The Bank of Thailand (BOT) has called for a larger fiscal deficit in order to fire up the limping economy and vent off upward pressure on the baht, but Finance Minister Chalongphob Sussangkarn will not go along with the proposal, a source said yesterday.

"The central bank would like us to run an additional budget deficit of Bt80 billion on top of the planned deficit of Bt140 billion in the current fiscal year," the Finance Ministry official said.

However, Chalongphob disagrees with the central bank's recommendation on grounds that the government has already faced difficulties in accelerating budget disbursement, the source said.

The government plans to spend Bt1.57 trillion against revenues of Bt1.42 trillion, with the Bt140-billion shortfall going to paying off debts and stimulating the economy. But seven months into this fiscal year, which started last October, expenditure has been as slow as ever, with agencies and other government organisations able to use up only 42 per cent of the total budget.

With investment sentiment slipping and consumption falling, the Finance Ministry has been looking at the central bank to move more aggressively to slash interest rates in order to shore up confidence.

The ministry official speculated

that the central bank might be reluctant to undertake too steep a rate cut for

fear of losing its credibility on mone-tary policy. For this reason, the central bank would like the ministry to run

a larger deficit, which would not

only boost growth and create more demand for imports but also reduce

the forces of appreciation on the baht.

Today, the central bank's Monetary Policy Committee will meet to decide its rate policy. Opinions have been divided over how much the authorities would reduce the official rate, now standing at 4.50 per cent.

The central bank would like to go for an incremental decrease of 25 basis points, as it has already done twice this year in lowering the official rate from 5 per cent to 4.50 per cent. But local businessmen and investors have been calling for banking authorities to move more radically by lopping one full percentage point off the rate in order to salvage the weak economy.

Somchai Sajjaphong, deputy director-general of the Fiscal Policy Office, said the central bank should bite the bullet and drop the interest rate by at least 50 basis points in order to jump-start the economy and revive consumption and investment.

He said an interest rate cut of one percentage point would spur economic growth by 0.04 percentage point.

"Although this rate might not be large, the rate cut would have lasting positive effects on the economy. With this rate cut, private investment will expand 6.4 per cent this year, compared with 4.8 per cent for domestic consumption," he added.

But DBS Group Research said in its report on Monday that it expected a rate cut of 25 basis points.

"The latest BOT release reaffirmed the story we have been telling so far - an economy burdened by low levels of consumption and investment, with exports providing the only relief. While efforts have been made on the government's side to provide some fiscal policy stimulus through sops to the property sector and low-income rural communities, we believe that more is needed to push the economy forward," it said.

A TMB Bank report sees the central bank taking 50 basis points off its official rate in order to prod the economy. It said the steeper cut was needed in view of a lagging economy, waning inflation and strengthening of the baht.

The currency hit a nine-month high last month when it surged to Bt34.90 against the greenback.

Wichit Chaitrong

The Nation