BOOSTING THE ECONOMY
Cautious response to stimulus plan
Business sector pleased the govt is doing something, but budget seen as too little
The business sector has reacted cautiously to the Finance Ministry plan to stimulate economic growth, saying that the proposed Bt7-billion budget is too small to make a difference and that political uncertainty continues to affect investor confidence, which recently sank to an all-time low.
However, the plan was welcomed as a sign that the interim government has become aware of the severity of the economic situation, which could increase unemployment if left unresolved.
The Finance Ministry announced yesterday that the government had run a cash deficit of Bt9.43 billion in the first six months of the current fiscal year, indicating that more public funds have been injected into the economy.
On Wednesday, the ministry said it would seek Cabinet approval next week to spend an unused budget of Bt7 billion to keep economic growth at above 4 per cent this year.
The chairman of the Board of Trade of Thailand, Pramon Sutivong, conceded that there would be long-term problems if growth in gross domestic product dropped below 4 per cent.
"There have been no layoffs so far, but lower capacity utilisation will affect workers' pay and their purchasing power. The stimulus measures may be sufficient, but our worry is when they will be implemented. If it takes more than three months, it will be too late," Pramon said.
Sombat Narawutthichai, chairman of the Securities Analysts Association, said that although the Bt7-billion budget for the stimulus package was too small, at least the government had expressed an intention to act.
"Sectors that the government should focus on are non hi-tech exports and the stock market," Sombat said.
He said the association would review within the next week an earlier forecast that the stock index would touch 729 points this year.
Deputy Prime Minister Kosit Panpiemras reiterated yesterday that relaxed monetary policies were a better way to kick-start economic growth than fiscal policies, which would take time to show results.
The Economic and Social Commission for Asia and the Pacific predicted that economic growth could be as low as 3 per cent this year. Though the Finance Ministry has maintained its growth target of 4-4.5 per cent, the University of Thai Chamber of Commerce's Economics and Business Forecasting Centre has lowered its GDP growth target to 3.5-4 per cent from 4-4.5 per cent.
The centre's director, Thanawat Phonwichai, called for another half-percentage-point cut in the policy rate in May and suggested that the government also inject more money into the market to boost employment, continue with mega-project investment and maintain the exchange rate at Bt35-Bt36 to the US dollar.
The Finance Ministry on Wednesday said the plan to be proposed to the economic steering committee comprised measures to address six problem areas - cost of living at the grassroots level, falling consumption of durable goods, the contracting machinery and construction sectors, declining consumer and investor confidence, sluggish state spending and the violence in the South.
"We need to see more details of the measures," Bangkok Commercial Asset Management president Bunyong Visatemongkolchai said yesterday. "However, whatever measures come out, whether good or not, won't have much impact as the most important factor is politics," he said.
"If we were in normal circumstances, the interest-rate decrease of 50 basis points [on April 11] would have had a big impact on the market. As things turned out, it helped only slightly."
The Board of Trade has several measures it wants to propose to the government, its secretary-general Dusit Nontanakorn said.
Besides a further rate cut, the government should also maintain the capital-reserve requirement on foreign investment, have a clear environment-management policy for the Eastern Seaboard to avoid discouraging new investment there, enter more free-trade agreements with Asian nations and cut the transfer fee to boost the property sector, he said.
Tawatchai Sudtikitpisan, president of Kiatnakin Bank, said the government should have additional stimulus measures for the property sector, particularly the easing of taxes on home-buyers.
Offering a higher rate of individual tax refunds for home-buyers would boost consumer confidence and encourage spending and investment in the real-estate sector, he said.
Somboon Krobteeranon, country manager for Visa International, said the proposed stimulus measures should create positive sentiment, but investors needed more details to decide whether they would work.
Interest rates will be the key to stimulating the economy, Somboon added. If all large banks lowered lending rates, as Krung Thai Bank is doing, it would boost domestic spending and investment.
Maris Tarab, managing director of ING Funds (Thailand), said Thai investors did not have the confidence to buy stocks even though the net buying by foreigners in the stock market over the first three months of the year was Bt30 billion.
Meanwhile, the Finance Ministry announced yesterday that the government had run up a cash deficit of Bt9.43 billion in the first six months of the 2007 fiscal year, indicating that more public funds had been injected into the economy.
Despite the gloomy outlook, the government spent Bt737.45 billion in the period, up 2.6 per cent year on year, resulting in a budget deficit of Bt140.37 billion, Finance Ministry spokesman Somchai Sujjapongse told a press conference.
The government also ran up an off-budget deficit of Bt49.06 billion from October 2006 to March 2007, leading to a total cash deficit of Bt189.43 billion, he said, adding that it borrowed Bt105.26 billion to finance the deficit over the past six months.
"The deficit signals that public spending is being carried out to boost the economy as planned," Somchai said.
However, the government failed to speed up spending on investment, as its capital spending in the period was 20.5 per cent lower than in the same period of the 2006 fiscal year.
The Finance Ministry on Tuesday urged government agencies and state enterprises to accelerate their spending.
Somchai said government revenue in the first six months of the current fiscal year was Bt597.08 billion, up 6.8 per cent on the previous year.
However, Deputy Finance Minister Sommai Phasee conceded yesterday that the government might miss its revenue target for the full year by Bt40 billion, or 3 per cent, due to the economic slowdown.