In a round-table seminar entitled "The Thai Economic Outlook Amid High Oil Prices, High Interest Rates and a Political Vacuum", economists agreed that the government should not stimulate economic growth as both external and internal demand were likely to slow down in the second half of this year.

It would be no use to spur the economy across the board amid falling demand when economic stability was more important, they said.

Nonetheless, they believed that some parts of economy needed help such as small and medium-sized enterprises (SMEs).

"There is no need to use monetary policy now, but the government could help to relieve the burden of the public in the real sector. For example, it could

allow its fiscal balance to turn to deficit by cutting taxes to relieve some parts of the economy. Once the economy recovers, the government could raise taxes again to

offset the deficit," said Vimut Vanitchareonthum, a lecturer at the University of the Thai Chamber of Commerce's Faculty of Economics.

Phatra Securities forecast

that the Thai economy would recover in early 2007 rather than in the middle of 2006, as expected earlier.

Pisit Puapan, an economist from the Finance Ministry's Fiscal Policy Office, said the ministry was currently concentrating on short-term economic stability and worrying about the strengthening baht, which has strengthened by 8 per cent in nominal terms and 6 per cent in real terms so far this year.

Economists believe it will appreciate further while interest rates will continue to rise.

In addition, economic growth in the second half of this year will slow down further due to falling domestic and external demand, they say.

Bunluasak Pussarungsri, vice president of Bangkok Bank, said he was worried that the US economy might slow down in the second half of the year, dragging down the economies of both China and Europe.

He believes that the US Federal Reserve is likely to cease its series of rate hikes at 5 per cent and the US dollar will depreciate further. This will boost the value of the baht.

"But the government controls commodity prices," he said. "This may cause the impact from oil prices to be postponed only to appear later in the second half. The Bank of Thailand may have to react by raising rates again. The commodity-price controls make our inflation and interest rates tend to follow other markets. When the baht appre-ciates, we may need to raise

rates again. Thus we have to be cautious in controlling commodity prices."

Prasit Kanchanasakdichai, special lecturer at the National Institute of Development Admi-nistration, said that SME exporters seriously needed help from the authorities as they were currently suffering from the stronger baht.

He said most SMEs knew

well that they needed to hedge for baht volatility but they could not access the service of banks, which usually required conditions too tough for small companies, including credit-line and deposit criteria.

The team executive of the Economic Intelligence Team of the BOT's Monetary Policy Group, Noppadol Buranathanun, said some exporters wanted to take the risk of baht volatility rather than hedging.

He added that considering the Federal Reserve's statement issued on Wednesday, there might be room for another rate hike, which would not end the series of hikes as many had expected.

Jiwamol Kanoksilp

The Nation