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Populist policies ‘may hit growth of businesses’

Key elements of the incoming government’s populist policies, particularly the planned increase in the minimum wage and heavy subsidies, are a major concern for companies, as they fear the measures will slow the business sector down over the remainder of the year and during 2012.

After brainstorming with government agencies yesterday about the economic focus in the second half of the year, the Federation of Thai Industries (FTI) predicts the economy will now grow by between 4.2 per cent and 4.5 per cent this year, against the previous estimate of 3.6 per cent, thanks to the boost provided by the general election.

Meanwhile, the Commerce Ministry’s latest report said that inflation could reach 4 per cent this year, above the previous projection of 3.2-3.7 per cent, if the new government decided to increase the daily minimum wage to Bt300 quickly.

The Pheu Thai-led government-in-waiting is expected to spend Bt1.85 trillion on its range of populist policies.

FTI chairman Payungsak Chartsuthipol said the plan to hike incomes and subsidise living costs would destroy the market mechanism and businesses expansion.

To ensure fair treatment for private enterprises and consumers, he called for the government to balance its policy between subsidising goods, fuel and electricity prices and allowing labour-cost adjustment in line with the market mechanism.

Chen Namchairisi, vice chairman of the federation, said the government should adjust its price-control policy to reflect the real costs of production, as prices have been frozen for too long.

He said many enterprises were concerned about higher production costs, but were stymied by the official price-control regime. This policy imbalance has caused difficulties for business operations.

Moreover, the brainstorming meeting agreed that any wage increase should be in line with the Kingdom’s competitors. For instance, the daily minimum wage in China is fixed at Bt277-Bt281 a day, in the Philippines at Bt290, in Indonesia at Bt225 but Bt115-Bt150 in remote areas, and in Vietnam at Bt103. The Vietnamese rate is expected to increase to Bt126 in the near future.

These figures show that manufacturing industries related to exports would be the hardest hit by a rise in the daily minimum wage to Bt300, the FTI said.

FTI vice chairman Thanit Sorat said farm-goods subsidisation, such as the planned re-implementation of the rice-pledging scheme, would also lead to higher production costs for enterprises, particularly those in the food industry.

Other factors causing high concern among businessmen include strong inflation growth and the rising policy interest rate.

The FTI forecasts that inflation this year will come in at 4.2-4.5 per cent, with prices in the first half having risen 3.58 per cent as a result of increased food prices.

Meanwhile, the federation expects the policy interest rate to reach 3.75 per cent by year-end, from 3.25 per cent currently. It projects exports will rise by 22 per cent to US$230 billion (Bt6.84 trillion) this year.

A senior source at the Commerce Ministry said yesterday that any wage hikes would be a major driver of inflation this year. However, the new government plans to reduce fuel subsidies, which would lower inflation by 0.5-0.6 of a percentage point.

“Hiking wages would mark up the costs of production and lead to higher goods prices. However, the ministry will try to lower the cost of living by arranging low-price fairs and calling on enterprises to maintain retail prices of goods,” said the source.

To alleviate the higher cost of living, Internal Trade Department director-general Vatchari Vimooktayon will request an additional budget of Bt800 million to organise cheap-price fairs nationwide over the rest of the year.

Source: The Nation

ThaiVest Editorial Team

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