Election Freebies Have Thai Businesses Worried About Rising Costs

(Bloomberg) -- Thailand risks flight of some businesses if elected politicians follow through with their litany of campaign pledges that include steep increase in wages and cash handouts, according to industry groups.

The Southeast Asian nation had lifted minimum wages by an average 5% last year and any further hike will curb the country’s competitiveness, especially against Vietnam with which it competes in manufacturing, according to Wiwat Hemmondharop, vice chairman of the Federation of Thai Industries that represents companies engaged in automotive, petrochemicals and chips manufacturing.

Thailand’s political parties are courting voters with populist proposals including a 70% increase in minimum daily wages, guaranteed starting salary for graduates, debt suspension for farmers and immediate cut in electricity tariffs ahead of the May 14 vote. The country, once a dominant manufacturing powerhouse in Southeast Asia, is lagging neighbors like Vietnam and Indonesia in attracting companies relocating from China due to high wages and an aging workforce.

Businesses are fretting the handouts may prove counterproductive in the long term, especially as companies have yet to fully recover from the pandemic blow. The economy too faces a fallout if the handouts and subsidies are implemented.

“We are really concerned about the country’s competitiveness especially against Vietnam, which has lower wage cost,” Wiwat said. “There is also concern that rising production costs will spur more relocation of manufacturing facilities from Thailand.”

Then there’s the risk of the demand-push inflation if the new government splurges. A resurgence in price-gains, which have come off from 14-year highs last year, may force the Bank of Thailand to keep raising interest rates that would push up financial costs and exacerbate one of the highest levels of household debt in Asia, according to Thailand Development Research Institute.

Top three populist measures of the leading parties will cost more than 1 trillion baht ($30 billion) and can lead to a bloated budget and wider fiscal deficit, the institute said in its latest estimate, adding that a higher public debt might also threaten the country’s sovereign ratings.

“We have seen a blitz of spending policies and we view this with great concerns as to how the government can find that huge amount of money,” said Jareeporn Jarukornsakul, chief executive officer of WHA Corp. Pcl, the country’s largest industrial land developer. “Full implementation of those policies would have huge impact on business costs and state budget.”

With major global economies slowing, high cost of production will further hurt Thai exports — worth $287 billion in 2022, according to Kriengkrai Thiennukul, president of the Federation of Thai Industries. Producers will be forced to pass on higher input costs such as electricity, to consumers that might pressure businesses and households, he said.

While the government cut electricity tariffs this month, a reprieve for businesses and households battling high fuel bills amid record heat, the threat of an El Nino-induced drought later this year could stoke food prices, according to the Joint Standing Committee on Commerce, Industry and Banking.

Still, companies into retail, real estate and consumer staples are seen to have some benefits from the handouts.

Higher income will spur domestic consumption, while lower power charges will reduce business costs, according to Peerapong Jaroon-Ek, president of Thai Condominium Association.

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