Thai Finance Minister Arkhom Termpittayapaisith has the unenviable task of steering the Thai economy through a deep and wide Covid-caused recession, January 27, 2021. Photo: Peter Janssen/Asia Times

BANGKOK – Arkhom Termpittayapaisith arguably has the toughest job in Thailand. As the kingdom’s newly appointed Finance Minister, he’s inherited one of Asia’s worst pandemic-hit economies, with gross domestic product (GDP) contracting 6.6% in 2020.

As former head of the National Economic Social Development Council (NESDC) planning agency and Transport Minister under Prime Minister Prayut Chan-ocha’s coup-era government (2014-19), Arkhom is widely seen as a seasoned, steady hand. (His immediate predecessor lasted less than a month on the job.)

Arkhom’s failure or success will depend largely on how effectively he is able to devise and distribute Covid-19 relief and stimulus while maintaining financial stability as local banks shoulder an untold load of delinquent and potentially unviable loans.

At the same time, the need for new stimulus is rising in Thailand as a Covid-19 resurgence has forced the government to reapply some of the lockdown measures that crippled the economy last year. On Thursday, the Finance Ministry slashed its 2021 growth forecast from 4.5% to 2.8% in sight of the new outbreak’s economic impact.     

In an exclusive interview with Asia Times’ Southeast Asia editor Shawn W. Crispin and special correspondent Peter Janssen, Arkhom detailed his plans to cope with the next phase of Covid-19’s economic fallout and his vision for a healthy, post-pandemic economic recovery.

(This transcript has been edited for clarity and concision.)

Asia Times: Observers felt that with your background at the NESDC and Transport Ministry you would be in a good position to push through relief and stimulus packages and budgets because you understand how the Thai bureaucracy works. Has it helped?

Arkhom: Somehow, yes. But it is more difficult because this time the government is a coalition government and political parties are also involved. So it is tougher because we have to competently study what are the issues of the country.

It is not a normal situation that we are facing, so we have to work together. During the previous [coup-era] government, it was very smooth for us to work. But now there are so many parties.

Thai Finance Minister Arkhom Termpittayapaisith in an interview Asia Times at the Ministry of Finance, Bangkok, January 27, 2021. Photo: Peter Janssen/Asia Times

AT: Goldman Sachs estimates that Thailand will not achieve herd immunity until at the earliest the end of 2021, which means that foreign tourism is probably not going to bounce back this year. Considering how crucial tourism is to the Thai economy, what is the government’s plan to stimulate growth?

Arkhom: The foreign tourist segment actually accounts for about 12% of Thailand’s GDP. Domestic tourism is another 6%. What we can do is stimulate the domestic travel. That is part of the government’s economic package – the “We Travel Together” scheme.

The government is giving a 40% subsidy for anyone who wants to travel outside Bangkok, or even inside Bangkok. You can get a 40% discount, not only for the hotel but also for the airfare. But this time during the second round of Covid people are so scared.

They don’t cancel but they postpone their trips and our Minister of Tourism is allowed to extend the project’s period.

AT: Has the Covid pandemic exposed Thailand’s over-reliance on tourism? Does the crisis offer an opportunity to shift Thailand’s growth engines elsewhere and can that be done through fiscal stimulus?

Arkhom: It’s an opportunity for Thailand. In the past we focused on the numbers, the quantity, to attract as many tourists as possible. So the number jumped to 40 million foreign tourists (in 2019), which exceeded our absorption capacity.

When I was at NESDC, we were always talking about quality tourism, so we should focus on high-spending tourists in order to preserve our natural resources as well. Because when too many tourists come there are a lot of things we need to do, like garbage collection, [deal with] water shortages and so many things. So we need quality tourists to preserve our resources.

AT: Beyond tourism, what other stimulus programs is the government deploying? Is this a good opportunity to return to decentralization policies and develop provincial areas?

Arkhom: Actually, if you look at the government projects we also encourage people to start their new careers. For example, if you look at the unemployment rate in July, it was 2.1%. But in December the number was 1.5%, it decreased by 400,000. This was mainly because people lost their jobs and they went back to the countryside and most of them restarted their careers in agricultural areas.

The government gives them support from the Bank of Agriculture and Cooperatives (BAAC) and the Ministry of Agriculture as well. I met a former manager of a good hotel in Bangkok who went back to her province. I asked her would she return to Bangkok when tourism recovered and she said “no.” She is happy in her home town and she has started a new career. [It’s possible] if you choose the right job and you have financing from a state bank to support you.

AT: Is there a perception that relief programs so far have not sparked multiplier effect-driven growth and you need to change tack considering the economy is going to be hit by Covid for yet another year? Is there a realization at the ministry that you need to do something different from what you have done so far?

Arkhom: Talking about what we did last year, it’s different than what we are doing this year. Cash transfers of 5,000 baht (US$166) [to poor Thais per month] was very quick for the first round of Covid affects and [then] the money was gone.

