The Democrats basically agree on the need for infrastructure spending although they differ on exactly what to spend it on. Korn Chatikavanij in an op-ed in the Bangkok Post on September 25 entitled “Off-budget financing of 2 trillion baht loan bill can’t be justified” criticises the off-budget spending. Key excerpts:
On the issue of financing, it is clear that it should not be necessary for the government to feel the need to debt-finance the entire plan.<
Other financing options are available, especially private sector participation, as well as government to government arrangements.
Moreover, and most controversially, the government has no justification in financing the projects outside of the budget law.
Thai laws regarding national budgets provide significant leeway for governments to debt-finance long-term investment projects. The legal debt ceiling is generous but necessary to help maintain fiscal discipline, supported by strict requirements on disclosures and disbursements.
All of this has been unnecessarily circumvented by the issuance of the off-budget 2-trillion-baht bill and is thus potentially in contravention of the constitution itself.
It is thus highly unfortunate the government has compromised needed investments by bypassing proven legal processes. Recent examples of similar attempts, particularly the much-delayed execution of the government’s borrowing law to finance water projects, should have provided clear lessons of what happens when unnecessary shortcuts are taken with taxpayers’ money.
BP: Last night at the FCCT, Korn also spoke about the Yingluck government’s infrastructure project and off-budget spending:*
KornExcerpt (short audio clip is available – if you click on the link and open in new window/tab you should be able to listen to it in the browser or download the MP3 file)
…[a rough transcript] Now, having said that. I want to come back to the first objection which is the source of financing. Is it appropriate? Is it necessary? And is it legal for the government to avoid the budgetary law and issue a separate borrowing decree or borrowing bill in the way that they proceeding to do. First of all, I have to tell you that it has never been done before. Or at least not by a truly democratic government. There have been Thai governments in the past that have passed pieces of legislation such as this granting the government additional power to borrow above and beyond the budget. In almost every case, it was passed by a military government and the money used, almost entirely, to buy tanks and other weapons for the military. Now, somehow I don’t think the red shirted Puea Thai party will want to use those examples as justification for what they are trying to do today. But other that no government, and certainly no government since the public debt law that was passed over a decade ago, has every financed itself by issuing legislation such as this. And I argue that it is actually unconstitutional because the constitution is very clear as to how government should be financed…
The World Bank’s “Thailand Economic Monitor, November 2009” stated:
Public investment will expand only slightly next year as the Thai Kem Kaeng Program will just about compensate for the reduction in the government’s on-budget investment in 2010. So far, two tranches of the TKK Program (2009-2012)18 worth Bt350 billion (US$10.5 billion) have been released, with the first tranche in the amount of Bt200 billion and the second tranche of Bt150 billion. The focus of the TKK Program so far has been on quick disbursing investment projects as well as transfers and subsidies to local governments, communities, and farmers. A large share of the package is allocated to the agriculture and education sectors and community spending (see Figure 55). Around two-thirds of the Bt350 billion or Bt230 billion is to be used for construction and equipment purchase, of which around three-quarters or Bt175 billion (1.9 percent of GDP) is expected to be disbursed in 2010, thus contributing to public investment. This will help compensate for an almost equal reduction in the central government and local government organization investment budgets, which will reduce their investments by Bt145 billion (1.6 percent of GDP) compared to 2009. As a result, total public investment in 2010 will increase by less than 1.5 percent from that of this year (Figure 52), and its share in GDP will fall slightly to 7.2 percent but remain higher than those of 2002-2008 (see Figure 53). Implementation of the Thai Kem Kaeng program could have important long-term implications if it sets an example for greater efficiency and transparency in government investments. With the TKK Program being an off-budget item, a few new rules and regulations have been applied to make disbursement of projects in TKK faster and its implementation more transparent and monitorable. Some examples include the relaxation of the requirement for all projects to undergo e-auction for procurement,
[FN 18: The Thai Kem Kaeng is a 4 year program (2009-2012) with a planned budget of Bt1.44 trillion. The first two tranches of Bt350 billion approved this year are an off-budget items finance by domestic loans. Details of the Thai Kem Kaeng are available at www.tkk2555.com.]
Increasing the threshold amount of projects that can be approved by ministerial departments, and projects can continue even if there are appeals or disputes. Given these innovations, the disbursement rate for TTK projects could be at least 80 percent as compared to 70-75 percent for regular central government investment projects. In addition, a system for monitoring and evaluating the progress and outcomes of the projects under TKK has been put in place to ensure that the projects are implemented on time, that problems that arise in the course of implementation can be addressed in a timely manner, and that the projects either individually or collectively achieve their set-out objectives.
