Political confusion hurting Thai economy: Thai Minister

The Straits Times, May 3, 2007



Junta plans stimulus package to boost business confidence, says finance chief

BANGKOK - THAILAND'S Finance Minister said the political uncertainty that followed last September's coup has become the biggest threat to the economy, which could be heading towards its lowest growth in six years.

Finance Minister Chalongphob Sussangkarn said the military-installed government would soon launch measures to boost the sluggish economy but cautioned against optimism in post-coup Thailand.

'After the coup, people are waiting to see a clear signal as to what the political situation will look like after the next election,' he said, referring to the December election promised by the ruling junta.

'But people are not sure about what's going to happen and this is really affecting our economy. Political uncertainty is the biggest threat to the economy,' he said.

Mr Chalongphob, a former World Bank economist, took over the job in March - Thailand's third finance minister since the coup.

The government has been criticised for a number of policy miscues, including its poor economic management and an escalating insurgency in the south.

Thailand's consumer confidence dropped to a five-year low in February, and the central bank last month cut its growth forecast for this year to 3.8-4.8 per cent, from 4-5 per cent earlier.

If the economy rises by just 3.8 per cent, it would mark the lowest growth since 2001, when its GDP grew by 2.2 per cent.

To shore up the flagging economy, Mr Chalongphob said the government would implement a stimulus package that includes extending more loans to farmers and grassroots workers as well as easing tax measures.

He hoped the package would help to restore business confidence hit by the government's policy blunders, including the central bank's controversial capital controls aimed at halting the Thai baht's rise against the dollar.

Imposed last December, the capital rules require 30 per cent of all incoming investment to be held by financial institutions for up to one year, causing a stock sell-off with losses worth a staggering US$23 billion (S$35 billion).

Many exemptions have been made since the December debacle to water down the currency rules, but the general policy remains in place.

Mr Chalongphob's appointment as Finance Minister had raised hopes that Thailand would scrap the 30 per cent rule, but he defended his decision to keep the policy.

'I knew there were speculators speculating on my ordering the Bank of Thailand to change the policy,' he said.

'If that happened, the baht would strengthen very rapidly and I did not want to create a shock in the market.'

But despite the capital controls, the Thai baht continued to rise against the dollar, staying at a nine-year high in the 34-35 baht range.

With the local currency soaring, business leaders have called on the government to implement protective measures for exports, the backbone of the Thai economy.

But Mr Chalongphob said it was not only exports but the overall economy that faced pressure due to a lack of political clarity.

'Right now, there is too much confusion. People are waiting for a clear picture,' he said.

AGENCE FRANCE-PRESSE