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Published on November 19, 2007

Thailand's real GDP is expected to grow by 4.3 per cent this year, down from 5 per cent in 2006. The situation is unlikely to improve significantly next year, with expected GDP growth of 4.6 per cent. These are the World Bank's recent estimates and reflect a very upbeat mood on East Asia's resilience and potential to register strong economic growth this year and next despite the adverse impact of the sub-prime loan crisis in the US and the spectre of skyrocketing oil prices.

Of particular concern is the fact that Thailand continues to remain at the bottom rung of countries in East Asia in terms of economic growth prospects.

While Thailand is expected to register growth of less than 5 per cent next year, most countries will register growth rates of around 6 per cent or higher - 5.9 per cent for Malaysia, 6.2 per cent for the Philippines, 6.4 per cent for Indonesia, 8.2 per cent for Vietnam and 10.8 per cent for China.

The main reason for Thailand's lacklustre growth is weak private investment. Unless investor and consumer confidence is restored, Thailand won't see the strong investment necessary to boost its economic growth to the 5.5-6 per cent range.

We're rather disappointed that all of the political parties contesting the December 23 general election have failed to come up with a credible policy to boost investment. Without investment, economic growth will not reach its full potential. There will not be enough jobs to cope with the stream of new graduates entering the job market. Consumers will not have enough purchasing power to buy goods and keep factories humming.

Instead of proposing policies to boost Thailand's growth, most political parties have sought to convince the voting public that they can outspend their rivals.

Populist-policy spending, initiated by the previous Thaksin government, is now the vogue. Some parties have even made it clear that they would like to turn Thailand into a welfare state, where the state assumes the primary role in looking after the welfare or well-being of its people.

While social equity is a noble cause, it is an objective for the long term and we don't think at this juncture that Thailand is ready for massive populist spending or to become a welfare state. The country needs strong tax revenues and a very competitive economy to foot its bills, otherwise the state's coffers will never hold enough to finance welfare benefits such as free education, free healthcare, generous village funds, and big-ticket pet projects to please the rural poor.

Leading businessmen have already come out to warn political parties about their populist spending policies. Pramon Sutivong of the Thai Chamber of Commerce was right when he spoke on Saturday about the danger of letting the country slip into the pit of welfare spending beyond its ability to generate revenue.

He warned that populist spending might please the people, but it would harm the country's public finances and create financial problems.

He would like the new government to stick instead to sound macroeconomic management and practice good governance in order to restore confidence. This will help the country to achieve higher economic growth because investor and consumer confidence will lead to investment, which creates jobs.

Apart from implementing mega-projects to improve Thailand's physical infrastructure, the Thai Chamber of Commerce would like the next government to further liberalise trade and investment, develop the provincial and rural economies and boost the competitiveness of Thai industry.

That sounds like good advice from the Thai Chamber of Commerce. The problem is that during election season the politicians are too busy trying to win votes in their constituencies. Well, let them make their empty promises. But once they are running Government House, we expect them to exercise prudence in managing the country's finances, which must be kept in good shape at all times.