We now joke that the military voted down its own constitution. Last week the NRC rejected the 2015 draft constitution with only 105 voting yes which is short of the 124 required to send it to a nationwide referendum. So what? Well elections are now definitely NOT happening in 2016 because this means things will be delayed by at least another 7 months, then again why are surprised? Going forward, as per the previous constitution, the current Constitution Drafting Committee will be dismissed and a new panel of 21 will be appointed within 30 days after which they have 6 months to complete a new draft that will NOT be voted by the NRC but will go straight to a nationwide referendum which takes ~4 months after 4 months after completion. Perhaps its a +ve that they realised the constitution draft included one too many silly clauses of absolute power. Or, as the conspiracy theorist inside me likes to think, this is just a ploy to stay in power longer.
I’ve often commented that Thailand’s politics hasn’t really changed for the past 60 years, anytime there is a challenge to the 3 pillars of power they have always lost. Last night someone commented that while true, that the needle has progressed each time there has been periods of turmoil and I can mostly certain agree with that comment, its impossible for a revolution to have a positive outlook but over time one can only hope that Thailand’s needle will continuously progress.
Somkid has decided to bazooka the economy with a raft of fiscal policies and here they are in all their glory: Bt136bn value stimulus package. First up are: 1) Bt60bn soft loan – 7-year term soft loan through the village fund mechanism; 2) Bt36bn quick-spending budget for local government – sub-district cash injection for low income earners and farmers; 3) Bt40bn for local government mini investment projects. The second wave of medium-term stimulus moves will be announced next week. The policies outlined so far account for 1% of nominal annual GDP. Disbursement of 70% of this in 4Q15 would raise private consumption expenditure roughly 4.5%YoY. Measures in detail THB100b in soft loans and to tackle illegal fishing : The Government Savings Bank (GSB) will extend the 0.1%-interest-rate loans to commercial banks, which will then relend to SMEs at no more than 4%. The GSB will allocate THB1b of the THB100b soft loan to lend to fishing vessel owners to change equipment and buy radars to tackle illegal fishing. Note that previously the annual budget for SMEs of around THB10b from all related government agencies is quite small in our view. Tax cuts to 10% : Corporate income tax will be cut to 10% for SMEs that have a net profit of more than THB300,000, for two years. This might be extended if it succeeded in drawing more SMEs into the formal tax system. Only SMEs that have a single (correct) account are eligible for the tax reduction. Note that, currently, SMEs with registered capital of up to THB5m and revenue of THB30m are subject to a tax waiver for net profit of up to THB300,000. They are taxed at 15% for amounts over THB300,000 but not exceeding THB3m and at 20% for amounts over THB3m. 5Yr corporate income tax exemptions for start-ups THB100b credit guarantee : The Finance Ministry will propose the state-owned Thai Credit Guarantee Corporation (TCG) provide a THB100b credit guarantee covering 70% of NPLs for up to 30% of each SME borrower. Given that the guarantee would be provided on an individual basis, one has raised doubts as to whether the measure would encourage banks to extend new loans to SMEs. THB6b venture capital fund : The fund is to be contributed by the GSB, Krung Thai Bank (KTB), and SME Bank. Importance of SMEs We point out the importance of SMEs (around 2.7m entities, 80% of which have never paid corporate income tax) to the Thai economy as they account for 37% of national GDP and employ 11m people. While most of the SMEs are running domestic businesses, they represent 25% of Thailand’s exports. The government targeted to increase SMEs’ contribution to GDP to 40% in five years, implying growth at a rate of 5% annually, faster than the pace of national economic growth. High-growth sectors High-growth sectors including electronics, automobile parts, F&B, energy, tourism, healthcare, ICT businesses, education, spa and wellness are expected to be supported Econ policies: Updated list of econ policies under Somkid THB60b injected into village funds (new capital from state banks) Interest-free loans with seven-year terms to grass-roots people through 59,000 Village Funds ranked grades A and B. Low-income earners in rural areas are prohibited from borrowing from the THB59b fund to refinance debt to ensure such money will actually be injected into the economy and to lower the effect on the household-debt level. This will have short-term effect, in 2H15. For an update, Bank for Agriculture and Agricultural Cooperatives will lend money to 20,500 village funds starting 14 Sep . Bank expects to complete lending program by Oct. THB36b cash handouts (central budget and advances from FY16 budget) A grant to 7,000 tambons nationwide for construction and repair work overseen by the Interior Ministry. Each tambon will be entitled to receive THB5m for any project related to building or repairs in the area. This will have short-term effect, in 2H15. THB40b for speeding up small gov’t projects (FY15 budget, central budget and advances from FY16 budget) Accelerated budget disbursements for small projects below THB1m under the FY15 budget. The procurement process for the projects will concentrate on supplies from small and medium-sized enterprises (SMEs). This will have short-term effect, in 2H15. To follow on investment: Extra incentives and small projects Extra incentives would be granted to spur projects to start investment soon, making the private sector feel starting investment right now is more worthwhile than doing so later. Sep, this will be finalised, after the stimulus loans are launched. This will have short-term effect, in 4Q15. To follow on investment: Infrastructure investment The Transport Ministry will focus on 17 projects worth THB1.6t. This year, bidding is going start for Bangkok’s mass transit development (East Orange (THB110b), Pink (THB31.2b), Yellow (THB31.6b), South Purple (THB103b) Line) and six standard-gauge dual-track rail routes (THB490b). This will have medium-term effect, in 2015-2016. To follow on exports To drive exports, the Commerce Ministry will produce substantial results within three months and is urged to beef up shipments to target countries such as: Myanmar (less than 2% of total exports as of 7M15) : Beverage, petroleum products, cement Pakistan (less than 2%): Car, accessories and parts, chemical products, plastic resin Russia (less than 2%): Car, accessories and parts, rubber products, plastic resin China (10.82%): Plastic resin, tapioca products, rubber Japan (9.57%): Car, accessories and parts, processed chicken, computer, accessories and parts To follow on cost of living and farm prices The Commerce Ministry will rev up efforts to control consumer product and food prices. Note that certain oil-related products were found to have lower prices, including lubricants, plastic pellets, roof tiles, steel sheets, steel rods, structured steel, cement, and chemical fertilizer. It will also tackle low farm prices, particularly for rice, rubber, and oil palm. To follow on foreign direct investment By end-2015 , a roadshow is scheduled, aimed at wooing foreign investors.
So what? Expect to see spending power improve upcountry, expect to see banks make a decent NIM again, and I would hope to see the spending have a multiplier impact on the economy over the coming 12 months.
Vietnam – I can’t say I know the country well aside from the history books regarding the war. I first went back 3 years ago w/ an investors hat on vs a tourist hat and having visited it recently, talked with some experts on the country and do a silly amount of reading over the past week, I’ve come to the conclusion that perhaps for the first time in a decade I am hopeful that this country will finally take off for the following reasons 1) The near bankruptcy of multiple SoE’s has pushed reforms faster and the leader has jailed several of his former friends for corruption 2) 50% of samsung’s global handsets are already manufactured there hence why electronics now rep 25% of total exports vs less than 10% a few years ago, 3) Continued FDI is likely, currently Korea, Japan and Singapore are the largest investors in the country and with the upcoming TPP agreement it can only be expected to continue (which will have multiple impacts positive throughout businesses and people’s lives), 4) It’s a country full of smart enterprising people, even with it being communist you still see a lot happening, 5) They are pro-West and are embracing Western business practises. Now while there are still multiple issues, don’t be surprised in a decade from now where we may be reading articles about the fantastic growth that Vietnam has seen.
