Thailand: Confident In Restructuring?

1998

Dr Craig J. Reynolds

The Royal Thai government has been taking some difficult decisions in response to the IMF guidelines for restructuring the economy, trying to do so in a way that does not create excessive hardship and adverse reaction in the electorate. Apart from the fact that Thailand was at the epicentre of the economic crisis, and therefore has had longer to begin its recovery, one of the big differences between Thailand and its Southeast Asian neighbours is that there was a regime change late in 1997. The new Prime Minister, Chuan Leekpai, has a reputation for clean and honest government. The question with all such Thai governments is, however, will he be an effective leader? The government has imposed an increase in petrol excise of one Baht per litre and has increased import duties on some consumer items -- beer, wines and spirits, tobacco, cosmetics, perfumes, leather goods, crystal ware and clothing. These are described as luxury goods, but is this really the case for beer and tobacco? Certainly the petrol increase will cause hardship for many, even if the government declined to increase the diesel excise. The fuel is used widely in industry, agriculture and transportation, and the government is wary about precipitating an increase in the electorally-sensitive bus fare. The government is also considering a land development tax structure (12.5 percent of annual rental) to complement the other tax increases. Some measures are meeting with resistance, and the full extent of the adverse economic impact is not reported with the greatest fidelity. The Ministry of Education, reacting to public pressure, resolved to freeze fees in government secondary schools for this academic year. NGO and social workers are concerned that there has been too much government attention to the banking and finance sectors. Ignoring the grievances of the poor and less-well-off could lead to a polarisation of rural people and Bangkok residents. The IMF has agreed to relax fiscal targets, allowing the government to inject an additional 150 billion Baht into the economy this fiscal year. On a recent visit the German Minister of Finance praised Thailand for its efforts to restructure the economy. An unidentified IMF official said that Thailand "had turned the corner of the crisis," whereas Indonesia was "still in intensive care." Anti-American sentiment has abated somewhat. Relations between Thailand and the USA are bound to improve as a result of Prime Minister Chuan's trip to America in mid-March.

WATCHPOINT: If Indonesia proves unwilling or unable to respond positively to IMF reforms, will Thailand's recuperation be at risk?

 

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