Suthiphand Chirathivat and Sothitorn Mallikamas of the Faculty of Economics at Chulalongkorn University in a paper entitled “Thailand’s Economic Performance and Responses to the Global Crisis”. Key excepts:
The bulk of this actual stimulus will come from the off-budget, 1.43 trillion baht, 3-year SP2 stimulus package (2010-2012) (SP2 consists of 1.11 trillion baht government projects and 321 billion baht state-owned enterprise investment projects), in funding to tens of thousands of investment infrastructure programs nationwide, with major objectives to revive economic growth and raise the country’s productivity and competitiveness in the medium and long term.
Nearly 60 percent of the SP2 package consist “hard” infrastructure – transport and logistics (mainly roads and rail) and irrigation projects – categories where disbursement typically is back-loaded. Current government estimates assume a fairly aggressive implementation and disbursement schedule, somewhat higher than what historical disbursement rates would suggest. Applying both actual and historical disbursement patterns to each category of package spending suggests a more back-loaded disbursement schedule.
To cover all of the spending, the government needs additional funding so it also sets a target for public borrowing of around 800 billion baht; with a plan for Parliament’s approval of special borrowing legislation of 400 billion baht by January 2010 and another 400 billion baht seeking for approval at a later date (see Table 12). From government’s perspective, borrowing costs for the government on average stand at around 4.5 percent per year. If economic growth could produce between 4 and 5 percent per year, then all of public borrowing could be squared. And if such an economic growth could produce beyond that level, Thailand would be in a good position to service its public debt burden quite comfortably in a reasonably rather than a longer time period.
BP: Note the little use of public-private partnership which actually never panned out…
Shawn Crispin in an interview with Korn published in June 2009 in Asia Times Online. Key excerpts:
Oxford-educated Korn, 44, says in an interview with Asia Times Online that the total 1.5 trillion baht [US $44 billion] program, including 800 billion baht worth of borrowing outside of the normal budget, is designed to lead the Thai economy over the next three years and will be “historic” in its scope and proportion. His ruling Democrat Party is touting the fiscal program’s over 6,000 different projects as Thai Khem Kaeng, or Thai Strength.
[excerpts from the interview] But this time we are moving with much greater transparency, much greater speed and on a bigger scale, a historic scale: 1.5 trillion baht is about 16% of GDP, to be spent over three years. That’s on top of the annual budget deficit that we will need to maintain for the next few years as well.
We manage the situation based upon common interests of an understanding of the fact that the country’s best interests are served by ensuring we have a stable government and one that is in a position to implement the TKK strategy for at least another year. I say another year because even though it’s a three-year project, the bulk of the projects will be initiated in the first year and completed within three. Once we’ve started these projects, even if there is a change in government, the projects are in place, the funds are in place, and the rest is just a matter of follow through.
We’re working on a mass media program on Thai Khem Kaeng, everything we do in regards to the different projects, even the financial part with the savings bond, is partly designed to finance the program but also partly designed to get the general public involved.
Imagine there are over 6,000 projects of different nature – hospitals schools, roads, water – all over the country every project is going to be branded. Individual projects will be launched as part of the broad Thai Khem Kaeng policy. So people will know not that a road is being built, but that it’s being built as part of the Thai Khem Kaeng program, by this particular government. We’ll be going all out to do that.
World Bank’s “Thailand Economic Monitor December 2012“. Key excerpts:
[fn 1] The Emergency Decree on Investment Loan for Water Resource Management and Future Development issued by the Cabinet earlier this year allows the government to borrow at most Bt350 billion by June 2013 to finance infrastructure projects for water resource management. This fund is off-budget similar to the stimulus packages in 2009 (Thai Kemkaeng 1 & 2). It is approved by the Cabinet and its allocation and spending need not go through the budgetary process and Parliamentary scrutiny. Hence, it is not counted in the budget balance, but is counted in
[fn 3] Off-budget spending in FY2012 are from the Thai Kemkaeng 2 stimulus package which was approved in FY2009 in the amount of Bt400 billion for FY2009-2012.
BP: In the end, the Abhisit government didn’t go through with all the projects, but it did borrow 400 Billion baht off-budget for spending over multiple years. How is this conceptually different from the 2 trillion baht infrastructure project? Sure, it is more money and over a longer time, but conceptually it is the same. On this, Appointed Senator Khamnoon Sithisamarn on Kom Chad Luek TV show on September 19, 2013 on the government’s 2 trillion baht infrastructure project pointed this out that the Democrats did exactly the same thing with the Thai Kem Kaeng– around the 14-15 minute mark….
Look, of course, politics means that oppositions will try to attack the government without mentioning what they did, but BP was a little surprised – based on the Bangkok Post op-ed and the above audio excerpt – on how far Korn has tried to shift the goalposts and how little he has been called out on this. Off-budget borrowing is common in Thailand because of the difficulties in spending money quickly and all the hurdles and bureaucracy. It is not something new…..
*Slightly amended this sentence.