A generous car-buying incentive program has hit a major pothole.
A generous car-buying incentive program has hit a major pothole in Thailand, which touts itself as the Detroit of Southeast Asia—presumably referring to the auto manufacturing, not crushing levels of government debt—in the latest in a string of questionable stimulus programs.
Prime Minister Yingluck Shinawatra launched the program after massive floods in 2011 hit the country’s auto industry. Thailand is a regional hub for many car companies, especially Japanese manufacturers such as Honda, Mitsubishi, and Toyota, and autos comprise 12 percent of the country’s GDP, and at first the plan seemed to work like gangbusters, with 2012 auto production skyrocketing 67 percent from the previous year.
"The end of the incentives scheme created an irregularity which may trade off the benefits to some extent. We’ve come to see it as an unavoidable cost of the program," Nobuyuki Murahashi, President of Mitsubishi Motors (Thailand), told Reuters.
Another more recent economic policy created new subsidies for rubber farmers, who recently clashed with police in protests over their financial plight—after all, rice farmers got government funds; why shouldn’t they? Thailand is the world’s biggest rubber producer, and worldwide prices have dropped more than 45 percent over the last two years.
The recent economic policies have been costly: Thailand’s debt climbed to 44.3 percent of gross domestic product in June from 38.2 percent at the end of 2008. In June, Moody’s noted that the country's "increasingly expensive" rice subsidy program is "credit negative," and threatens the government’s goal of balancing the budget in 2017.
"They’re hitting that limit," Duenden says.
This post originally appeared on Quartz, an Atlantic partner site.