11 July 2024

The Pheu Thai-led coalition government faces mounting pressure to abandon its populist policy of handing out 10,000 baht to all citizens aged 16 years and above under its digital wallet scheme. 


A few weeks ago, 99 academics had issued a signed statement opposing the scheme that would cost as much as 560 billion baht, even as the government was still running a fiscal deficit and burdened with rising public debt. 


The academics argued that the money could be spent more wisely instead of wasting the huge amount to boost private consumption in the short run. 


Despite severe criticism from the scholars, Prime Minister Srettha Thavisin remains defiant. He is urging government supporters to come out in defence of the scheme.


In response, some government supporters did echo the administration’s narrative that it would boost the economy and support low-income groups.


Meanwhile, the National Anti-Corruption Commission (NACC) has established a committee to look into the matter, to see whether it could lead to severe corruption as in the rice-pledging scheme of the 2011 Pheu Thai government.  


Signs of uncertainty 


Recently, Deputy Finance Minister Julapun Amornvivat, who heads a sub-committee looking into the implementation of the scheme, cautioned that the launch of the scheme may not meet Srettha’s deadline of February next year. 


Julapun said there were issues involving the safety of the digital application that needed to be resolved. Although, he believes, despite the delay it will be implemented in the first quarter of next year. 


The most critical aspect of the scheme that has confounded critics is the source of the funding. The amount required for the scheme would be equivalent to 3 per cent of gross domestic product (GDP). The government may not have a choice but to borrow the bulk of the amount.


What comes next? 


How will academics react after the government ignores their warnings and still goes ahead with the implementation?


Sakon Varanyuwattana, a former dean at Thammasat University’s Economics Faculty who was one of the 99 signatories voicing their opposition to the digital wallet scheme, said: “We have sent the government our warning. The next move should be a duty of the others such as the NACC.”


He lamented that populism survives because politicians just look at short-term gains without thinking about prudent fiscal policies for the long run. 


New borrowings may not sharply increase public debt now, but it would balloon in later years, he cautioned.  He was referring to the quasi-fiscal policy under which the government borrows money from state-owned banks and pledges to repay in the future.  In this case, the government has indicated that it might borrow money from the Government Savings Bank. 


Meanwhile, Somporn Isvilanonda, a senior fellow at Knowledge Network Institute of Thailand, said the rice subsidy scheme of the Yingluck Shinawatra government had inflicted a cost of around 600 billion baht on the taxpayer. Her government had directed the Bank for Agriculture and Agricultural Cooperatives (BAAC), a state-owned bank, to fund the implementation of the project. Later the General Prayut Chan-o-cha government had to compensate the BAAC 300 billion baht. Therefore, the debt carried forward for the new government is around 300 billion to compensate the BAAC, said Somporn. 


Debt accumulated over the past several years has not been fully repaid. The implementation of the digital wallet scheme would potentially fall into the same pattern, requiring many years to repay a debt-financed consumption project, he warned. 


Lessons from Latin America  


Many governments in Latin America have had a bad reputation of pursuing populist policies that became fiscally unsustainable, leading to a currency crisis and high inflation that took a heavy toll on those economies for years. Some of them are still suffering due to the policy blunders, said Sakon. 


For example, Argentina and Venezuela have been reeling under high inflation for many years — Argentina’s inflation in September was 138.3 per cent, and Venezuela’s 317.6 per cent. 


“We do not need to follow their steps,” said Sakon. 


Drawbacks of digital wallet scheme 


Sakon and other academics argue that there is no urgent need to spend large amounts of money to boost domestic consumption, as Thailand was already on the path to economic recovery. They warn of the opportunity cost of not utilizing that amount to invest in important areas such as digital infrastructure, and water resource management.


They cited many research papers that showed the fiscal multiplier effect of free cash handouts was far less on boosting economic growth. In contrast, public investment would have a higher multiplier effect. 


As the interest rate is higher now, the government will have to bear a greater debt burden if it borrows new funds to finance the scheme. The current public debt is about 10 trillion baht, or 61.8 per cent of GDP. 


The academics have urged the government to show restraint in spending in the post-COVID-19 phase to save for future contingencies.


Giving 10,000 baht to everyone aged 16 and above is not social justice, as the rich and super rich will also receive the handouts even though they do not need it, according to the academics. Julapun has, however, clarified that the digital handout scheme is not a social welfare measure, and is primarily aimed at boosting economic growth through consumption. 


The academics also raised the challenges of Thailand becoming an ageing society, which would require higher social welfare spending, and therefore the government must be cautious about avoiding unnecessary fiscal expansion. 


By Thai PBS World’s Business Desk