Populist rhetoric rises as officials criticise the central bank’s monetary policy. The Government is pressuring the Bank of Thailand to cut rates, but its Governor stands firm. As the economy struggles in the face of chronic structural retardants, the government appears intent on creating a sense of alarm and crisis. Confidence in the economy is wavering. Ironically, if the dissent over interest rates intensifies, it risks provoking real trouble.

The government in the last week has stepped up its populist rhetoric against the Bank of Thailand’s monetary policy. With press reports featured on Reuters and Bloomberg, successive officials and ministers have tried to create a sense of economic crisis. In the short term, this appears to be aimed at the next Bank of Thailand Monetary Policy Committee meeting on February 7. However, in the long term the commentary has a negative impact on confidence in both the government and the country’s economy. 

Popular Pheu Thai figure and Prime Ministerial advisor, Mr Pichai Naripthaphan, a former deputy minister of finance. He is among a number of senior officials this week who have been highly critical of the central bank.

The commentary by officials and aides to the Prime Minister even took aim at the Bank of Thailand’s Governor’s annual salary at ฿20 million. It is not clear where this is leading but undoubtedly the ongoing spat is not helping. 

At the same time, Thailand must go back to the blackboard and address the country’s chronic structural problems. 

Days of easy, cheap money spurring on economic growth are gone. Neither the money nor the economic opportunity exists with the current state of affairs 

The days of easy money spurring growth are long gone and as long as the demographics continue to turn against Thailand, that will remain the case as in other countries.

Thailand is facing a severe economic downturn. Undoubtedly, this is now the current message of the government. In particular, this week, Deputy Finance Minister Julapun Amornvivat who this week pushed this message through Reuters.

The Thai government now regularly uses either Reuters or Bloomberg to disseminate its message rather than the wider Thai media posse. It appears that it seeks enhanced credibility.

In truth, officials seem unaware of the increasingly advanced level understanding among the public when it comes to either politics or economics.

All economic data pared back, less growth in 2023 and projections for 2024. Minister accept that the kingdom’s mountainous debt levels are hampering growth

Last week, the minister who serves at the Finance Ministry under PM Srettha Thavisin, revised downwards the 2024 growth projection. At the same time, 2023 growth figures were pared back.

High levels of household debt were cited as the primary cause. Speaking with the international news agency, the minister pointed to mountainous levels of debt. In effect, he said it was pushing Thailand into what the minister deemed a ‘dangerous’ recession. 

The economic struggle, he argued, presently demands the central bank to consider a rate cut. At the same time, the government proposes stimulus measures to alleviate the crisis. It all sounds both simplistic and desperate.

Certainly, it is not how Mr Sethaput Suthiwartnarueput at the Bank of Thailand sees it.

Indeed, the Bank of Thailand certainly sees it very differently. Firstly, higher interest rates help reduce borrowing levels.

The central bank is currently working to cut back the nation’s level of debt. This includes stricter lending criteria and pressure on banks to constrain credit by lending only to quality borrowers.

Head-on conflict over how the Bank of Thailand sees things and ministers. However, they both agree that one problem is chronically high household debt

In short, there is now a head-on conflict between the Bank of Thailand and the government. This is producing an unseemly display of government acolytes criticising the Bank of Thailand Governor.

Moreover, they are actively attempting to undermine confidence in its prudent monetary policy.

The central bank, by law, is an independent agency. Its core mission in Thailand is to preserve the stability of the banking system and control inflation.

In this respect, under this governor and the previous incumbent, it is doing an admirable job.

However, Deputy Finance Minister Julapun appears to disagree, at least regarding monetary policy. In brief, this week, he expressed concern about the economic situation. He emphasised the need for immediate action. 

He urged the central bank to lower the policy interest rate, currently at a decade-high of 2.50%.

 ‘The rate should be lowered as high rates now are people’s burden. People can’t survive,’ he declared.

