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Thailand urgently needs a post-pandemic economic plan

Crisis provides an opportunity to restructure for future growth

| Thailand
People receive the Chinese-made Sinovac vaccine in Phuket on June 28: mass vaccination using the best-suited vaccines is a necessary requirement for a return to normality.   © Reuters

Supavud Saicheua is an adviser to Kiatnakin Phatra Financial Group.

Shortly after launching a nationwide COVID-19 vaccination campaign last month, Thai Prime Minister Prayuth Chan-ocha set a deadline of 120 days to reopen the country to foreign tourism and resume normal economic activity.

Pandemic-related restrictions were further eased on June 21, with dining in Bangkok restaurants allowed up to 11 p.m., along with gatherings of up to 50 people.

Less than a week later, the government made a surprise U-turn, banning dining in restaurants and prohibiting all activities involving more than 20 people for Bangkok and nine other provinces, effective for 30 days.

Even if they are rescinded in 30 days, these new measures will inflict significant economic losses, and further dent consumer confidence. Added together, the 10 provinces account for more than 50% of Thailand's gross domestic product, and the loss to GDP can be estimated at up to 50 billion baht ($1.5 billion). How can Thailand's economy begin to recover under such circumstances?

The first step is to deal effectively with the pandemic. Mass vaccination using the best-suited vaccines is a necessary requirement for a return to normality. The need to be vigilant in dealing with new variants and curbing infections means that an effective testing, tracing and isolation regime must also be put in place.

Currently, Thailand carries out about 80,000 polymerase chain reaction COVID tests a day, but they are time-consuming and require supervision by medically trained staff, followed by laboratory analysis.

Many countries are making greater use of rapid lateral flow tests, which are less accurate but can be carried out without supervision in people's homes, do not require laboratory analysis and can provide results in 30 minutes. The U.K., with a similar population to Thailand, is carrying out more than 1 million PCR and rapid lateral flow tests a day to help identify and contain new infections.

Thailand must ensure that testing becomes similarly prevalent, inexpensive and easy to conduct, especially for those in the health care, tourism and travel, education, manufacturing and construction sectors.

Apart from effective tracing and isolation of victims, authorities should automatically provide financial assistance for infected low-income workers and household members who may have to be isolated and are therefore unable to earn a living.

Small and medium-sized businesses have also suffered immeasurably during the past year, with little state assistance. Many such enterprises now have weakened balance sheets and poor cash flow, suggesting that soft loans alone would be insufficient to keep them afloat. The government needs to plan for new sources of capital to restructure these enterprises, as well as the downsized tourism industry.

Street market in Bangkok, pictured in December 2020: small and medium-sized businesses have suffered immeasurably during the past year.   © Reuters

In the longer term, Thailand needs to do more than just seek to live with a manageable level of COVID-19 infections. Before COVID, the economy was facing other serious challenges including an aging population, the economic impact of which is set to intensify rapidly in the coming decades.

Thailand is also running out of natural gas, which has supplied its energy needs and fed the burgeoning petrochemical industry for 40 years. Its vast automobile industry is threatened by the arrival of electric vehicles that use fewer parts which Thailand does not produce.

I believe Thailand should explore the idea of becoming a manufacturer of advanced semiconductors, which are likely to see continued robust demand. But semiconductor manufacturers need ample supplies of water, which Thailand -- having failed to act on this issue for the last 20 years -- does not possess.

It is time for the government to either undertake or encourage massive investment to improve Thailand's water supply and its irrigation systems to boost the country's farmers.

Another way to boost the agricultural sector is doing something to improve soil quality. With global demand for clean organic food expected to keep rising, Thai farmers should be given the opportunity to rid the country's topsoil of chemical residues by replacing chemical fertilizers with production methods that would turn Thailand into a certified major producer of organic foods. That would also help to reduce carbon emissions.

Thailand can afford such investment. First, Prayuth's government reacted to a pandemic-driven jump in Thai household debt to 90% of GDP by promising debt relief for households through lower borrowing costs. A well-executed economic stimulus and restructuring program that generated millions of good-paying jobs for years to come would have been much better.

Second, Thailand has run current account surpluses during the past six years amounting to 40% of GDP, reflecting a significant excess of savings over investment. The country has accumulated excess spending power of around $115 billion, measured by net foreign exchange reserves, which rose from $168.16 billion in 2015 to $283.85 billion in May 2021.

One objection to a government-led program to rebuild the economy is increased public debt. But that need not be a problem. Direct government debt, which excludes debt guarantees to largely profitable state enterprises, is only 6.77 trillion baht, equivalent to just 43.3% of GDP, according to official figures.

There is plenty of room for an increase in public debt, providing that the government spends wisely. So long as it does, Thailand can afford to pay for whatever foreign technology and resources it needs. It should do so now.

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