BT1.2-TRILLION BUDGET: Fiscal policy tightening

Published on Jun 22, 2004


'05 to see 1st balanced budget since crisis

The Thaksin government will tomorrow present a Bt1.2-trillion fiscal budget for a two-day parliamentary debate, marking Thailand's first balanced budget since the 1997 economic crisis.

The budget for the 2005 fiscal year from October 1, 2004 to September 30, 2005 represents a tightening of Thailand's fiscal policy, amounting to spending of 17 per cent of gross domestic product.

"The Bt1.2-trillion budget is a modest 3.4-per-cent increase over the fiscal 2004 budget of Bt1.16 trillion. Since inflation is expected to be 2.5 to 3.0 per cent, the increase will therefore be negligible in real terms," Phatra Securities Co said in its June 18 report.

Of particular interest is the investment portion of the 2005 budget. The government will allocate Bt302 billion for investment projects, most of which are old projects. None of the investment budget will go towards financing the Bt1.5-trillion worth of infrastructure projects to modernise Thailand over the next five years, as announced by Prime Minister Thaksin Shinawatra.

Earlier, Finance Minister Somkid Jatusripitak said that due to strong revenue collection, the government would be able to present a balanced budget for the first time since the 1997 crisis.

"So far we have collected tax revenue that exceeds the original forecast by Bt120 billion. With public debt falling to 44-45 per cent of the gross domestic product and international reserves of US$42 billion [Bt1.7 trillion], we're in a strong position to move ahead," he said at a seminar in Cha-am a week ago.

By moving to tighten its fiscal policy, the Thaksin government hopes to rely more on investment rather than government spending as a key engine of economic growth over the next five years.

The head of the International Monetary Fund's Asia-Pacific Department, Alessandro Zanello, said last week that it would be unwise for the Thai government to rely on extra spending from the budget to spur economic growth, which should be allowed to run its course.

The Education Ministry will get the largest budget allocation at Bt203 billion, followed by the Central Budget at Bt200 billion, the Finance Ministry at Bt140 billion and the Interior Ministry at Bt139 billion.

The Central Budget, in principle, will be earmarked for an emergency-spending programme. However, in practice, the prime minister has full authority over Central Budget spending, which may be used to supplement the populist programmes in the investment budget.

As Thai industries are operating at 75-per-cent capacity across the board, they will be looking forward to initiating new investments to expand their production. This feature will create a private-investment drive, while the government will unlikely be able to help finance new investments from its budget.

Phatra Securities stressed that Thailand had enough domestic savings to finance the Bt1.5 trillion to Bt2 trillion needed for infrastructure investments, which include new roads and rail lines, over the next five to six years.

"Domestic financing should not pose a problem given that savings at 30 per cent of GDP is well above investment, which is currently 23 per cent of GDP," it said. "The 7-percentage-point difference translates to over Bt400 billion per year in terms of excess savings.

"Stated simply, excess domestic savings alone will be sufficient to finance investment worth Bt2 trillion over the next five years. That is why the government is confident that with the right financing incentives in place, it will be able to mobilise the domestic financial resources it needs to bring the infrastructure projects to reality."

Thanong Khanthong

THE NATION

At what price, to whose benefit?

The government's rush to enter into free trade agreements with Australia, New Zealand and the United States begs the question: are we ready?

ACHARA ASHAYAGACHAT
Bangkok Post, 22 June 2004

Prime Minister Thaksin Shinawatra's ``I'm the only one in charge here'' approach hasn't worked too well with southern unrest, and stands in danger of yielding the same result with the free trade agreements his government is rushing to conclude with several countries.

His shake-hands-first-before-conducting-a-study style, which ended up with FTA promises last October with some of the Apec leaders including the Chinese, American, Australian, New Zealand and Japanese, among others, has rolled off hard on affected groups whose concerns are real and imminent.

Yet, the government remained deaf to those unpleasant voices, busying itself with allaying fears and shaken confidence of foreign and domestic investors due to the southern violence and the possibility of a second economic bubble bursting following the oil price hike.

Instead of slowing down the process to examine our genuine readiness for trade liberalisation and preparing industrial and farm sectors with adjustment programmes, the government is rushing to sign an agreement with Australia (during his planned visit to Canberra on July 5) and heading on for talks with the US and New Zealand this month.

The Thailand-Australia FTA (TAFTA) is Canberra's third FTA accord with other countries but Thailand's first comprehensive agreement and the first one with a developed nation.

But we spent only half a year in concluding the deal, with little research backup and very few opinion sessions with affected groups.

Government officials said protesters against the TAFTA should have made their voices heard during the negotiation process, not just before the signing.

The fact is they did, but no one listened.

Being frustrated with the Thai authorities' generosity to Australian producers, local dairy farmers led by Adul Vangtal, president of the Thai Holstein Friesian Association, have threatened to petition HRH Princess Maha Chakri Sirindhorn, and Deputy Agriculture Minister Newin Chidchob reportedly promised to find a way out _ but in the end the dairy products appeared on the Thai offered list while the telecom sector appeared on Canberra's list, according to the FTA Watch.

Mr Adul's cooperatives are now heading towards other fighting channels _ a petition to His Majesty the King, and compiling as many as 50,000 signatures to demand a reversal of the cabinet's decision to go ahead the deal.

Transparency is another controversial issue.

The affected sector, not to mention the general public or parliamentarians, said they rarely received necessary information all along the negotiation process.

