ECONOMY

Jury out on populism

Thaksinomics has been a hit with some voters but its long-term strategic value may take years to gauge

CHIRATAS NIVATPUMIN and WICHIT CHANTANUSORNSIRI

Community initiatives have helped fuel growth after the 1997 economic crisis.

No aspect of the government's economic platform has been more controversial, debated and discussed than its community development programmes. Indeed, the grassroots development policies initiated by the Thai Rak Thai government three years ago epitomise the very essence of what has been called Thaksinomics.

Bypassing the civil service bureaucracy and reaching out directly _ or pandering, depending on one's viewpoint _ to people with policies such as the village investment funds, the People's Bank microcredit programme and farm debt suspension have proved to be a smashing success, from both a political marketing and economic stimulus perspective.

Following the sharp collapse of the baht during the 1997 economic crisis, it was exports that helped fuel growth. But since 2001, thanks in no small part to the government's community initiatives, consumer spending and consumption has begun to play an increasingly important role in fueling growth.

Fears that the implementation of the Thai Rak Thai's pre-election promises would quickly consume the government budget have proven similarly overblown. Tax revenues are at an all-time high, in fact, with the Finance Ministry expecting to return to a fully balanced budget position by fiscal 2005, or three years ahead of schedule.

While concerns have been raised about the heavy use of state banks in financing development programmes off the government budget, loss rates for programmes such as farm debt suspension or the village funds have been quite low, with non-performing loan rates besting those of even the best private banks.

The real success of the One Tambon One Product scheme remains debatable.

But even as Thaksinomics has proven successful from a macroeconomic perspective, its success from a microeconomic and social development perspective is more questionable.

Authorities have steadily maintained that initiatives such as farm debt suspension were never intended to be a permanent handout, and that the system was intended as a short-term respite for farmers while they restructured their finances and production methods.

However, concerns remain that such initiatives have only raised people's expectations of what is expected from the state _ having benefited once from government largesse, it is not unreasonable to ask again.

Still, the government's strategy represents a watershed in development policy that should be understated. Rather than rely on Thailand's centralised, top-down civil service, implementation and design of the spending programmes have been largely done at the community level, offering programme recipients a degree of freedom and choice that has been largely absent in similar initiatives enacted by previous governments.

In principle, such flexibility should be expected to be more efficient than a "one size fits all" paradigm by allowing communities to make their own personal choice about the allocation of resources. The philosophy also fits one of the goal of decentralisation as set out under the 1997 constitution, and also places the management burden on the communities themselves, who clearly have a vested interest in ensuring that resources are well used.

Under the village fund programme, for instance, the one million baht seed money has been designed as a revolving fund, giving community residents an incentive to ensure repayment from borrowers to ensure that others have an opportunity to subsequently access the funds.

The People's Bank, run through the Government Savings Bank, is based on a similar concept. Borrowers must propose their own projects to qualify for loans, rather than being offered only a handful of choices imposed by the state bank itself. Lending decisions are based on the feasibility of each project, more so than factors such as the value of collateral pledged by the borrower.

Given that all too often, inefficiency and civil service corruption have plagued the implementation of infrastructure and development projects in the past, the shift to a community-led strategy offers an alternative model that may very well be best suited for an economy faced with the particular challenges that Thailand has.

The pitfall of bypassing the civil service of course can be found in the potential for abuse, where corruption shifts from the state bureaucracy to other parties, whether it be local politicians or community leaders. The multitude of state regulations and procedures that are demanded for any new development project undoubtedly increase the time and costs required for any investment. And yet such procedures also serves as a safeguard against potential abuse and provide an audit trail for outside observers.

It is the issue of transparency that has attracted considerable attention from critics of the government. For instance, for all of the thousands of goods broadly linked to the One Tambon, One Product programme, little is known about the true success rate, about which products have been able to expand their market reach outside of their province to the national level, let alone to export markets.

Such lack of data makes assessing the overall performance of the government's development strategies difficult. For instance, one closely followed measure has been the ability of the rural programmes to help close the income gap between rich and poor.

Official figures suggest a substantial improvement in poverty reduction, with the difference between the richest 20% of the population with the poorest 20% falling to 13.5 times in 2002 from 14.8 times in 2000. While state policies have undoubtedly played a role, one could just as well argue that a greater factor in the increase in rural household incomes has been the rise in global commodities prices and the buoyant agriculture sector over the past several years.

It may well be that a fair assessment of Thaksinomics could take another decade _ once the current business cycle passes, will the lofty goals of strengthening rural communities, uplifting human resource skills and transforming the foundations of the economy have truly materialised?