Notes on Macroeconomic Management

1
Notes on Macroeconomic Management

• Bhanupong
• Thammasat University

2
Dr. Pueys Balloon Theory of Economic
Stabilization

• How to balance the three air pumps
• Public sector balance (budget balance)
• Private sector (investment-saving gap)
• International sector (balance of payments)
• Monetary growth should be consistent with output
  growth.

3
Something went wrong
4
Fundamental differences between high and low GDP
growth
5
On Fiscal Policy

• ??????????????????????????????????????????????????
  ??? ???????????? ??????????? ???????????????
  980,000 ???????
• High contribution to growth arising from
  infrastructure development (public injection
  pump)
• ????????????????????????? ????????????????????????
  -????????-??????????-???????-?????????-???????????
  ?????????? ??????????? ?????????-????????-???????
  ???????????????????? 200,000 ???????
• Reduced transportation cost speed up regional
  integration (foreign trade pump)

6
Infrastructure spending

• ?????????????????????????????????????? 2551 ????
  ?????????????????????????????????? ????
  19-??????? (106 ??.) ????????????????????????????
  ??? 2 ??????????????????????????????? 30
  ??????/?? ????????????????????????????????????????
  ??????? (???????-???????) ????????????
  ??????????? ????????????? (??????-???????????)
  ??????????????????????????????
• The time is now the best time to run budget
  deficit.
• Current account deficit can ease the baht
  appreciation

7
?????????????????????????????

• ??????????????????????????????????????????????????
  ?????????????
• ?????????????????-????????? ?????-????????
• Beware the perils of interventionists
• The cost of fund is not as important as the rate
  of return on investment.
• There are limits to every subsidy.
• Can supply create its own demand?

8
On tax stimulus package

• Corporate income tax cut for newly listed
  companies in the Stock Exchange of Thailand (SET)
  from 30 to 25 for three accounting years
• Corporate income tax cut for existing companies
  in the SET from 30 to 25 for profit below Bt300
  million for three accounting years
• Depreciation allowance for machinery and
  equipment related to productions and services at
  40 of costs on the delivery date
• For a good cause of rapid capital accumulation
• A choice between tax-reduction or bond-financed
  budget deficit
• Tax cut-induced deficit and spending-induced
  deficit have different expansionary impacts
• Temporary tax cuts give low and transitory policy
  impacts.

9
On higher tax allowances for individuals

• Higher taxable income waive from Bt100,000 to
  Bt150,000
• Higher tax allowance for life insurance premium
  from Bt50,000 to Bt100,000
• Higher tax allowance for Retirement Mutual Fund
  (RMF) Long Term Equity Fund (LTF)
• The problem right now is not the low savings
• It is the low investment and low consumption.

10
Insufficient demand

• The lack of effective demand due to depressed
  consumers confidence and poor business sentiment.
  
• Please dont do it again.

Source NESDB
11
On inflation targets

• Let the exchange rate play its role.
• Short-term price controls can be used to affect
  inflation expectations caused by a temporary
  price hikenot from permanent price increases.
• Imports can ease the burden of domestic
  inflation.
• ?????????????????? ?.?. ?????? 5.4
  ?????????????????????????????????????????????????
  ???.
• Core or headline targets?

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On price stability

• ?????????????????????????????????????????????????
  ??????????????????????? 50 ( a convenient excuse)
• Either way, consumers are suffering
• ??????????????????????????????????????????????????
  ????? ????????????????? ??????????????????????????
  ????????????????????????????????????
  ???????????????????????????????????????? 0-3.5
  ??? ???. ???? 8 ??????????????

13
On monetary policy

• Beware of time inconsistency problem
• Do not confuse the markets
• Accountability must prevail.
• Do not attempt the unthinkable
• Do not repeat the same mistake
• Independent monetary policy?

14
On interest rate policy

• Higher interest gaps would lead to more capital
  inflows and currency appreciation.
• Do not resist the global trend.

Source IMF Statistics
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On exchange rate policy

• High inflation would further appreciate the real
  effective exchange rate
• Beware of moral hazard
• Be impartial to avoid sectoral bias
• Do not gamble for resurrection
• Dont plea for bad consequences
• Goodbye capital controls, hello more market
  interventions

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Goodbye capital controls,
Source Bank of Thailand
17
Exchange rate volatility
Source Bank of Thailand
18
On growth and exchange rates
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On forecasting

• Models are meant to be usednot to believe
• The longer the forecast horizon, the less
  accurate the forecasts.
• Beware of Doomsayers
• He who forecast lies An Arab proverb

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Long-term objectives

• Think of benefit and long-term strategy
• Short-term gains divert us from ultimate goals
  (time inconsistency problem)
• Policy consistency and commitment are required
  for stable long-term growth path.
• Think in relative terms, compare with other
  countries, not just to our past.

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Conclusions

• Do not resist global trends Exchange rates, oil
  prices, and interest rates
• Be firm, consistent, and accountable to create
  policy credibility
• Once credibility is achieved, we can enhance
  policy effectiveness.