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Graham Macdonald MBMG International Ltd. Nominated for the Lorenzo Natali Prize |
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Some say debt is a good thing...
Some financiers believe that debt is a good thing and is the
way to go. However, there is debt and there is debt. In America, total credit
increased from USD1 trillion in 1964 to USD50 trillion in 2007. This is a
50-fold increase in 43 years!
Whilst it cannot be said that Thailand is in the same boat, it should look over
its shoulder and learn from the impending US disaster. Thailand needs to sort
out its ever increasing household and public debt to sustain the economic growth
of the country and its people.
As my business partner, Paul Gambles, said recently, “Thailand acted after the
1997 Asian financial crisis, but there is a real danger that the country is
falling into bad old habits as government debt is approaching 60% while consumer
debt has reached 80%, and that is scary for future growth when these two things
are happening side by side.” The problem is, there is less room for the
government to manoeuvre when public debt reaches such an awful rate, while
domestic consumption is hampered as consumers tend to spend less because of
their debt burden.
As a way of comparison, most of the euro-zone economies which have a massive
debt burden recorded public debt below the 60% threshold, but the rise in
private debt greatly contributed to how the public debt continued to carry on
going up through the roof.
As of the first quarter, Thailand’s household debt increased to 8.97 trillion
baht which is equivalent to 77.5% of Gross Domestic Product (GDP), compared with
1.36 trillion baht or 28.8% during the 1997 crisis. Things get worse, the rate
then increased to 9.27 trillion baht or 79.2% of GDP in the second quarter.
According to Public Debt Management Office data, the outstanding public debt as
of the end of August totalled 5.30 trillion baht or 44.63% of GDP.
With regards to the international markets, the Thai economy will be largely
influenced next year by the growth outlook of the US and Chinese economies. The
one difference between Thailand and other developing economies is how to manage
the current account deficit effectively and stimulate economic growth through
the passage of infrastructure projects - although some say the money raised for
these is only there to pay of some of the existing debt, but that is another
story…
It is possible that Thai economic growth could come in at 5% next year on the
back of the 2 trillion baht infrastructure investment plan despite obstacles to
growth such as the rice-pledging scheme and swelling household debt.
However, high growth at an unsustainable level would not contribute to future
economic well-being of the country because the best way to sustain growth is to
mitigate the debt problem.
Steve Keen, a professor of economics and finance at the University of Western
Sydney, said the Thai government might want to consider writing off consumer
debt and shouldering a budget deficit for a while to soothe the impact of
financial meddling, “Given the scale of state policy on non-land-owning Thai
farmers, there simply has to be a debt write-off or some form of debt-to-equity
solution to reduce consumers’ debt burden,” he said. If not then Thailand may
well be on the road to rack and ruin.
Rising household debt generates concerns because the lowest end of the economic
spectrum is shouldering a heavy debt burden, while there is no commercial
monitoring as the records of government loans go into specialised financial
institutions and the Finance Ministry which means there is no public control
over what happens thus giving grounds for potential outcries re transparency and
good governance - which is another reason for having no debt as then no-one can
lie about it.
The above data and research was compiled from sources
believed to be reliable. However, neither MBMG International Ltd nor its
officers can accept any liability for any errors or omissions in the
above article nor bear any responsibility for any losses achieved as a
result of any actions taken or not taken as a consequence of reading the
above article. For more information please contact Graham Macdonald on
[email protected] |
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