Among developing countries in Asia - except Nepal and the Kyrgyz Republic in Central Asia - Thailand's economic growth rate was the lowest last year, at 5 per cent against the average growth of 8 per cent - the highest in 11 years, said Jean-Pierre Verbiest, ADB's country director in Thailand.

This year, it is set to grow only 4 per cent due to weaker consumer and investor confidence in the local economy resulting from persistent political uncertainty.

Growth is expected to be 5 per cent next year, as confidence is expected to improve after Thailand's elected government emerges to set new economic policies.

"Thailand's growth rate is well below its potential of between 6 to 7 per cent. A growth of 4 per cent this year means that Thailand is missing 3 per cent in growth," he said    

He was concerned that prolonged uncertainty in politics and low investment would hurt the export sector, which has been a key engine for economic growth for many years.   

While other developing countries in Asia enjoyed high growth last year, they would experience slower growth this year with the average growth forecast of 7.6 per cent and 7.7 per cent next year.

Growth in industrialised countries - the United States, the Euro Zone and Japan - was 2.9 per cent last year and it is expected to slow down to 2.3 per cent this year. The slowing economy in the industrialised countries is bad news for Thailand's exports.

Thailand needs to turn to domestic demand for boosting growth, Verbiest suggested. He urged the government to restore consumer and business confidence and accelerate infrastructure investment. Credible economic programmes by an elected government would boost confidence, and an interest rate cut by the central bank would also partly help.    

He expected less pressure on the exchange rate this year and next year. As other countries in the region tighten their monetary policy by increasing interest rates, Thailand is expected to lower its rates. If capital flows to other countries, then the baht would be weaker - or only appreciate slightly.

Some countries in East Asia may opt to introduce withholding tax on capital to deter money speculation, starting from a very low rate, he said.    

The Bank of Thailand's move to impose capital control last year was understandable due to the difficulty in dealing with hot capital flows, Verbiest said.

Coordination of exchange-rate policy among countries in Asia might not be implemented right now. As individual currencies, including the Thai baht, are not international, other central banks may not want to hold baht assets.

Central banks in Europe in the 1970s helped Germany to defend the mark against speculation. They were willing to hold other regional currencies because those currencies were international, he added.      

Wichit Chaitrong

The Nation