Thailand's government, led by Prime Minister Srettha Thavisin, has announced a significant economic stimulus plan involving digital cash handouts worth $13.7 billion. This plan aims to boost the economy by distributing 10,000 baht (approximately $275) in digital money to about 50 million eligible Thais. The handout is intended for use at local businesses within the recipients' districts, excluding purchases of oil, services, and online items.
The initiative is expected to be implemented in the last quarter of 2024 and is primarily funded through the 2024 and 2025 fiscal budgets. Additionally, the state's Bank for Agriculture and Agricultural Cooperatives will contribute, targeting payouts to around 17 million farmers. The government hopes this stimulus will increase Thailand's GDP growth by 1.2 to 1.6 percentage points.
This plan is part of a broader effort to support the economy amidst high household debt and stagnating growth. The central bank has so far resisted lowering interest rates, maintaining a 2.5% benchmark rate, although future rate cuts are anticipated due to falling inflation.
What can Thailand learn from countries that handed out money in the past?
Thailand's initiative is not new, many countries in the past have done something similar to temporarily boost the economy and local businesses. Let's check some of the cases where cash was disbursed to citizens.
United States of America
During the COVID-19 pandemic, the U.S. government issued multiple rounds of stimulus checks to citizens. These direct payments aimed to boost consumer spending and provide financial relief. The initial rounds were seen as successful in increasing consumer spending and reducing poverty temporarily. However, the long-term impact on economic growth is debated, with concerns about rising inflation and increasing public debt.
Singapore
Singapore provided direct cash payments to its citizens as part of its Resilience Budget during the COVID-19 pandemic. These payments helped mitigate the impact of the economic downturn and supported households. The program was part of a broader set of fiscal measures that included wage support and business grants, which collectively helped Singapore recover more quickly than some other economies.
Hong Kong
In 2020, Hong Kong provided a cash handout of HK$10,000 to each permanent resident. The goal was to stimulate the local economy amid the COVID-19 downturn. The handout was well-received and led to a temporary boost in consumer spending. However, like other regions, it raised concerns about long-term fiscal sustainability and the effectiveness of one-time payments in sustaining economic growth.
Japan
Japan has explored similar concepts but has been cautious in their implementation. Instead of direct handouts, Japan's economic policies have often focused on large fiscal spending and infrastructure projects. The idea of "helicopter money" (direct cash injections to households) was discussed but never fully implemented. Japan's economy has faced persistent challenges with deflation and low growth, indicating mixed results from its various economic interventions.
Zimbabwe
The country faced severe hyperinflation in the 2000s, and the government's attempts to alleviate poverty through cash handouts were largely ineffective. The money quickly lost value, and the handouts did little to stimulate the economy or reduce poverty.
Venezuela
In recent years, Venezuela has struggled with economic collapse, hyperinflation, and widespread poverty. Cash transfer programs intended to provide relief have been undermined by the rapid devaluation of the currency and economic mismanagement. The programs did not address the root causes of the economic crisis and failed to provide long-term benefits to the population.
Brazil
While Brazil's Bolsa Família program is often cited as a successful cash transfer initiative, other cash handout programs have faced criticism. During the COVID-19 pandemic, emergency aid payments helped many Brazilians, but the long-term sustainability of such extensive handouts is questionable. The temporary nature of these payments and the lack of structural economic reforms limited their effectiveness in fostering sustainable economic growth.
India
India has experimented with direct cash transfers in several states. While some of these programs have seen success, others have faced issues. For example, in the state of Madhya Pradesh, a pilot program intended to provide cash directly to women faced problems with funds not reaching the intended recipients due to bureaucratic hurdles and lack of banking access in remote areas.
Nigeria
Nigeria's cash transfer program aimed at alleviating poverty has encountered significant obstacles. Corruption and mismanagement have led to funds being diverted from those in need. Additionally, the lack of a comprehensive database to identify and track beneficiaries has resulted in inefficiencies and exclusion errors, where some eligible individuals do not receive the aid.
What do experts say about cash handout programs?
Experts and institutions like the World Bank and the IMF have nuanced views on cash handout programs, recognizing both their potential benefits and limitations.
Benefits
- Immediate Relief: Cash handouts can provide immediate financial relief to the most vulnerable populations, helping them meet basic needs during economic crises or downturns.
- Poverty Alleviation: Programs like Brazil's Bolsa Família and Mexico's Prospera have shown that conditional cash transfers can effectively reduce poverty by providing families with the means to support their children's education and health.
- Economic Stimulus: By increasing disposable income, cash transfers can stimulate demand and support economic recovery in times of recession.
Limitations and Risks
- Temporary Fix: Cash handouts are often seen as a temporary fix rather than a sustainable solution. They do not address the underlying structural issues that cause poverty and inequality.
- Dependency Risk: There is a risk that prolonged cash handouts could create dependency, reducing the incentive for individuals to seek employment or improve their skills.
- Fiscal Constraints: In developing economies, the fiscal space to implement large-scale cash transfer programs is often limited, making it challenging to sustain such initiatives without compromising other essential public services.
Recommendations for Effective Implementation
- Targeted and Conditional: The IMF and World Bank emphasize that cash transfer programs should be well-targeted and, where appropriate, conditional on actions that promote long-term benefits, such as children's education and health.
- Complementary Policies: Cash handouts should be part of a broader strategy that includes investments in education, healthcare, and infrastructure to ensure sustainable economic development and poverty reduction.
- Monitoring and Evaluation: Effective implementation requires robust monitoring and accountability mechanisms to ensure funds reach the intended recipients and achieve the desired outcomes.
Conclusion
The recommendations provided by experts and esteemed organizations have made it clear that cash handout programs should be aimed at the structural growth of the economy with long-term sustainability as a target. Case studies from countries that already implemented cash handouts show that it is a bigger challenge to make it effective in boosting the economy. It is quite evident that it is dangerous to carry out such programs as economies have fallen with poor planning and execution. While a temporary boosting was observed almost in all cases it posed more challenges than benefits to economies.
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