But this time we started in October last year with the co-payment scheme, 50/50 [where the state pays half of purchases limited to 300 baht (US$10) per day]. Actually, we heard complaints from the people that the 5,000 baht handouts didn’t go to the grassroots suppliers, because the 5,000 was spent only at [CP Group conglomerate-run] 7-Elevens [convenience stores.]

So we changed our strategy to bring more activity to the grassroots economy, so street vendors, fresh markets and convenience stores would benefit, not 7-Elevens. So 50/50 in the first phase proved very successful because the money went to the grassroots. So we extended to a second phase. And in the second phase we don’t pay 5,000 baht; we pay only 3,500 baht.

7-Eleven convenience stores have proliferated across the kingdom, giving the CP Group a strong foothold in provincial economies. Photo: Facebook

The condition is that you have to use this 3,500 baht in certain shops, not the 7-Elevens. It is not discrimination, but we want to promote the grassroots vendors because they are big consumers. Consumption accounts for 50% of Thailand’s GDP, so we are trying to make their daily life more comfortable.

AT: Is there any way to leverage this program into a government policy? Couldn’t you continue to subsidize spending for the 14 million poor Thais who are on the welfare program?

Arkhom: I think we cannot generalize this program for the poorer people who are holding the state welfare cards, because in general if the economy recovers we have to find jobs for them. They have to work. We don’t want to encourage people to wait for free money from the government.

AT: There is a market perception that Thailand, unlike the US, has not tried to spend its way through the crisis with exaggerated fiscal stimulus and this is one of the reasons Thailand’s financial fundamentals have remained so strong and hence the baht is so strong. Can you speak to that and do you think the baht is too strong? There is a bit of a disconnect: the economy is contracting while the baht is appreciating.

Arkhom: I think the baht appreciates almost every year, particularly at the end of the year because the foreign investors have a long holiday in the USA, so they don’t know where to park their money and the safest is in the strong economy countries. So in ASEAN that would be Thailand and Indonesia… Malaysia now is in more serious condition from Covid than Thailand. So people are parking their money here.

But it is not only that. I think it is an issue of balancing inflows and outflows of US dollars. We have had a current account surplus for a long time. And we have more savings than investments. So that’s why there is a lot of liquidity in the country. Excess liquidity at some point last year was over 1.5 trillion baht ($50 billion).

The Bank of Thailand has to reduce the excess liquidity. So we have to balance the outflows with the inflows. In the past we didn’t look at the outflows, we just focused on inviting more inflows. We want to encourage inflows for direct investments. If you have a company here, you build a factory here and you create output.

But for the capital market we need to export as well. We need to send our money out. That is the relaxation that the central bank has to deal with in the future.

AT: So in your estimation is the baht too strong now?

Bank of Thailand (BoT) officials arrange Thai baht bills onto ceremonious money trees. Photo: AFP/ Pornchai Wittikongsakul

Arkhom: It’s debatable. From the point of view of business people, it is too strong. The Finance Ministry and central bank discuss the need to manage it.

AT: The BOT has imposed a debt moratorium, which means borrowers have not had to repay their loans for almost a year now. How healthy are the Thai banks after absorbing all this non-repayment?

Arkhom: I think all the commercial and state- owned banks have enough reserves, according to the central bank’s CAR (capital adequacy ratio). It is above CAR.

But our issue is that during this crisis the commercial banks have stopped lending because they are so afraid of the risks. They don’t want to be risk-takers. This is the issue which we need to talk to the central bank about. And one of the issues in the credit guarantee scheme.

We have the credit guarantee scheme for the SMEs, but it is not enough because this time the coronavirus has hit the tourism sector and most of the large businesses. Regular activities have stopped and the banks are not looking at the collateral. They are just looking at the cash flow. The future cash flow, which we don’t know when it is coming.

We don’t know when the tourists will be coming back to Thailand, so for our state-owned banks we try to persuade them to look more at collateral-based loans, because the value of their assets is more than the value of their debts, but they want to make sure that in the future the income will be coming in. That is the issue.

AT: Because of the debt moratorium, banks have been able to roll over what would normally be classified as NPLs [non-performing loans]. So the system’s average NPL was supposedly 3.09% at the end of 3Q20, but at least one banking analyst predicts that as soon as the moratorium is really over, NPLs will skyrocket. Do you agree and what is probably the real NPL ratio?

Arkhom: It really depends on how quickly the economy will recover. If you are so pessimistic and think that Thailand has no future in tourism, then I think it is gone. So we have to believe that the Covid will disappear and the vaccinations are coming so this is good news for almost all countries in the world.

So maybe we have to change our forecasts a bit. Okay, we predicted that by mid-2021 the tourists would be coming back, but maybe it will take a bit longer. So our projection for tourist numbers this year is 5 million [down from 40 million in 2019] but maybe not. As soon as people are getting the vaccine there will be more confidence. For the business sector as well, the banking sector as well.

But for the central bank we need to relax the conditions for the banks to lend to SMEs, or extend the debt. Our point is that if you don’t give them the liquidity, then they will die. Do you want them to die or to live?

AT: What is the risk that Thailand’s economic crisis becomes a financial crisis?

