Thailand set for return to 'Thaksinomics'

BANGKOK, July 10, 2011 (AFP) - Riding a wave of support among rural voters, Thailand's incoming premier plans a raft of populist measures to narrow the rich-poor divide, at the risk of higher inflation and public debt.

A rise in the minimum wage, increased rice prices for farmers and free tablet computers for primary school students are some of the promises that helped propel former premier Thaksin Shinawatra's Puea Thai Party to victory.

The one-time billionaire telecoms tycoon, who was ousted by the military in 2006 after five years in power, is adored by Thailand's rural poor for his populist policies such as cheap healthcare and microcredit schemes.

Now his sister Yingluck is set to follow in his footsteps as Thailand's first female premier, marking a return to her brother's expansionary policies targeting the rural poor that came to be known as "Thaksinomics".

"The concept of the policies is good because it focuses on how to resolve the vicious circle of poverty," said Thanawat Pholwichai, head of economic forecasting at the University of the Thai Chamber of Commerce.

"But Puea Thai has to implement it carefully," he added.

Thailand has made great strides in reducing poverty, with 8.1 percent of the population living below the national poverty line in 2009, one of the lowest rates in developing Asia, according to the World Bank.

But there are significant inequalities in the distribution of wealth, particularly between Bangkok and the rural northeast, the heartland of Thaksin's "Red Shirt" supporters.

The richest 20 percent of Thai households account for nearly half of total household incomes, the Asian Development Bank estimates.

"When people have more income they will spend more and that will boost the economy," Thanawat said. "But it is also risky. There are concerns that Puea Thai's populist policies will cause higher inflation."

Inflation in Thailand is relatively contained for now at about four percent, lower than the levels in many other Asian nations.

But growing price pressures could lead the central bank to extend its series of interest rate rises -- attracting more capital inflows, driving up the value of the baht and affecting the competitiveness of exports, analysts said.

The effects of Yingluck's policies are likely to be felt further afield than just Thailand, the world's top rice exporter.

She has promised rice farmers a minimum price of 15,000 baht per tonne, much higher than the current market price of less than 10,000 baht.

"It will be the highest rice price in the world," said Korbsook Iamsuri, director of the Thai Rice Exporters Association.

"It will definitely affect our exports. With this price, we can sell our white rice only after Vietnam sells all its rice," she told AFP.

There are also concerns about the impact on Thai companies of a proposed 40-percent increase in the daily minimum wage to 300 baht, about 10 dollars, although the impact should be cushioned by a cut in the corporate tax.

The biggest worry is for small and mid-sized firms, the bedrock of the Thai economy, said Mark Monson, a fund manager at Vienna-based Raiffeisen Capital Management.

"Their margins are thin already. Will they have to fire people? It could put pressure on job and labour growth," he warned.

For now investors appear largely unfazed: Thai stocks surged 4.5 percent last week as news of a decisive win by Puea Thai in the July 3 vote raised hopes of a return to political stability after years of turmoil.

The Thai baht also rose sharply and extended its gains after Yingluck, who is widely seen as Thaksin's political proxy, said the value of the currency would continue to be determined by market forces.

Jitters about the new policies are tempered by optimism about the robust health of the Thai economy, despite years of political unrest and a series of sometimes-bloody opposition street protests.

Thailand's export-dependent economy grew 7.8 percent in 2010 and there are hopes that rising incomes and consumer spending will boost tax revenues, easing pressure on the public finances.

Analysts estimate Puea Thai's proposed policies, which also include a planned high-speed rail network and free Wi-Fi in public places, will cost about 60 billion dollars over the next five years.

But with public debt at manageable levels, a bigger concern for many investors is that Thailand's fragile political calm may prove short-lived.

The outgoing ruling party is seeking the dissolution of Puea Thai on the grounds that banned politicians were involved in its election campaign.

Any attempt to remove Thaksin's allies from power yet again could trigger another round of street protests, in a fresh blow to the key tourism sector.

Other news