boost export growth to 17% in 2006, once again making the sector the economy’s key growth engine. Sales to South Korea, Taiwan, Latin America and Eastern Europe have all
been better than expected. But exports to Australia, China, and India have
grown faster than those to other new markets in terms of value as all signed
free-trade agreements in the past few years with the administration of
twice-elected Thaksin Shinawatra.
Those three markets accounted for 13.5% of Thailand’s total export value in 2006, up from 8% in 2002 before all the trade pacts were signed. European business groups in Bangkok are now urging their EU central government to enter free-trade talks as they are eager to see two-way trade increase on par with the success achieved by Thailand and Australia. But this thirst for more deals should fool nobody into thinking that free-trade agreements, a policy plank of the deposed Thaksin regime, do not have a dark side. Farmers who grow garlic and onions in the country’s North, for instance, suffered after import tariffs on produce from China were slashed to zero when a limited trade deal covering only fruits and vegetables took effect on Oct 1, 2003. Critics blamed the Thaksin government for failing to prepare a safety net to assist those hurt by liberalisation. That is why the junta-appointed government led by Prime Minister Surayud Chulanont was eager to set an example for future elected governments that want to engage in bilateral and regional free-trade talks. Although no rules have been drawn up so far, the cabinet has promised, at the very least, to seek a mandate from the military-appointed National Legislative Assembly to commit to any new trade talks. Meanwhile, it set up a Free-Trade Fund Committee, which aims to assist farmers and manufacturers adversely affected by existing or new pacts. The committee will also suggest which sectors should be included or excluded in future trade negotiations. The fate of the suspended Thailand- Japan deal, meanwhile, is still uncertain. The government will begin a public hearing on the deal, which was fully negotiated under the Thaksin administration, and then decide whether to proceed. If the deal is scrapped, both Thais and Japanese will be disappointed. The business communities of both countries want their governments to seal the deal as quickly as possible to facilitate trade and investment. The suspended Thai-USFTA has been on life support since the military took
power on Sept 19.As a democratic country, the United States is unable to make
any business deals with countries controlled by a junta. Unravelling a decade of Shin deals PARISTA YUTHAMANOP The military-installed Assets Scrutiny Committee (ASC) has been looking into at least 11 issues for evidence of possible corruption under the deposed Thaksin Shinawatra-led government. At the centre of public attention is alleged tax evasion involving share transfers of Shin Corporation dating back to 1997 and involving the ousted premier’s kin, up to the family’s sale of a 49.6% holding in the conglomerate for 73.3 billion baht to Singapore’s Temasek Holdings on Jan 23, 2006. The sale to Temasek included 458 million shares held by Panthongtae, Mr Thaksin’s son; 604 million held by his daughter, Pinthongta, 20 million from Yingluck Shinawatra, Mr Thaksin’s youngest sister; and 404 million shares from Bannapot Damapong, the step-brother of Khunying Potjaman, Mr Thaksin’s wife. The investigation focuses on whether Panthongtae and Pinthongta faced tax liability on unrealised income worth 15.56 billion baht. The sum represents the difference between the transfer price of 329.2 million shares from Ample Rich Investments Ltd, at one baht apiece, and the market price of 47.25 baht at the time. The transfer was undertaken outside the stock market three days before Shin sold its shares to Temasek at 49 baht each. The panel looked into whether Finance Ministry officials were negligent in failing to assess income tax against the two children on difference between one and 47.25 baht. Mr Thaksin set up Ample Rich in the British Virgin Islands with just one dollar in registered capital in April 1999. He sold 32.92 million shares of Shin Corp, which later increased to 329.2 million shares after a par increase, to Ample Rich two months later. Mr Thaksin transferred ownership of Ample Rich to his son in December 2000, two months before he assumed premiership. According to the law, Mr Panthongtae and Miss Pinthongta, must calculate gains from the share sales as annual income for tax assessment and file tax forms by March 2007. The Revenue Department in November notified the pair that they would be subject to tax from the share transfers. The National Counter Corruption Commission (NCCC), meanwhile, was busy investigating tax officials for alleged negligence in doing their jobs. The first casualty of its investigations was Sirote Swasdipanich, the Revenue Department chief. The NCCC in early December said he and four other department officials were guilty of having failed to collect tax in the Potjaman- Bannapot share transfer. The ASC has also extended its probe into Mr Bannapot’s tax-free transfer of 4.5 million shares from Duangta Vongpakdi, a Shinawatra family maid, worth 738 million baht in 1997. The ASC has set up a total of 11 panels to look into the tax implications
of the Shin share transfers; lending by the Export-Import Bank of four
billion baht to Burma; corruption in a rubber seedling programme; the two-
and three-digit lotteries, the costly CTX luggage scanners at Suvarnabhumi
Airport; procurement of other equipment at the airport; the airport rail
link; and the Baan Ua-arthorn low-cost housing programme.
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