The Good Reasons for a Thai Economic Stimulus

rime Minister Srettha Thavisin proposed a 10,000 baht per person stimulus as a central piece of his economic agenda. Almost ever since, the stimulus has faced intense criticism. In an otherwise bitterly partisan environment, the stimulus has united factions against Srettha. Democrat Party officials have called out corruption risks and damage to national budgets. Move Forward’s Pita Limjaroenrat said infrastructure improvement and broader reform should take precedence. Srettha’s military-linked coalition partners appear unenthused about passing the legislation. Last month in Fulcrum, economist Peter Warr criticised the stimulus’s economic justifications.

Amid this chorus, Srettha seems isolated in pushing for digital wallet hand-outs to poorer and middle-class Thais. But despite the opposition—and despite Srettha’s other economic policy blunders—the stimulus has some good rationales. It is worth considering the points for and against it more fully.

Start with Warr’s arguments. Like Pita, Warr insists that Thailand needs deeper “structural” reforms to achieve a breakthrough from weak growth. Warr is entirely right about the structural or supply-side reforms that he proposes. Education especially needs improvement. Thai secondary schools underperform their Asian peers in STEM, and college enrolment rates are deteriorating. Despite still being ASEAN’s second-largest economy, and fourth richest in per capita terms, Thailand’s universities attract few foreign scholars and international connections compared to universities in Singapore and Malaysia, and lower-income Vietnam and Indonesia. Bangkok, afflicted by air pollution and some of the world’s worst traffic, could certainly use and reap vast rewards from an expanded mass transit system on par with those of Kuala Lumpur, Singapore, or current plans for Hanoi.

However, urging “structural” changes that Thailand has not been adopting anyway is very different from making an expressly negative argument against stimulus, which has more to do with levels of demand in the economy. Even considering Thailand’s weak 2010s growth, the economy suffered a sharp fall in growth since 2020 compared with pre-Covid trends. Even considering Thailand’s weak 2010s growth, the economy suffered a sharp fall in growth since 2020 compared with pre-Covid trends. Thailand’s slowdown has also been worse than those of most of its regional peers. Unless one believes that the Thai workforce has been permanently impaired by Covid more than other ASEAN populations have been—a difficult claim, given Thailand’s relatively light lockdowns and strong health performance—the economy’s underperformance would seem related to weak demand. Unemployment is officially low, but surveyed unemployment in Thailand rarely changes greatly and many people may not be “fully” employed, as workers shift to insecure, rural or informal work. Covid elevated the already high proportion of the Thai workforce engaged in agriculture, while the service sector has had mediocre performance since 2020, suggesting the economy has not reached maximal employment.

Thailand’s demand shortfall has partly been due to lower tourism numbers, which are hard for any government to address. However, even if all of the demand shortfalls were due to reduced tourism, the government could still help raise demand with a consumer-oriented stimulus.

With his digital wallet plan stalled, Srettha and his allies have focused on monetary stimulus, including attempts to pressure the central bank to cut interest rates. Monetary stimulus via rate cuts would be most effective if inflation were low and Thailand had both relatively high costs for financing and many feasible private investments waiting for funding. Thai inflation is low, in part helped by a surge of low-cost Chinese exports, but Thailand’s central bank policy rates are already among the lowest in Asia and among the lowest of stable or middle-income economies. It is always tricky to gauge how many private sector investments could become feasible if interest rates fall, but given that large Thai enterprises have been sending savings overseas in recent years, it is hard to see how Thailand’s main economic problem is a lack of potential financing for the private sector.

Arguments that stimulus was tried and failed elsewhere are misplaced. Stimulus programmess in Japan in the 2000s and the US in the 2010s were ineffective because they relied too heavily on monetary policy rather than on targeting households. As a result, the net savings of Japanese households shrank from world-leading rates in the 1970s to below-zero in the 2010s, indicating that households had little left to spend from their wages. Meanwhile, declines in the Yen and increases in consumption taxes further weakened Japanese households’ purchasing power. Thailand today risks experiencing a similar “reverse-stimulus”, in which high household debt and a deteriorating Baht erode consumers’ living standards. Some stimulus for households could mitigate this risk. Indeed, growth associated with a stimulus could also provide authorities with political cover to undertake deeper institutional reforms that prior governments neglected.

That does not mean that Srettha’s specific stimulus, as written, is well designed. The pandemic-era US stimulus measures triggered high inflation with payments to households that comprised about 4 per cent of Americans’ personal income, and that could be deposited rather than spent immediately, coupled with policies (from lockdowns to generous unemployment aid) that reduced supply. Srettha has proposed payments that could exceed Thais’ monthly per capita income that must be spent quickly and in limited locations, on top of a hefty proposed minimum wage hike.

Giving a large amount of money, with a quick expiration date, to poor rural areas—over 140 per cent of pre-Covid monthly per capita income in the Isan region—with few places to spend it, is a recipe for peculiar kinds of inflation. Nonetheless, these flaws could be addressed by halving payments to 5,000 baht, staggered over a year with no “expiration” and no geographic restrictions. Moreover, if tourism finally recovers to pre-Covid levels, the government would have more reason to reduce or further stagger payments. Corruption is a risk—as it is for infrastructure programmes—and it is unclear if authorities can develop a payment mechanism easily accessible to older and rural citizens. Tackling these issues will rely on the strength of Thailand’s legislative, judicial, and media oversight.

Western economists have often—and often rightly—criticised Asian governments for not doing enough to support their consumer and household sectors, and instead promoting investments and exports. Now that Thailand’s government is trying to take households’ economic conditions seriously, it deserves some credit for doing so.