Comment on “Global Financial Crisis and ASEAN: Fiscal Policy Response in the Case of Thailand and Indonesia”

• Published date: 01 December 2012
• DOI: http://doi.org/10.1111/j.1748-3131.2012.01242.x
• Date: 01 December 2012
• Author: Chalongphob Sussangkarn

Comment on “Global Financial Crisis and

ASEAN: Fiscal Policy Response in the Case

of Thailand and Indonesia”

Chalongphob SUSSANGKARN†

Thailand Development Research Institute

JEL codes: E62, H20, H30

The main issues addressed by Sangsubhan and Basri (2012) are the impacts of the global

financial crisis on Thailand and Indonesia, the fiscal responses, and the impacts of these

responses. A lot of detail is provided on the fiscal policy measures that were introduced,

and there is an interesting discussion about the ways the fiscal stimulus affected the

overall economy.

Indonesia and Thailand were badly affected during the Asian financial crisis, both

needing International Monetary Fund (IMF) support. Possibly as a result of that experi-

ence, their financial systems became more prudent, and both countries were not much

exposed to the sub-prime assets that led to the global financial crisis. Both were however

affected through the export channel, but more so for Thailand. Being mainly dependent

on exports as the growth driver, the Thai economy shrank by about 2.3% in 2009.Indo-

nesia had a more balanced growth structure between external and domestic demand, so

in spite of a decline in exports in 2009 of about 15%, which was similar to the decline for

Thailand, the Indonesian economy still grew by 4.6%. This is also one important reason

why the fiscal stimulus package in Indonesia was relatively small compared to that in

Thailand. The fiscal law constraining Indonesia’s deficit and public debt ratio was also

obviously important.

An interesting difference between the fiscal stimulus packages of the two countries is

that Indonesia relied more on tax reductions to stimulate the economy, while Thailand

relied more on expenditure increases. Sangsubhan and Basri’s investigation of Indonesia

shows through an impact multiplier analysis that tax reductions tend to be more effec-

tive in stimulating the economy compared to expenditure increases. Their analysis of

Thailand did not carry out a similar comparison, but there is a statement about tax

reductions only benefiting (direct) taxpayers and only coming into effect at the end of

the year when tax filings occur. The latter is actually not entirely correct, as income tax

reductions will lead to lower withholding of tax payments, and, hence, higher take home

pay, for most employees through out the year. This issue of the relative effectiveness of

†Correspondence: Chalongphob Sussangkarn, Thailand Development Research Institute, 565 Soi

Ramkhamhaeng 39,Wangthonglang District, Bangkok 10310, Thailand. Email: chalongp@

tdri.or.th

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doi: 10.1111/j.1748-3131.2012.01242.x Asian Economic Policy Review (2012) 7, 272–273

© 2012 The Author

Asian Economic Policy Review © 2012 Japan Center for Economic Research

272