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Debt burden gambles with Thailand's future
Publication Date : 24-01-2013
The Thai government must lay down a clear strategy for how it intends to spend the 2 trillion baht (US$67 billion) that it wants to borrow to finance infrastructure projects over the next seven years. Without a clear-cut working plan, the additional loans will end up being the burden of future generations without driving the economy forward.
The Finance Ministry is set to seek Cabinet endorsement for legislation to allow the government to borrow the 2 trillion baht. But the government should first have come up with full details, including the need for and the expected results of the spending, instead of simply setting the amount needed.
Each infrastructure project should come with its spending duration, the period to repay the debt, and the target for benefits that the project should produce. These projects will require a massive amount of money and will create long-term debt obligations, especially for future governments, which could face as-yet-unknown fiscal strain.
The government has vowed to balance the budget by 2017 with the borrowed money, but that claim is based on the assumption that current spending will produce effective and sustainable results.
Originally more than 70 per cent of the budget was earmarked for transport and logistics, especially railway projects, to help reduce the country's reliance on imported energy.
These massive projects are susceptible to corruption. And there is speculation that politicians are trying to divert a sizeable amount of the planned budget to finance local projects such as roads instead of railways, in order to gain short-term political capital.
If that proves to be the case, the 2 trillion baht will not serve its stated purpose of building infrastructure for the long-term benefit of the country as a whole.
The government is not known for implementing cautious spending plans. All of its projects so far have been aimed at fulfilling political promises without any thorough evaluation of the expected results. In addition, many projects are contradictory to the government's pronounced policy.
For instance, the first-car purchase scheme, on which the government spent 90 billion baht to finance a tax break, runs counter to its own stated energy-efficiency policy. The government should have spent this huge sum to finance an urban mass-transit system or a national railway project, either of which would help improve logistics in the long-term.
The government must formulate short-, medium- and long-term plans for four areas of infrastructure: financial structure, legal structure, social structures such as education and public health, and transport and communications system.
Instead of creating more debt in the public sector, the government should promote public-private partnership projects and allow the private sector to accelerate these projects by sharing in the financial and technical risks. The model has proved suitable in many other countries, so why not here?
The government has already provided privileges to big corporations in Thailand through tax breaks and other incentives. The amount of private investment in Thailand should grow further and become commensurate with the overall expansion of the economy in the next few years. Big corporations with political connections in Thailand tend to play it safe by asking the government to use taxpayers' money to absorb the initial risk before taking over a project after it has proved fruitful.
The government should also ensure links between the three sectors of government, private industry and educational institutions, in order to promote and secure the competitiveness of the country in the long term. Many educational institutions have made progress in developing innovations, but there is insufficient infrastructure to translate their innovative work to commercial viability.
In addition, every big infrastructure project must respond to a national agenda of strengthening the three key areas of business sustainability, environmental sustainability and the sustainability of human resources.
Otherwise, this money, like so much else, will simply end up being the burden of future generations to repay. If that becomes the case, what the government is doing now will be a complete waste of public money.