Free elections have Thai businesses worried about rising costs

(Bloomberg) — Thailand risks some businesses fleeing if elected politicians follow through on their litany of campaign promises that include steep wage increases and cash handouts, according to industry groups.

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The Southeast Asian nation raised minimum wages by an average of 5 percent last year, and any further increase would limit the country’s competitiveness, especially against Vietnam, with which it competes in manufacturing, according to Wiwat Hemmondharop, vice chairman of the Federation of Thai Industry, which represents companies involved in automotive, petrochemicals and chip manufacturing.

Thailand’s political parties are wooing voters with populist proposals including a 70 percent increase in minimum daily wages, a guaranteed starting salary for graduates, debt relief for farmers and an immediate cut in electricity tariffs ahead of the May 14 vote. The country, once a dominant manufacturing power in Southeast Asia, has lagged behind neighbors such as Vietnam and Indonesia in attracting companies that are relocating from China due to high wages and an aging workforce.

Businesses worry that handouts could be counterproductive in the long run, especially since companies have yet to fully recover from the impact of the pandemic. The economy also faces a downturn if handouts and subsidies are implemented.

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

Then there is the risk of demand-driven inflation if the new government falters. A resumption of price gains, which retreated from 14-year highs last year, could force the Bank of Thailand to continue raising interest rates, which would increase financing costs and worsen one of the highest levels of household debt in Asia. according to the Thailand Development Research Institute.

The top three populist measures by the leading parties would cost more than 1 trillion baht ($30 billion) and could lead to a bloated budget and a bigger fiscal deficit, the institute said in its latest assessment, adding that higher public debt could also to endanger the country’s sovereign ratings.

“We are witnessing rapid spending policies and we are looking at this with great concern as to how the government can find this huge amount of money,” said Jariporn Jarukornsakul, CEO of WHA Corp. Pcl, the largest industrial land developer in the country. “Full implementation of these policies would have a huge impact on business spending and the government budget.”

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

While the government cut electricity tariffs this month, a reprieve for businesses and households struggling with high fuel bills amid record heat, the threat of El Niño-induced drought later this year could push up food prices, according to the Joint Permanent committee on commerce and industry and banking.

Still, companies in retail, real estate, and consumer goods are believed to have some benefits from giving away.

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

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