Friday, July 29, 2011

Putting populist pledges into action may bankrupt us all

Putting populist pledges into action may bankrupt us all
By The Nation
Published on July 7, 2011

The Pheu Thai Party needs to reconsider its promised billion-baht give-aways

The prospective Pheu Thai-led coalition government will now have to reconsider carefully how to implement the pledges it gave to voters during the election campaign.

The Pheu Thai Party lured voters with a raft of policies it promised to implement should it gain power. However, some of those policies may squander taxpayers' money, failing to boost the capacity of the country's human capital and create sustainable wealth for its people.

Pheu Thai is a champion of populist policies, and many voted for the party because they wanted to benefit from such policies. However, when populism is put into action, the country's fiscal health can suffer through the massive budget spending needed to finance give-away programmes.

Pheu Thai ran a campaign full of policies aimed at catching the voter's eye. Included were pledges to raise the national minimum wage to Bt300 per day, offer higher prices to farmers for their rice crops, provide tablet computers to all primary schools, cap mass-transit train fares at Bt20, and ensure college graduates receive support of Bt15,000 per month.

While the party has yet to spell out how it will implement these projects, there are already concerns that some of these policies could be a waste of taxpayers' money, leading to more damage than benefits.

Credit ratings agency Standard and Poor's recently warned of the dangers. "Implementing many of these policies without having proper appropriation of the revenues would adversely affect the country's fiscal position," said Takahira Ogawa, a credit analyst for the agency.

Measures undertaken by the last government over several years to counter the global recession and implement populist policies have already eroded Thailand's fiscal strength, he was quoted as saying.

"Further significant erosion could be detrimental to the current ratings," Ogawa cautioned.

For instance, Pheu Thai may have to reconsider its pledge to distribute computers to each primary school student. The "one tablet per child" programme would amount to 800,000 computers at a cost of about Bt4 billion. But it remains to be seen how this project would contribute to the children's development - especially those living in rural areas with no broadband coverage.

The pledge to raise the minimum wage to Bt300 in 90 days might also lead to uncontrollable inflation. It is crucial that the minimum wage level be acceptable to both employers and workers so as to ensure it is practical and conducive to the business environment. A rate set too high would discourage factories from hiring workers, causing high inflation and creating potential job losses as factories turned to outsourcing.

The rice-pledging programme is also likely to cost more than Bt100 billion. And yet, the programme would not benefit poorer farmers, as they lack the facilities to store and dehydrate rice as required by the pledging programme. The major beneficiary would in fact likely be the rice millers.

Populist policies are not necessarily bad, but they must be implemented only according to necessity, as short-lived programmes to ease the suffering of people and complement other sustainable policies.

It would be unfortunate if political parties used full-blown populist policies so as to inflate the economy's growth figures in the short run, without considering the consequences to the country in the longer term.

Instead, the government has a duty to focus on policies to boost Thailand's capacity and competitiveness in the long term. Populist policies also instil a perception that the government will provide people with economic security, which discourages self-reliance in favour of reliance on hand-outs.

In addition, such policies naturally attract corruption because of the huge sums of taxpayers' money involved.

A country will fail to develop if its government places a higher priority on populist policies than on a sustainable economic platform to boost the country's long-term competitiveness. Although these give-aways may seem like an essential element of economic strategy because voters have become addicted to them, the Pheu Thai Party-led government must reconsider how to implement them in the best interests of the people. Otherwise, we could all be bankrupted altogether.

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