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backASIAtalk June, 2012
Thailand: Corruption, red tape holding back growth
Piyasvasti says THAI plane buys wasteful.
Outdated regulations, an inefficient education system and corruption are among the key factors impeding growth in Thailand's competitiveness, said speakers at the World Economic Forum in East Asia yesterday.
Policymakers need to unshackle the constraints that hinder Thai businesses by removing bureaucratic obstacles and creating a business environment more favourable for growth.
The three-day World Economic Forum in East Asia began yesterday with a private session focused on Thailand's competitiveness.
More than 640 policymakers and business leaders will attend the conference, including Prime Minister Yingluck Shinawatra and the leaders of Vietnam, Indonesia, Laos and Bahrain.
Thierry Geiger, an economist and associate director for the WEF's Centre for Global Competitiveness and Performance, said Thailand's competitiveness has declined slightly.
Thailand ranked 39th in the WEF's 2011-2012 Global Competitiveness Report.
While Thailand scored favourably in terms of infrastructure, macroeconomic stability and labour market efficiency, it received poor marks for public institutions, innovation, higher education and technology adoption.
Mr Geiger said policymakers should focus on improving the quality of public institutions, strengthening higher education and enabling the adoption of technology.
"You need to address the basics _ corruption, policy stability and ensuring clear rules [for business]," he said.
Piyasvasti Amranand, the outgoing president of Thai Airways International, said corruption is a major issue impeding the country's competitiveness.
"We are not getting at the roots [of corruption]. We need to put the right people at the top and middle," he said.
Mr Piyasvasti, who was recently forced out of THAI due to "communication issues" with the board, said directors and politicians frequently meddled directly with management to foster corruption in procurement.
Poor investment choices and mismanagement only result in added costs and inefficiencies.
Mr Piyasvasti pointed to THAI's four Airbus A340-500 aircraft as an example of a poor procurement, as fuel costs outstripped ticket revenues making the plane financially unviable to fly.
"We shouldn't have bought the planes in the first place. Three of them have now been grounded," he said.
Regulations imposed on state enterprises and public agencies meanwhile failed to adequately address corruption while hindering operational efficiency.
Mr Piyasvasti said the National Anti-Corruption Commission required procurements worth over 2 million baht to be backed by cost and profit estimates that in his view have questionable worth in deterring corruption.
"I think [these rules] simply stifle the work of the government and state enterprises," he said.
At the same time, outdated and unnecessary regulation in the financial sector stifled innovation and flexibility, Mr Piyasvasti said, pointing to the difficulties in managing currency risks due to strict reporting requirements set by the Bank of Thailand.
Charamporn Jotikasathira, president of the Stock Exchange of Thailand, agreed outdated rules are a problem.
The transfer of assets in a merger, for instance, requires signed approval of all creditors of the acquired company, a rule which he said was impractical. "These rules were made without consideration for competitiveness," Mr Charamporn said.
He said outdated regulations contributed to the fact that merger and acquisition activity in Thailand was just half of that in Malaysia last year.
Venture capital activity was also underdeveloped compared with the country's peers.
Sunthorn Arunanondchai, the chairman of Tesco Lotus, singled out poor education as a constraint for future growth. "The greatest portion of the budget goes to education. But there are still problems," he said.
Teachers and educational institutions do too little to assist students prepare to enter the workforce.
Many companies, including Tesco, have moved to establish their own teaching centres to ensure availability of staff who meet their needs.
"We can't wait [for the government]. Speed is important for the private sector," Mr Sunthorn said. "Perhaps the Education Ministry needs to be privatised," he joked.
Somchai Jitsuchon, a research director for the Thailand Development Research Institute, said the public sector needed a system that held agencies and officials accountable.
"In education, we spend money but lack performance. We need accountability. If performance is poor, something needs to be done," he said.
Mr Somchai added that populist politics is another risk to the economy, and that more needs to be done to help small businesses improve their technology and management skills.
Kanit Sangsubhan, the director of the Finance Ministry's Fiscal Policy Research Institute, said Thailand's competitiveness position relative to other emerging markets had changed little over the past 17 years.
Poor education and technology remain obstacles, just as they were nearly two decades ago, he said.
But the changing geopolitical situation, and the emergence of East Asia, represented a prime opportunity for Thailand in the future.
"The Asean Economic Community [in 2015] will lead to a reclustering of industries. If businesses can develop the right mix of marketing and production, they will benefit," he said.
Tewin Wongwanich, the president and CEO of PTT Exploration and Production, said Thailand needs to move beyond reliance on low-cost labour and abundant resources to innovation.
Subsidy programmes also should be targeted at the poor, rather than offered wholesale in a matter that is financially unsustainable, he said.
Source: Bangkok Post - GAI
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