Chalongphob says society remains vulnerable

Business News - Tuesday December 11, 2007

Education key to battling populism

Chalongphob says society remains vulnerable

CHIRATAS NIVATPUMIN

Thai society will remain vulnerable to populist politics for the next several years, until voter education and income increase to the point where the importance of long-term sustainability trumps election promises of state handouts, according to Finance Minister Chalongphob Sussangkarn.

''Around the world, populism generally can take hold only in emerging markets. In developed markets, the long-term costs are better understood and politicians are punished for poor policy,'' he said in an interview with the Bangkok Post.

Thai society, he believes, is at a key turning point in its development.

''Right now, more than half of the eligible voters, at around 60%, have only a primary education. It wouldn't be until 2010 before the majority have a secondary education or higher.''

The growth of the middle class would also be a force against populist politics, as voters become more loath to see tax funds committed to state handouts. Dr Chalongphob cited Korea as an Asian country whose attitudes have changed quickly over just a few years.

''Korea today is a country with a high level of governance, a change that has come only in the years since the 1997 crisis. Public expectations for politicians have changed considerably,'' he said.

''The problem with populism is that once people receive [free] benefits, they begin to want more and more.''

Dr Chalongphob, who joined the Surayud Chulanont government in March after a decade at the Thailand Development Research Institute, said the loss of discipline and the heightened expectations of voters for populist programmes were ''very dangerous'' for the country's long-term development.

Policies taken under the Thaksin Shinawatra government to prop up farm commodity prices were essentially a ''cash giveaway'' leading to state losses of more than 100 billion baht, as rice and other crops were mortgaged to the state at prices well above market rates.

''Yes, it is the responsibility of the state to assist the underprivileged. But not by giving away money,'' Dr Chalongphob said.

''A social safety net is needed. But we can't set the entry threshold too high. That's the problem that Scandinavian countries face today.''

Dr Chalongphob said he was hopeful that the Dec 23 election would lead to the closing of the political and social divide that has scarred the country since early 2006.

''Last year, Thai society only saw black and white. You would see arguments even within the same house,'' he said.

''It's much different from the Thai society that I know. We are much more grey. And we need to walk the middle path.''

The 57-year-old Cambridge-trained economist said he was optimistic about Thailand's economic prospects.

''Growth has increased each quarter this year. I am quite confident that we will see more than 5% growth in 2008,'' he said.

Credit should go to the government, he added, as investment has picked up in sectors such as autos thanks to greater clarity in terms of state policy.

The eco-car programme and commitment to E20 biodiesel has helped spur new investment in the auto sector, with manufacturers such as Ford, Honda, Mazda and Tata all announcing new investments this past year.

''Even motorcycle producers, such as Triumph and Kawasaki, have expressed interest in setting up plants for bikes with engines from 600cc to 2,000cc. They see our strengths in a strong parts industry,'' Dr Chalongphob said.

He shrugged off critics who have expressed disappointment about the relatively slow pace of reforms over the past year.

''Actually, those who know me know that I am someone who makes decisions very quickly. But in some cases, you can't make a decision without the right information. In other cases, it's simply not the right time to make a decision.''

In terms of economic laws, Dr Chalongphob said with the exception of the Currency Act, nearly all of the key laws promoted by the Finance Ministry should pass the National Legislative Assembly before the end of its term. This includes the new Financial Institutions Act, the Deposit Insurance Act and amendments to the Bank of Thailand Act, the Securities and Exchange Act and state enterprise privatisation laws.

''In terms of the macroeconomy, we are moving in the right direction. What we haven't done so much is in terms of sectoral policies,'' he admitted.

''The macro picture has no problems, with exports strong and economic growth steady. The issue really is more about the productivity and competitiveness of individual sectors, and whether we can give greater assistance through tax incentives or, say, the Board of Investment.''

Dr Chalongphob said he hoped to leave as a legacy changes in how fiscal policy is tracked and managed.

''Right now, rules such as limiting public debt at no more than 50% of gross domestic product or the budget deficit to just 2% of GDP are just rules of thumb. Other countries have become much more sophisticated in how to monitor their fiscal positions,'' he said.

Improving public transparency and creating a system to monitor the implementation and costs of public policy was also the best way to safeguard against demagogues.

''At the end of the day, we can only hope to have a system that allows the public to monitor policy and its costs. To guard against populism, we need to promote transparency, debate and criticism within society.''

By : Bangkok Post