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Govt forces people to spend


The government wants Thai consumers to spend their way out of the economic recession. Is it, yet again, putting the burden on the Thai public? Thanong Khanthong and Vatchara Charoonsantikul report.

The Tokyo government has freely given money to Japanese to spend in order to help stimulate its sagging domestic economy. One must see it to believe it! Malaysia has just unveiled a stimulus package to bolster its domestic economy by designating Monday as a day for Malaysians to embark on local tours. Thailand is doing the same thing. Local television news announcers, who ''parrot'' the official policy line, are preaching every evening that ''saving is not the way to help the economy''.

There it goes again. After the government saved the financial sector at the expense of taxpayers, it now has a policy of putting further burden on the shoulders of working Thais.

Both Bank of Thailand Governor Chatu Mongol Sonakul and Bank of Thailand President Dr Olarn Chaipravat have urged the public to spend, from their own pockets, to stimulate demand, which collapsed with the high interest rate policy initially designed to prop up the baht. They are arguing for private consumption to boost demand at a time when unemployment is rising and the people are suffering from the high cost of living and low disposable incomes.

Recent economic statistics show that the economy is still sliding, although at a lower rate. However, SG Asia Credit Research, in its Sept 28 report, suggested that domestic consumption since July 1997 appears to be steady for major items such as passenger cars, commercial vehicles, items bought in department stores, motorcycles and mobile phones.

The Bank of Thailand also said in its October report: ''Private consumption in the first seven months of this year continued to fall but at a lower rate. Consumption of imported products, motorcycles, beer and tobacco appears to be most stable.''

The report said the falling consumption could be attributed to the dwindling purchasing power of the public because of the fall in their incomes. It added that the public are being careful because of the uncertain outlook.

Thai policy makers are not only preaching for a revival in consumer spending but also actually forcing the Thais to spend. Interest rates have been brought down dramatically to discourage savings. Given the inflation rate of 8 per cent this year, it is no longer attractive for people to put their money in three month deposit accounts which yield between 6.5 and 7 per cent. This means that money placed idly in a bank account will in real terms be worth less in the future than now. In other words, those Thais who save are getting poorer every day.

The banks are responding to signals made by banking officials. They are maintaining an interest rate spread of 7 per cent by pushing down deposit rates while keeping lending rates sky high. By doing so, the banks avoid the need to raise capital from their shareholders and use the wide interest spread to subsidise their non-performing loans.

''The public who are saving their money in the banks are effectively helping the banks to recapitalise and increase their operating profits,'' said Dr Suphavudh Sai-chua, an investment analyst at Merrill Lynch Phatra Securities.

Because of uncertainty about the economy next year, there is no job security this year, and will there will be none next year either. Those who spend their savings now might have nothing to spend if they lose their jobs. So, the absence of a government funded welfare programme makes the official campaign for the public to spend all the more ridiculous.

From the outset, the government failed to grasp the vital importance of the domestic economy. Interest rates were kept high for a prolonged period, until they effectively choked the domestic economy. If there was more flexibility in the interest rate policy, the economy would not have suffered too harshly. The reason that the baht has stabilised is because investors realised that the Thai economy could revive, when the government switched to a more expansionary fiscal programme in August. The US interest rate cuts have added to confidence that there is no more need for currency stabilisation by Thailand and the crisis hit economies.



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