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doi: 10.1111/j.1748-3131.2012.01243.x

Asian Economic Policy Review (2012) 7, 270271

Comment on Global Financial Crisis and ASEAN: Fiscal Policy Response in the Case of Thailand and Indonesia
Yoichi NEMOTO
ASEAN+3 Macroeconomic Research Ofce (AMRO)

JEL codes: E62, H20, H30,

Sangsubhan and Basri (2012) provide a detailed account of scal measures implemented by Thailand and Indonesia in response to the global nancial crisis (GFC), and analyze the effectiveness of expenditure versus revenue-based measures in delivering GDP growth. They nd that while the GFCs impact differed in each country, both countries entered the crisis with sufcient scal space, providing room for scal support for their respective economies. In Thailand, while targeted measures on expenditure were deemed effective, they were untimely, particularly when compared to quasi-scal measures such as credit expansion via specialized nancial institutions. In Indonesia, in an environment characterized by lags in disbursement, tax cuts were deemed more effective than expenditure. However, their effectiveness diminishes when the tax cuts are targeted at the highest income earners or corporates. Sangsubhan and Basri conclude by noting the risk of a new normal of stimulus expectations built into budgets which prevent scal balances from returning to their pre-crisis levels. This phenomenon has not been exclusive to these two countries. Both advanced and emerging markets have pursued expansionary scal policies, leading to narrower scal space across the board. Public debt-to-GDP ratios in the Eurozone economies have risen to levels well above 60 percent, with limited scope for consolidation in view of the sizeable budget decits and the likelihood of GDP contraction in some economies. In East Asia, public debt-to-GDP ratios have also risen, with average public debt levels in the ASEAN-5 countries standing at around 46 percent of GDP, and expected to decline only gradually over time.1 In the light of the narrowing scal space and increasing scal demands, the need for effective policy becomes ever more critical. In tackling the question of effectiveness, Sangsubhan and Basris consider revenue and expenditure-based stimulus measures. In both Indonesia and Thailand, the relatively lower efcacy of expenditure-type measures stems from their longer implementation periods. Delays in the absorption of expenditure are becoming increasingly common among the major ASEAN economies due to delays in absorption, and a greater demand for rigorous public resource management and accountability, as well as tighter regulatory and environmental standards for large investment projects. Despite the importance of strategic scal spending in emerging markets in the form of gross xed capital formation
Correspondence: Yoichi Nemoto, AMRO, 10 Shenton Way, #11-07 MAS Building, Singapore 079117. Email: yoichi.nemoto@amro-asia.org
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Asian Economic Policy Review 2012 Japan Center for Economic Research

Yoichi Nemoto

Comment

and infrastructure investment, there is a risk that revenue-based stimulus is preferred to expenditure-based stimulus on account of this perceived ineffectiveness. As pointed out by Budina and Tuladhar (2010),these longer-term investments tend to be overlooked in favour of stimulus measures that can be more quickly absorbed into the real economy, but have only short-term effects in boosting consumption. Policy measures such as the improvement of land acquisition laws need to be explored even in peacetime. While the immediate need for scal policy support seems to have diminished somewhat, developments in Europe and elsewhere will still need to be monitored carefully. Although conventional indicators do not suggest debt sustainability is an immediate cause for concern, East Asia remains vulnerable to shocks from advanced economies and, therefore, must manage its scal space and policy adjustments well. Any departure from scal policy support would need to be carefully evaluated with the following three considerations in mind. Firstly, in the short term, scal stimulus measures must be rolled back. In practice, however, revenue-based measures (tax cuts) are usually semi-permanent in nature and are difcult to unwind. Expenditure-based measures, in particular, discretionary spending, can be difcult to phase out, particularly if they take the form of pre-committed subsidies. In both Indonesia and Thailand, the removal of these subsidies (for example, fuel subsidies) have implications for ination and can be politically sensitive. For the major ASEAN countries, however, implementation delays inherent in such expenditurebased measures could turn out to be a blessing in disguise, making exits easier. Secondly, it is important that medium-term plans for strong, sustainable and balanced growth must include prudent public debt management to ensure ample scal space for counter-cyclical policy responses to future shocks. A medium-term plan which is well communicated to the public is critical to ensure the credibility of medium-term debt sustainability, and to prevent a deterioration in fundamentals should interest rates or liquidity pressures rise. This will prove crucial as East Asian countries are looking to introduce and improve their social security systems in the near future. Thirdly, as has been highlighted in the case of Greece, the accuracy and credibility of data as well as the transparency of public nances need to be closely monitored and improved. Improved transparency will contribute to a clearer recognition of public liabilities, namely off-budget expenditures, government guarantees and expenditure through state-owned enterprises. Note
1 Based on actual 2010 gures taken from the International Monetary Fund and national authorities. ASEAN-5 is Indonesia, Malaysia, Philippines, Thailand, and Vietnam.

References
Budina N. & Tuladhar A. (2010). Post crisis scal policy priorities for the ASEAN-5. IMF Working Paper No. WP/10/252. Sangsubhan K. & Basri M.C. (2012). Global nancial crisis and ASEAN: Fiscal policy response in the case of Thailand and Indonesia. Asian Economic Policy Review, 7 (2), 248269.
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