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

• DOI: http://doi.org/10.1111/j.1748-3131.2012.01243.x
• Author: Yoichi Nemoto
• Published date: 01 December 2012
• Date: 01 December 2012

Comment on “Global Financial Crisis and

ASEAN: Fiscal Policy Response in the Case

of Thailand and Indonesia”

Yoichi NEMOTO†

ASEAN+3 Macroeconomic Research Office (AMRO)

JEL codes: E62, H20, H30,

Sangsubhan and Basri (2012) provide a detailed account of fiscal measures implemented

by Thailand and Indonesia in response to the global financial crisis (GFC), and analyze

the effectiveness of expenditure versus revenue-based measures in delivering GDP

growth. They find that while the GFC’s impact differed in each country, both countries

entered the crisis with sufficient fiscal space, providing room for fiscal support for their

respective economies. In Thailand,while targeted measures on expenditure were deemed

effective, they were untimely, particularly when compared to quasi-fiscal measures such

as credit expansion via specialized financial institutions. In Indonesia, in an environment

characterized by lags in disbursement, tax cuts were deemed more effective than expen-

diture. 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 fiscal bal-

ances 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 fiscal policies, leading to narrower fiscal

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 size-

able budget deficits 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.1In the light of the narrowing fiscal space and increasing fiscal

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 efficacy 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 fiscal spending in emerging markets in the form of gross fixed 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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doi: 10.1111/j.1748-3131.2012.01243.x Asian Economic Policy Review (2012) 7, 270–271

© 2012 The Author

Asian Economic Policy Review © 2012 Japan Center for Economic Research

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