Thailand has one of the lowest interest rates for bank borrowing in the world but the margin for profit is higher helping the banking system stay strong

Last week, Mr Sethaput pointed out that only Japan and Switzerland currently have lower interest rates than Thailand.

Thai rates are less than half those set by the Federal Reserve in the United States.

Notwithstanding this, bank profit margins in Thailand are indeed higher. In turn, this makes the financial system stronger.

The goal of the government, evidently, is to secure a rate cut during the central bank’s policy review on February 7.

This decision is taken by the Monetary Policy Committee within the bank. Undoubtedly, it is highly unlikely the committee will be swayed by the ongoing campaign from Government House.

In the meantime, Prime Minister Srettha Thavisin echoed the sentiments of his junior minister.

At length, he urged the central bank to cut the key rate to assist economic growth. The PM has now stated repeatedly that he believes the Thai economy is in a state of crisis.

Bank of Thailand boss appears not to budge on interest rate policy as the PM’s fiscal stimulus plan is effectively canned after a warning about illegality

However, Bank of Thailand Governor Sethaput Suthiwartnarueput steadfastly maintains otherwise. In short, his view is that the economy, while slower than expected, is not in crisis. At the same time, The central bank boss insists the current monetary policy rate is ‘broadly neutral.’ Translated or in short, it makes no difference in the bigger picture.

The government’s ambitious ฿500 billion handout plan, aimed at transferring ฿10,000 to 50 million Thais, is at a standstill.

Despite setbacks, Deputy Finance Minister Julapun assured the public of the government’s commitment to the plan.

In contrast, many political pundits have described the proposal as dead in the water.

Digital Wallet plan blown out of the water by corruption body on Tuesday warning of illegality

In particular, because of concerns expressed by the National Anti-Corruption Commission (NACC), the scheme may be illegal. Secondly, the plan is likely to substantially increase public debt. In turn, this is already nudging upwards ending 2023 at 61.9% of GDP.

Growth projection for 2024 now only 2.8% with the outlook far from positive. Indeed the government’s own negative rhetoric poses a danger in itself to confidence

The government’s projection for 2024 growth was slashed to 2.8%. This is down from the earlier forecast of 3.2%.

This adjustment reflects weaker export prospects. In addition, relatively disappointing foreign tourist data highlights lower spending per capita.

The 2023 growth estimate was revised down to 1.8%, actually below the 2022 figure of 2.6%.

In its most recent assessment, the IMF urged the government to adopt a neutral fiscal policy except for support to vulnerable people.

Official 2023 gross domestic product (GDP) figures are expected to be released on February 19. While there is not the crisis the government is portraying, there is a growing crisis of confidence. Especially about the country’s long-term prospects.

In effect, the kingdom’s economy has failed to grow substantially since 2018. In contrast to other Southeast Asian economies, the situation is increasingly worrying. Much like China, this concern has fed into the country’s stock exchange.

Foreign investors pulled out of Thailand in 2023

In 2023, Thailand’s Stock Exchange of Thailand (SET) lost 15% of its value. Foreign investors withdrew $5.6 billion or ฿190 billion. Certainly, there is a crisis of confidence among investors in Thailand’s long-term future.

Nonetheless, the government itself is now putting oil on the fire. This week, Mr Julapun even described the economic situation as alarming. In truth, he claimed the country was on the verge of a recession. 

He quite rightly pointed to Thailand’s household and private sector debt. In brief, this is something the government and the central bank agree on.

Similarly, he highlighted the difficulty faced in propelling the economy forward. This is also in agreement with the Bank of Thailand’s prognosis. Elevated debt certainly has contributed to the prolonged period of sluggish economic growth.

However, the government is deliberately ignoring the kingdom’s structural problems. These are elephants in the room. They include a very poor education system, too much red tape and inefficiency in public administration, a rapidly ageing population and a lack of inward investment. All are intertwined.

