Thailand Shoe Enterprises Are Trapped In Rising International Oil Prices

In July 15th, Thailand's prime minister Samar announced that Thailand will implement an anti poverty plan with a total cost of 49 billion baht (US $1 billion 460 million) to help domestic enterprises and people reduce the pressure of soaring prices, while stimulating economic development and raising the support rate of the current government.

The anti poverty program subsidized a number of daily expenses.

According to Shah Ma, the anti poverty program is mainly aimed at low-income groups. Its contents include substantially reducing the fuel tax rate, stopping the increase in civil gas prices, reducing water and electricity charges, providing free and non air-conditioned vehicle traffic, and providing free rail transit and other 6 initiatives.

Specifically, reducing fuel duty rate refers to reducing the consumption tax rate of diesel and ethanol gasoline. At present, the government of Thailand has a 3.685 baht consumption tax on diesel and ethanol gasoline per liter, and an oil fund of 3 baht to 3.45 baht. After the new plan is implemented, the government will levy a consumption tax of 0.01 baht on diesel and ethanol gasoline per litre. The retail price of fuel is also reduced by the same amount. The reduction and exemption of water and electricity charges means that the households with less than 50 liters of water per month will be charged by the government. The family with less than 80 units of electricity per month will be charged by the government, and half of the electricity from 81 units to 150 units will be borne by the government. Free traffic means free fare for non air conditioned buses in Bangkok. Half of the 1600 buses in the city are free to serve commuters. The subsidy is borne by financial resources. All three grade rail transit in the country are free to passengers and the cost is borne by the government.

In these measures, measures to reduce fuel consumption tax rates began in July 25th, and other measures took effect from August 1st, with a period of 6 months.

Thailand's prime minister Sharma told the public that the implementation of this anti-poverty plan requires the Thailand government to produce at least 46 billion baht (US $1 billion 460 million). However, some official documents show that the tax relief program will cost at least 49 billion baht. Among them, 32 billion baht is used to reduce fuel consumption tax, 3 billion 930 million baht is used to provide free tap water to 3 million 200 thousand low-income families nationwide, 12 billion baht is used to provide electricity subsidies to 985 thousand families, 1 billion 200 million baht is used to subsidize free public transport in Bangkok and Bangkok suburbs, 250 million baht is used to provide free financial subsidies to passengers for free train.

Pei Mengwan, director of the macroeconomic Office of Thai Farmers' Bank of Thailand think tank, commented that from the above figures, the government has the largest financial expenditure in reducing fuel consumption tax, accounting for nearly 7 of the total cost of the scheme, and therefore the most influential. According to calculation, the price of diesel oil in Thailand will drop by 5.2% after the implementation of the new plan, and the price of ethanol gasoline will drop by 8.7%.

Tackling stagflation under high oil prices

Shah said that the purpose of the government's anti poverty plan is to relieve people's increasing pressure on the high prices, especially in the context of soaring oil prices, to help people tide over difficulties and stimulate domestic economic development.

In recent months, international oil prices have skyrocketed, and domestic oil prices in Thailand have continued to rise. In the 1 years to March this year, the average price of gasoline and diesel in Thailand has increased by 6.7 baht and 7.7 baht respectively. At present, the price of 1 liters of diesel, 95 gasoline, 95 ethanol gasoline and 91 gasoline in Bangkok and surrounding areas has reached 45 baht, 44.8 baht, 38.8 baht and 42.4 baht respectively.

Surapun, finance minister of Thailand, said that high oil prices not only made many car owners travel by bus, but also affected all industries in Thailand. He said that high oil prices have increased the cost of Thailand's agricultural products transportation, machinery manufacturing, construction, petrochemical and other industries by at least 1 times. Adissa, director of Thailand Footwear Association, said that due to the huge increase in production costs caused by high oil prices, 20 small and medium-sized shoe factories and 3 large shoe factories have been closed down recently. Thailand's office for the promotion of small and medium enterprises (SMEs) has pointed out that the soaring global oil prices have led to the closure of 4000 ~5000 households in small and medium restaurants, tourism and transportation businesses. In the first 5 months of this year, prices rose by 5.8% in Thailand, and in June the consumer price index rose to 8.9%, a 10 year high.

Surapun said that because of the rising international oil prices, the consumer price index in Thailand will rise in July. Meanwhile, Thailand's economy has been caught in stagflation due to the slowdown of world economy and the turbulence of internal affairs. If international oil prices continue to rise, Thailand's economy will not be able to achieve the original growth target of 6%. Surapun also said that the implementation of the plan will bring benefits to 9 million 800 thousand low-income families in the country, so that they will save 1000 baht (about 30 US dollars) per month, and will help the Thailand government maintain the inflation rate of 6% to 7% this year.

Magers, a Thailand economist, said that the tax relief program was issued at the time when Thailand's stock market hit a new low since April 2007. So the plan's intention to enhance consumer confidence will obviously slow down the pace of inflation in Thailand.