Blog Thailand’s Reform Agenda

Thailand’s Reform Agenda
M.R. Pridiyathorn Devakula, Deputy Prime Minister of Thailand told the AIC that Thailand needs to move up the manufacturing value-chain and improve its export competitiveness.

Unless the country reverses its five-year slide, it will fall further behind regional competitors, he warned.

Devakula is confident that any new administration elected next year will adopt his government’s forward-looking program.

“The new leader will not have to start from scratch,” he said.

As part of its plan to build a platform for sustainable economic growth, the government will soon announce several tax breaks for international companies that set up their headquarters or trading centers in Thailand.

“We want Thailand to become a regional and global trading hub,” said Devakula, who was keen to address economic rather than political issues at his keynote address.

The country needs investment to upgrade its industrial base for example, by shifting from making rubber bands to rubber tyres and combustion-engine cars to hybrids. Devakula said that Japanese manufacturers of medical equipment and airplane spare parts are keen to relocate to Thailand.

Equally important is for the country to grasp the opportunities of the digital economy. Last week, the government set up a committee to work with the private sector to create a national broadband network, central databases and other initiatives.

“Every household should have internet connectivity by 2017,” he said.

There are also distortions in several sectors, notably energy and transport, that need to be rectified, he said.

Fuel subsidies have already been cut and will be scaled back further during the next four months and the government will explore alternative sources of energy supply in order to reduce imports.

It has also started a program to shift cargo traffic from roads to railways with plans to build a further 706km of its 3,570km network dual-tracked by the end of this year. Gas-guzzling trucks carry 80% of commercial goods now, which is costly and inefficient.

However, declining revenue is the major obstacle to implementing reform and development plans. This year tax receipts will make up only 18 percent of GDP, when the ratio should be about 27 percent, said Devakula.

The government is introducing property and inheritance taxes and intends to close excise duty leakage. The measures should also narrow income inequality.

“It’s time to put our money where our mouth is,” he said.