IMF urges Thailand to adopt fiscal reforms, monetary easing to support growth

[MartinKal]

“To support domestic demand, the team recommends an expansionary policy mix consisting of judicious use of fiscal space, fiscal reforms, and monetary easing consistent with a data dependent approach."

 

*What does it mean: "monetary easing"? 

It means increasing the money supply with the idea that there will be more investment and more consumption. The aim is more growth, more employment, bit more inflation to avoid stagnation.

 

*How is it done?

The Central Bank creates money and spends it buying bonds from the government, banks and pension funds. 

 

*What are the effects?

Means banks can lend more to companies and individuals for them to spend. So it stimulates the economy. Supposedly...

 

It pushes up demand for assets, so it increases their prices and reduces the return you get, reducing interest rates. The idea is to make money Tupac, you can borrow more for less, and so you spend more. And low interest rates don't exactly give you an incentive to save.

 

It's great if you are flush with assets. But if you have nothing, if you rely on a pension or some investment for your income, you are going to be unlucky. You will be hard hit.

 

*Does Quantitative Easing (QE) work?

Yes. That's its real name. But it is a dirty word these days.

 

-The Japanese tried it first in the 1990s to arrest a period of turmoil, but they are still a stagnating economy almost 30 years later and now they have just about the biggest debt in the world.

 

-The European Central Bank tried it starting in 2015. Then they gave it up. And now they are probably going to take it up again. Has it helped European economies at all? The evidence is no it hasn't and many people think the Euro and the EU will collapse in the next few years.

 

-QE was very quickly adopted by the US after the 2008 crisis. Maybe it has helped in part. And with Trump's tax reductions the economy seems to be running on 3-3-3. Means 3% growth, 3% unemployment, and 3% inflation. So this is the Goldilocks solution everyone is looking for.

 

-And finally, the UK started QE in 2009 and again it is very hard to prove whether it helped or not but the UK economy is running okay, there is enough credit and financial stability, and Brexit will doubtless spur the UK and wider world economy on to greater heights....but that's Brexit for you, not QE.

 

*What can go wrong?

At the moment, that IMF report shows that there is negligible inflation in the Thai economy. So the worry is of stagnation. But the longer term worry of having too much money chasing too few goods is rapid inflation.

 

And the other danger that people never talk about is that one day all this extra borrowing will have to be repaid. And how can this be done? Only by really fast growth or by hyper inflation. Neither of which are  pleasant. 

 

But there is a third way and that is to kill your creditors: this is called War. And that is a real danger imho. That is where this US-China Trade War could be heading. Or with Iran. It's just an excuse to turn the competitions economies to a rebel and spend a lot of money on your military.

 

*My personal take:

Sort out the problems locally, on the ground and they are very well documented in that brief report) and don't go down the addictive route of debt dependence, it's too easy - no such thing as a free lunch. It's just a scam by the US to drag you into a solution for their own problems.

If you do want to print money, don't give it to the private sector as it will only benefit the elite. Give it on infrastructure projects which involve the whole country and the whole Workforce.

 

[MartinKal]

5 hours ago, geoffbezoz said:

Prayuth and his incompetent goons are not going to like  getting advice from the IMF. What will the world think about Thailand's economic future now ( and for that matter the Junta's supporters on this forum) ?  After all  these Thais are experts are economics, what does the IMF know about anything ? ????

And despite all the denials by the self proclaimed learned experts on this forum  denying that the Government have been manipulating the exchange rate to suit their own ends, this partial extract from the piece above " "Foreign exchange intervention should be limited to avoiding disorderly market conditions," the IMF said"  ,  seems to indicate otherwise.

It's not done to manipulate. If it was it'd be lower. It's done to stabilise. A bit to protect or promote home industries, ok.

 

What do you think are the purposes for manipulating your exchange rate? Are these purposes good or bad?

[trainman34014]

4 hours ago, Orton Rd said:

You forgot the road map, can't go anywhere without one!

And of course... the 20 year Masterplan !

[klauskunkel]

The Thai economy has one purpose: to service its 1,700+ Generals and Admirals and their spouses, families and friends and their pet hamsters.

Now the economy can't afford this anymore and that's why the IMF should give the Thai government a substantial loan in accordance with a particular cultural trait: "leum" (to loan) = "yeum" (to forget), or else the hamsters will be unleashed.

 

[Caldera]

Ah, the IMF. Come rain, come shine, always Thailand's best friend and an altruistic voice of reason.

 

????

 

[Srikcir]

5 hours ago, MartinKal said:

The European Central Bank tried it starting in 2015. Then they gave it up.

Britain's experience:

The verdict on 10 years of quantitative easing

https://www.theguardian.com/business/2019/mar/08/the-verdict-on-10-years-of-quantitative-easing

• Ten years ago this week, Threadneedle Street dropped borrowing costs to the lowest level in the Bank’s 324 years of existence and embarked on the bond-buying programme of QE, never before tested in Britain.
• The decision has been credited with preventing the recession from turning into the second Great Depression, but its side-effects have meant rising inequality.
• The policy of government austerity, also imposed now for almost a decade, has damaged living standards and paved the way for the Brexit vote.

[Srikcir]

13 hours ago, webfact said:

"To support domestic demand, the team recommends an expansionary policy mix consisting of judicious use of fiscal space, fiscal reforms, and monetary easing consistent with a data-dependent approach,"

TRANSLATION:

We have no new ideas and the old ideas have just worsened income inequality and consumer confidence.

So glad Thailand has a "new" government, albeit with the same DPM for Economic Affairs Somkid.

13 hours ago, webfact said:

"Given the delay in the enactment of the FY 2020 budget with the transition to the new government and the resulting lack of fiscal stimulus in the remaining months of 2019, as well as the moderation of the financial cycle,

These delays were caused by the "old" Prayut government/NCPO who originally promised elections in 2015.

[Pique Dard]

18 hours ago, webfact said:

the IMF said.

yeah the imf said this, the imf said that. i don't know about thailand, but most of the "third world's" leaders who have complied with the imf's recommendations have seen their country's economy going from bad to worse