Last week, the government launched the “No One Left Behind Bonds” program, a new series of sovereign bonds.
The bonds will be used for the government’s funding deficit, which has been incurred due to numerous spendings this year. For example, the 5,000-baht No One Left Behind Scheme.
Should we buy the bonds?
How will the country benefit from it?
How will buyers benefit from it?
The theory of win-win for everyone
Every one of us is a consumer. We create demands through the goods and services that we buy. Businesses create the supplies, through hiring people to produce said goods and services for public consumption.
But when the economy is in a decline, consumers tend to buy less and save more. The decline in demands then leads to companies cutting costs. For the past months, demands spiraled downward due to the Covid-19 crisis and lockdown restrictions. Businesses are cutting back or closing down. Unemployment is surging.
In times of crisis, those people with money would succumb to what is called “panic saving,” which in layman’s term means, “I’m not using my money.”
The 5,000 Baht cash handout is a way to increase demands. The government is also a consumer. When it spends money, it stimulates the economy by giving the people the financial means to consume:
Here’s 5,000 baht. Now, go buy food. You’re starving and the economy is tanking, do it quickly, even if it takes “too long” and is “very difficult” for you to get the money.
The sovereign bonds are another way to stimulate the economy. Instead of saving your money in the bank or underneath your bed, buy the bonds, it’s a form of “economic consumption.”
When you buy the bonds, it means you get to save and also make money through interests. Meanwhile, the government would have your money to spend on the economy.
Win-win for everyone, right?
Take from the rich, give to the rich?
What makes this particular series of bonds attractive is the high-return rates. For the five-year tenor, the average interest per annum is 2.40%. For the 10-year tenor, it’s 3%.
For comparison, at the time of this writing the 12-month fixed deposit is at 0.65-1%. So yes, the government is committed to pay three times the market policy rate.
Sovereign bonds are referred to as “risk-free” investments, as they are issued and guaranteed by the government. Particularly if the government sold its bonds to its own citizens, at maturity it could simply recapitalize (i.e. print more money) to repay the principal.
It has been forecasted that Covid-19 crisis would create a deflationary environment so severe that central banks around the world wouldn’t be able to increase policy rates for a long while. So with sovereign bonds, you can make more money.
However, the high-return rates have drawn criticisms to the scheme.
Former Finance Minister Thirachai Phuvanatnaranubala posted on his Facebook page that the government is acting as the “anti-Robin Hood.” This is because the high rates mean that Thai taxpayers will suffer in the future, while people with money (i.e. rich people) would invest in the sovereign bonds and become even richer.
“The bonds should be renamed No Rich People Left Behind,” he wrote.
I don’t trust the government. What else can I do?
It is understandable that many people are more than frustrated by government spendings, bailing out Thai Airways or buying submarines come to mind.
The most effective way to oversee government’s expenditure is through the system of check & balance. But of course, there is no parliament oversight at this time, as there is no parliament. The emergency decree gives the government a free reign to do as it pleases.
Be that as it may, public consumption is needed in order to stimulate the economy. Otherwise, “the new normal” won’t be a happy place. The easiest way for anyone to contribute to the economy is to spend money. Any consumption that generates demands will create a greater positive multiplier effect.
But to ensure that the money is distributed fairly, where possible, try spending at your local vendors.