Arkhom: The only worry is the NPLs. The central bank is worried too. But we are in a crisis, so we have to help the companies. If you talk about the airplane businesses all over the world they are having the same problem. If you don’t help them to keep their employees, what happens? The unemployment will be the government’s burden.

But if you can keep them employed for a while, maybe a year. But they are running out of money to keep on their employees. Do you want the workers to become unemployed? Even if they have the social security it is not enough for them to live on.

Thai commuters wearing face masks amid fears of the spread of Covid-19 in Bangkok on March 2, 2020. Photo: AFP/Mladen Antonov

AT: But there is a perception that many of these companies, especially in lower-end tourism, are never coming back. So what is the risk of banks continuing to lend to so-called “zombie companies?”  

Arkhom: Well, we have to make sure that they have to change their business as well, they have to restructure their businesses. Looking at the hotels, many of them are trying to change, turning a luxury hotel into a home for elderly people, changing their business model.

In October-December, before the Covid second round, we could see a lot more elderly people traveling. So why not give them a chance to travel on the weekday, and the hotels can give more discounts to those elderly people. This is promoting the local economy because the foreign tourists are not coming back yet. So how do you get the Thai people to spend more money?

AT: So your guiding principle is that these zombie companies just need to reform themselves? That now is not the time to let people fail? Is that your policy?

Arkhom: Um-hmm. That’s why we are talking about tax reform. Because we cannot keep our tax collection at the level it was in the past. Because our revenue to GDP ratio is actually declining. The economy is growing, but tax collection is declining. That is not what I want.

So we need to keep the tax rate up. How? We are talking about the tax base… You have to have a strategy and for Thai society it is difficult to get all the people to pay tax. They only like what we are doing right now [with state handouts]. But when we ask for taxes…

AT: Thai Prime Minister Prayut called on Thailand’s richest tycoons – the families who control the CP Group, ThaiBev, Central Group – to assist in helping the economy through the crisis? Have they done enough?

Arkhom: I think that they have helped with some of the infrastructure projects. And a lot of the infrastructure projects, the airport line high-speed rail, for example, we give it to the private sector [CP Group] and the response is good.

But I think it’s difficult to answer. During the crisis, the private sector, the big companies, they did their part. Actually, they have their programs before the Covid with their social responsibility programs they have done a lot.

AT: Should you tax Thailand’s big conglomerates more to finance Covid-19 relief and stimulus? Or is there a fear if they are taxed more they will leave Thailand and invest more abroad?

Arkhom: We have to look at the overall reform. We can’t just tax more… We have to make a balance. If they are in the country they generate, create our GDP. At the same time if they invest abroad we can bring in the money as well.

Prime Minister Prayut Chan-ocha is flanked by CP Group chairman Dhanin Chearavanont (2nd R) and ThaiBev founder billionaire Charoen Sirivadhanabhakdi (L) at Government House in a file photo. Photo: AFP Forum/Chanat Katanyu

AT: Is there not a risk when the economy turns over and we see what is distressed and what is not that only the big family companies like CP, ThaiBev and Central will have the capital to buy these assets? Is there a need to prevent this from happening for political reasons, because otherwise the big companies will get rich off the crisis and the grassroots ones will feel the pain?

Arkhom: That’s why our program is designed for the local economy… If we don’t have any conditions to use our cash transfers, all the money will go to the big companies. That was a complaint. And they understand, they understand.

AT: But is it inevitable that the big will get bigger after the crisis? I know (ThaiBev’s) TCC Assets has a huge fund to buy up some 100 hotels and distressed assets.

Arkhom: We don’t know yet. It’s not just the Thai companies that are buying up hotels but the foreign companies as well. You look at a company like Unilever, who use Thailand for regional distribution, so it’s not only Thai.

AT:  What about the future role of China in Thailand’s economy? As one of the few capital-rich countries, how much should Chinese buyers be allowed to buy distressed Thai assets and which should be off-limits?

Arkhom: We have our rules and regulations that apply for all, not only particular country… [The Chinese] are coming, but getting the right on the property or land is the same rules of other countries. But they have more roles to play right now in Thailand’s investment.

AT: Is now the time to re-prioritize the Thai-China high-speed trail? The Belt and Road project has stalled until now. Has Covid changed perceptions on the desirability of the project?

Arkhom: I don’t think we need to change. But the speed… there are various reasons [for delays], the bidding process is one of the issues. There is more competition, and those companies who will lose are complaining. But the policy is we have to finish this project.

AT: What is the risk to the economy and your stimulus plans of a resurgence of last year’s street student protests?

Student-led protesters give the three-finger salute during an anti-government rally in Bangkok on October 19, 2020. Photo: AFP/Mladen Antonov

Arkhom: We need to keep the plan going. As I said, even with the coronavirus our projects are still going on, never stopped. The political demonstrations may not affect our plans.

If you’re asking will protests affect the economy, yes, of course. But the way the mob is organized, focus always moving, it only affects certain areas of business. But I think the government now realizes it needs to get a real handle on the situation. The subject [the monarchy] is very sensitive.