The draft text agreement was placed on the Commerce Ministry's website after cabinet endorsement of the negotiation's conclusion just last month, while Canberra put the initial text on its website several months before us and the full text at least a month ahead of us, accord ing to FTA Watch's Jacques-Chai Chomthongdi.

``For academic study of the impact of the FTA, Thailand saw none of the applicable ones that gave a recommendation to the government on what to do about the local affected groups or how to deal with the counterparts on non-tariff measures, while much pro and con research has been on the Australian website long before us,'' Mr Jacques-Chai said.

``What will be the benefit to the farmers who can't read English if the Thai authorities do not provide a Thai translation (of the FTA and research)?'' he asked.

Kiat Sittheeamorn, president of the International Chamber of Commerce, (ICC) commented that the FTA was not so dangerous as long as internal restructuring is made in time with the accelerated liberalisation.

However, several Thai industrial sectors have yet to struggle with the one, five and 10% import tariff on raw and semi-raw materials, which made their products (i.e. textile, petrochemical and electronics) less competitive to those from lower-cost-of-production countries like Australia, China and the US, Mr Kiat noted.

Support for the adjustment scheme could be a grant/fund for industries that might have to give in, or could be a tax incentive if they have to improve their technology, and the last sustainable means was research and development (R&D), which currently was far from adequate (only 2.5% of GDP, while our competitors were at 10% of the GDP), he said.

The ICC-Thailand head was also frustrated with the lack of on-time study of the cross-country industrial sector strategy: certain industries might be competitive with country A but not with country B, while other industries might benefit from that FTA.

Therefore we need to make a thorough study and consultation with all affected sectors to fine-tune the best solutions.

``What is available now is only a study on intellectual property rights but not the industries.

``Washington had necessary research [prepared by both American and Thai firms] ready in their hands before entering the negotiations, while the Thai team is still waiting for an in-depth study done by American firms. So how can we have a profound and thorough picture when bargaining with the bigger country?'' he said.

For the TAFTA, major concerns include non-tariff measures like the sanitary and phytosanitary standards, and the as yet not concluded rule of origin, Mr Kiat said.

``The draft agreement said the rule of origin issue would be discussed within the next two years after the FTA is signed. It is impractical that we sign before we know all the details. How can businesses know whether they will benefit from the rule of origin factor? At least they could follow the WTO's substantial transformation principle or the Asean 40% local content principle to calculate which products will gain from the tariff exemption in exporting to other countries,'' he said.

The rule of origin would be one of the sticky points for the US-Thailand FTA as well. Even Canberra, also a close ally and an economic powerhouse, remained submissive to Washington's product-specific rule of origin similar to the (US) FTA deals with Chile, Central American countries and Singapore.

It is therefore important for Thailand to take good care of the matter before agreeing to any deal.

Mr Kiat also questioned the merits of the ``early harvest'' FTA. It is obvious that Thai farmers are losing to Chinese fruit and vegetables without having a chance to turn to other crops or occupation and Thailand is doing it again with the TAFTA.

Under TAFTA, soybean imports, currently taxed at 20-30% to protect local farmers, would be tariff-free in Thailand with apparent benefit to animal feed producers, controlled to a large extent by Charoen Pokephand Group.

``In short, benefits for the Thai side remain obscure; our push for spa and Thai restaurant businesses would only be for such training schools to open in Australia, not for the Thais to fully operate in the country. In real estate, we could only apply for the commercial sector not for residential areas; our openness for mining, construction, retail, education, etc, would clash with the Alien Business Law, which restricts foreign activities in certain businesses,'' he said.

Mr Kiat's conclusion was in line with research done by Australia's Centre for International Economic Relations, which said liberalisation of Australia's trade in services under TAFTA was in fact at a standstill.

``Canberra would open for [Thailand] professional and business services, banking and insurance, telecom, environmental services, education/training services related to Thai culture, restaurant services and mining services, but in reality, it would hardly reduce service barriers to Thailand,'' the study said.

While Thailand would permit majority Australian ownership of a number of service providers to increase from 49.9% to 60% and grant extended visas and work permits for all Australian citizens being transferred to work in Thailand from one year to five years.

The affected dairy sector would benefit from the built-in safeguard period of 15-20 years. However, the farmers said they would not be able to compete at the end of the day.

``Even the high-tech US still protects its dairy businesses. The US pledged preferential tariff phase-outs with Australia be reduced in four years, 10 years and 18 years, except for avocados, beef, dairy and sugar.

With such a hot climate and comparatively low know-how, our cows and farmers cannot produce high yields like the Australians. Therefore we'd better exclude our products from the agreement just like Washington did with its sugar, so that we have time to prepare our dairy farmers,'' Mr Adul Vangtal said.

Listening to the people's voice should be a required qualification of a democratic government, and the Thaksin cabinet is showing whether or not it has this characteristic, in handling FTA issues.

Or should the public believe that there exists a conflict of interest, as suggested by several senators and academics who claim our premier's policy measures are murky and beneficial only to his business empires and cronies?

These doubts are being fortified by certain occurrences, such as: Beijing has moved its orbit position for IPStar, a subsidiary of Shinawatra Satellite, for clearer signal for the latter's clients; China Sat Corporation has bought 2,000 signal reception sets from IPStar and promised more to come, and the IPStar capacity reservation has been substantially increased by Beijing and India. All this occurred under the FTA deal with China.

IPStar provides satellite-based broadband internet services and other multimedia content as well as application services.

The company has recently announced a partnership deal in New Zealand and is courting Australian partners for the broadband business.

``Make things clear and clean and the public will back you,'' suggested Kraisak Choonhavan, chairman of the Senate committee for foreign affairs.