Municipal Responses to Fiscal Austerity: The Thai Case

Abstract

This article discusses the use and determinants of fiscal retrenchment strategies of Thai municipalities during the FY 2009/2010 economic downturn. Based on a survey of over 900 municipalities, the author finds that Thai municipal government did not prepare itself for a declining economy. It mainly employed short-term strategies by cutting down line-item and miscellaneous spending rather than utilizing more fiscally sustained schemes such as increasing the revenue from untapped resources or applying more stringent budgetary control measures. Reasons for the fiscal adaptation were several but mainly stemmed from the declining fiscal conditions during the recession as exhibited by fund balance ratio and debt service payment. The findings indicate that Thai municipalities are running at fiscal risk due to inadequate preparation for economic fluctuation and suggest that a local fiscal surveillance system be put in place.

Keywords:

• retrenchment strategy
• cutback management
• determinants of retrenchment strategy
• Thai municipal finance

ACKNOWLEDGMENT

The author would like to thank the College of Local Administration Development, King Prajadhipok's Institute for research funding of this project.

Notes

¹They consisted of a senior university professor, two senior finance directors of large municipalities and one mayor of a medium-sized city.

²Details of the ANOVA tests are not shown here but are available upon request from the author.

³The causes of fiscal distress among U.S. and Western cities during the 1980s to 1990s were largely different from those that the Thai municipalities were facing in the 2010s. Municipal fiscal crises in the United States and the Western countries were principally the results of urban economic decline, migration and the growth of suburbanized areas. or increased social problems and dependent populations; whereas Thai cities’ financial difficulties in 2009/2010 were triggered by global economic crises. The author would like to thank the anonymous reviewer for helpful comments on this point.