Reaching the Limit with a Government We Fail to Trust

Reaching the Limit with a Government We Fail to Trust

Dr. Kriengsak Chareonwongsak

                                                                                     Democrat Executive Committee

          It is now known that government income collection for May 2006 is 3,349 million baht below target, thus signaling the danger of economic slowdown for the second half of 2006, with failure to reach targeted income collection a real risk.

          In addition, on the political horizon, looming scenes of continued strong conflict hint to the possibility of no election at all on October 15, 2006, which would result in delayed Budget consideration for 2007, and continued economic slowdown until the beginning of 2007 as investment funds cannot be withdrawn from 2007’s budget in the last quarter of 2006.

          As it plays a caretaker role, this government is limited in its implementation of financial policies. If it were a government that people trust, it would, moreover, have other measures to use besides the injection of budget into the economic system. However, since it does not have the people’s trust, the government is limited in its use of other equipment to stimulate the economy.

          A government may conceptually play with the people’s expectations. If trust is placed in a government’s policy announcements, people will modify their behaviour accordingly and the government will achieve its economic target before even embarking on policy implementation.

          For example, when the government announced its investment plans for mass transportation infrastructure, many people believed that the government really would conduct that project and investors and others found ways to invest in it. Thus, the economy grew even though the government did not conduct such a project. 

          Or, when the Bank of Thailand announced it would control the inflation rate, entrepreneurs and others could anticipate the Bank of Thailand’s use of high interest policy during periods of high inflation.  Consequently, the public prepared in advance by decreasing expenses and investment, which lowered Thailand’s inflation pressure, though the Bank of Thailand had done nothing about it up to that point.  

          However, this government’s past behaviour has been self-discrediting, as has the behaviour of other government organizations looking after economic policies.  Most obviously, the government announced many policies, but did not carry them out, for example, its Nakornnayok new city project, the regional center energy trading project and the construction project for skytrain route changes, none of which have been carried out, though announced as large-scale projects. Therefore, investors and others who were preparing to invest in these projects have suffered loss.

          A further point is the government’s lack of transparency, with its doubtful behaviour making it unworthy of trust, and leading the public to suspect complex layers of corruption and benefits behind the running of these huge projects. Thus, people fail to believe in government honesty when it comes to investment projects, and instead worry that such projects will be unsuccessful due to public opposition.

         The government also signals messages that conflict with those of the Bank of Thailand, especially where the Finance Ministry expresses disagreement over the Bank of Thailand’s policy of increasing rate. Society therefore believes that the government’s financial policies conflict with those of the Bank of Thailand, possibly resulting in inefficient financial policy management and the Bank of Thailand being unable to control or mange the inflation rate according to plan.  

        The government’s policy-setting behaviour has always been very erratic, along with its lack of transparency and lack of unity amongst other government organizations. Thus, people tend to distrust the policy announcements of this government. For example, though the government announced the construction of three skytrain routes, many do not believe that it can or will do so. Thus, investors and others dare not move in the direction of government policy as announced, and there is no economic stimulation due to the people’s lack of confidence. All that remains is to wait and see.

        It has been suggested that the government clarify its project policies, as to when, how and what policies it will pursue, also giving the completion date for each project. The government should, moreover, reveal its financial status to assure the public of sufficient budget to run these projects and assure the government’s sure completion of them.   

       As far as Mega Projects go, the government should study carefully, let the people participate sufficiently, and then use academic standards to measure operational priorities before carrying these out transparently through clear project bidding procedures, all the while revealing the contract details. The Prime Minister and other politicians should also be barred from presiding on the committee boards of those considering any submitted bids.

       Despite limits placed upon the Caretaker Government’s financial policy options, if the government did display trustworthy behaviour by sending proper economic signals and setting clear, stable policy in place, it would not find it difficult to drive the economy, as it now does.