Politics in Thailand and the rule of law is still an issue. Two coup d’états since the turn of the century inflicted damage that will take decades to repair

The latter has been caused by a lack of confidence in Thailand when it comes to political stability and the rule of law. In short, the occurrence of two coup d’états in 2006 and 2014.

In addition, last year’s backroom political deal leading to the current government is also clear to see. It did not inspire confidence although, to be fair similar occurrences are now also widespread in Western nations.

Similarly, the pending dissolution of the Move Forward Party after Wednesday’s landmark Constitutional Court decision. This development unquestionably raises the spectre of political instability. Move Foward emerged as the country’s largest political party after the May 14th General Election.

In response to the economic challenges, the government presently is considering issuing bonds overseas in dollars, yuan, and yen. This is due within the next one or two years.

Up to now, public borrowing in Thailand and bond issues have been supported locally.

Thai households struggling with a growing debt burden with ฿13 trillion in debt owed to banks

This move aims to create benchmarks for businesses to raise funds. Additionally, the government plans to sell government savings bonds worth about ฿100 million in the 2024 fiscal year.

Concerted campaign trying to pressurise the Bank of Thailand into lowering interest rates is entirely obvious and cannot ever be conducive to confidence

The call for rate cuts has intensified this week. Unquestionably, this is part of a concerted campaign.

Key aides of Prime Minister Srettha Thavisin on a near daily basis urged the Bank of Thailand to act swiftly. The latest is Mr Pichai Naripthaphan, an adviser to the PM and a very popular political and economic pundit.

Mr Pichai served in the government of Yingluck Shinawatra as Minister of Energy. Before that, he served under Prime Minister Samak Sundaravej as Deputy Minister of Finance.

Mr Pichai noted the central bank chief was paid ฿20 million a year. Therefore, he claimed the top banker was unlikely to understand the pressures faced by ordinary people in Thailand. Undeniably, this is populist rhetoric.

He urged the central bank to lower the net interest margin of commercial banks to prevent excessive profits.

However, a profitable banking sector is a sine qua non for the Bank of Thailand. In turn, it ensures banks can meet demanding balance sheet ratios and bad debt provisions.

At length, Thailand’s stable financial system, strong exchange reserves and critical foreign tourism sector are vital buffers against financial instability.

Thailand’s current economic situation must be compared with other middle-income countries. In particular, Argentina and Turkey to understand the danger

Thailand does not want the sky-high inflation seen in other middle-income economies such as Argentina and Turkey. 

Argentina had an inflation rate of 65% for 2023, Turkey’s came in at 211%. In contrast, Thailand’s inflation rate in December 2023 was negative by 0.89% with core inflation at just 0.58%.

Argentina compared to Thailand is a lesson for the kingdom’s economic planners but also for the world’s

Previously, in these other countries, governments eroded their economy’s financial core by short-term economics. The central bank stands determined that this will not happen in Thailand.

At the same time, this week, Mr Pichai argued that record profits amid an economic slowdown were immoral. In short, he called for a realignment of monetary and foreign exchange policies. The goal he said should be to support the government’s growth initiatives.

Certainly, the government and central bank differ in their approaches to the economy. 

In the meantime, Deputy Finance Minister Julapun emphasises the urgency of the situation. It begs the question as to what will happen if the tensions escalate.

Populist campaign coming from both Government House and the Ministry of Finance heaping pressure on the Bank of Thailand Governor as the economy struggles

He pointed to negative inflation as a factor favouring rate cuts. Meanwhile, he urged the central bank to acknowledge the economic challenges facing citizens and entrepreneurs.

Afterwards, a fiscal economic briefing for December 2023, was given by Mr Phonchai Teerawet, Director of the Fiscal Policy Office (FPO).

The official revealed signs of economic slowing. Confidence as reflected in the Industrial Index dropped. In essence, this reflects decreased purchasing power amid slowing private consumption and investment.

The Consumer Confidence Index, on the other hand, increased for the fifth consecutive month. This indicates improved consumer confidence in the economic situation.

