thegreglowe.com

By GREG LOWE
IN BANGKOK

GOVERNMENT activity and fiscal stimulus remain key factors driving the Thai economy which is showing strong signs of improvement after a rebound in exports to key global markets, says Finance Minister Korn Chatikavanij.

Mr Korn said the government had performed well in its first year in office by facing down the global and local recessions with short-term stimulus packages totalling 117 billion baht (S$4.96 billion), and the implementation of its 1.47-trillion-baht ‘Thai Khem Khaeng’ investment programme which runs until 2012. But despite strong evidence of recovery, the Thai economy remains vulnerable to global events such as the recent dip in the US stock market, he said.

‘The whole situation remains fragile,’ Mr Korn said. ‘We’re certainly not out of the woods, otherwise we wouldn’t be needing to follow through with these government stimulus packages.

‘The truth is that the economy is still dependent on government activity, frankly too much so. The quicker the private sector can step back into the game, the better for all concerned.’

The Finance Ministry will this year focus on executing the plans it put in place last year, he said. It forecasts GDP will grow 3-3.5 per cent in 2010, from a contraction of 3-3.5 per cent last year.

But domestic political tensions continue to pose a significant threat to the economy. In the last 18 months, protests from both pro and anti-government groups have led to airport seizures, the forced cancellation of an Asean summit and riots on the streets of Bangkok, the economic impact of which is estimated in the hundreds of billions of baht by the Bank of Thailand.

While tensions have eased considerably, the deep political divides show no sign of abating and may escalate in the run up to a Feb 26 Supreme Court ruling on the seizure of 76.6 billion baht of assets belonging to former prime minister Thaksin Shinawatra, who is a fugitive from Thai justice.

‘The situation is much improved from a year ago, but we’re still below our potential and unless we get that resolved, we will continue to underperform,’ said Mr Korn.

The minister, who previously said the current political strife could take a decade to resolve, said many of the current problems were due to ‘certain cultural tendencies’ and educational and economic standards.

The government is introducing welfare policies and progressive taxation which are in part aimed at reducing the inequality that has fuelled the unrest.

The Finance Ministry plans to introduce a rates-based land and property tax and a wealth tax to be levied on the top 10 per cent of earners. Free education, universal healthcare and income guarantee schemes are already in place.

The ministry is also drawing up a national savings fund which will provide pensions to about 24 million self-employed people who are not eligible for the Government Pension Fund.

Its Financial Services Master Plan seeks to address the fact that 20 to 30 per cent of Thais do not have access to formal financial services, which drives them into the hands of loan sharks. While the progressive policies may help take the edge off Thailand’s political problems, investors are increasingly concerned about regulatory risks relating to a court ruling which suspended more than 60 industrial projects, worth more than 300 billion baht, in Map Ta Phut on the Eastern Seaboard.

Japanese businesses, the biggest investors in Thailand, have warned the government that they will invest elsewhere if the matter is not resolved within five months.

The ministry has also started a review of the restrictive Foreign Business Act to increase investment in the country, but Mr Korn conceded that he would face resistance from those with ‘vested interests’.

Published February 1, 2010
© The Business Times