Exports are sending mixed signals. Some categories are expanding, while others are experiencing a slowdown.

This is coming as the kingdom’s traditional farming sector slowed while its heavy manufacturing base is becoming outdated amid changing technologies.

At the same time, there are now rapid and massive changes in supply chains. The base is shrinking with manufacturing output down substantially.

Looking forward, industry leaders also warn Thailand is already suffering disruptions caused by military activities in the Red Sea. Fears of an expanding conflict in the Middle East are rising.

Nonetheless, the service sector demonstrated signs of improvement. Simultaneously, although there is a continuous growth rate in foreign tourist arrivals, the spending per trip is lower. The agricultural sector faces challenges with decreased production in key crop categories.

Pheu Thai economics expert insists it is the Bank of Thailand which must confront badly needed structural reforms. He points to the household debt issue 

However, it showed expansion in the livestock category.

Nonetheless, Mr Pichai, Vice Chairman of the Strategy and Political Committee, highlighted a low economic expansion of 1.8% in 2023. He called for realistic economic forecasts. He urged the Bank of Thailand and NESDC to address the economic challenges promptly.

The National Economic and Social Development Council (NESDC) is the country’s main economics agency. Significantly, it has held its fire on the spat between the central bank and the government. The NESDC has a good reputation for its accurate and fair reporting on the economy. In turn, it is this agency which will confirm Thailand’s 2023 GDP figure on February 19.

Pichai criticised the central bank for not adequately supporting the restructuring of the Thai economy. Although, it is not clear how this can be achieved with lower interest rates. A key objective of structural reform is to cut back private sector debt

He proposed reducing interest rates on commercial bank loans to narrow the gap between loans and deposits. 

The advisor explained this would alleviate the burden on citizens and entrepreneurs.

Spat between the central bank and government is fast becoming a problem. Any further escalation risks undermining confidence in management of the economy

In summary, the growing conflict between the Bank of Thailand and the government is now becoming the key source of concern. In truth, it risks creating a crisis of confidence internationally in Thailand’s ability to manage its economy. 

Recent statements by both the International Monetary Fund (IMF) and the World Bank suggest the central bank is correct.

The days of Thailand storming ahead with growth in excess of 2% by feeding cheap money into the system are gone forever. The money is not there, neither is the economic opportunity because of the country’s chronic structural ailments.

In particular, the country’s demographics have now turned against the economy. In effect, without productivity gains, rapid growth will not be seen again as the workforce shrinks.

PM ‘worried’ over shock GDP data showing the economy stalling with only 2.5% growth projected
Thailand’s days of GDP growth in excess of 5% may be a thing of the past as it has grown too old

The government needs to go back to the blackboard, namely the blackboard in primary schools and begin with the country’s education system.

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Further reading:

It’s not an economic crisis, it’s a quagmire of structural problems that cannot be fixed overnight

Central bank: the corporate bond market is sound but the economy needs long-term structural reform

Government closely monitoring Thailand’s corporate sector bond market. Fears of a pending crisis

PM again attacks central bank on interest rates as deputy Finance Minister raises bond concerns

PM takes aim at the Bank of Thailand over interest rates despite Thailand’s lower borrowing costs

Thai economy is stable but is being strangled by personal debt. Fixing it could see pain before any gain

Steady as she goes growth and economic stability driven by a growth in US exports is all good news

Economy at crossroads: World Bank calls for structural reform to avert two decades of low growth

Former Deputy PM warns Srettha that if he does not listen, he may spark a real economic crisis in Thailand

Fragile, weak economy sees central bank holding interest rates and reducing 2023 growth to 2.4%

Srettha’s crisis is not just an economic one, it is a ‘3D debt crisis’ that is strangling GDP growth

Zombie Thai firms holding back economic growth as they struggle just to pay interest on bank debt

Incoherent government economic policy clashes with Bank of Thailand’s efforts to rein in debt