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Published on August 24, 2007

The Finance Ministry has revised downwards its forecast for growth in the volume of exports this year, mainly because of the strong baht.

The new target is 6.5 per cent, compared with the original expectation of 8.1 per cent.

The slashed target was announced on the same day Federation of Thai Industries (FTI) chairman Santi Vilassakdanont said he expected Thailand's export growth rate in the second half of the year to be lower than in the first half. He said this would be the result of continuing fluctuations in the US-dollar/baht exchange rate and uncertainties arising from the US sub-prime-mortgage crisis.

"Export growth will probably fall in the second half if the baht is still fluctuating," he said. "If the sub-prime crisis is not as bad as some experts forecast, then the baht may become stronger, due to an inflow of foreign investment into the stock exchange."

The baht appreciated yesterday to 34.36 to the dollar, from 34.50 at the market's close on Wednesday. The Bank of Thailand believes the baht strengthened following injections into the market to ease the sub-prime lending problems.

Despite the lowered export target, the Finance Ministry is maintaining its economic growth forecast of 4 per cent for this year. Fiscal Policy Office director-general Pannee Sathavaro-dom explained that despite slowing exports, public spending would shore up economic growth.

The moves confirm bad news for the second half of the year, underscoring last month's export figures, which showed annualised growth of only 5.89 per cent, against 18.6 per cent in the first half of the year.

The government's economic steering committee will meet today to discuss last month's unexpected drop in export growth. At the meeting, the Private Joint Committee - which includes the FTI - will submit several proposals for weakening the baht further, particularly by encouraging Thai companies to invest abroad.

Due to declining demand, a survey of industrialists last month has also revealed the lowest level of confidence in four years. Fewer orders, lower sales and lower production capacity sent the Industrial Confidence Index tumbling to 72.7 points, from 80.9 points in June.

"July confidence is usually the lowest in any year, because it is the rainy season, which pulls down domestic consumption," said FTI vice chairman Adisak Rohitasune. "However, the level is the lowest in four years, due to the economic slowdown and the strong baht."

The low confidence is exacerbated by the fact that manufacturers cannot raise product prices to cover higher production costs, he said.

The survey, covering 471 respondents from 35 industrial groups, showed the strong baht is the main concern of export-oriented manufacturers, while those serving domestic markets are worried about political instability and slowing consumption.

Santi said high first-half export growth resulted from advance

orders taken last year. Since then, most operators have sought short-term rather than long-term orders, in a bid to handle the rising baht.

"Unless they receive more long-term orders from abroad to secure their exports, it will be difficult to expand growth like in the first half," he said.

However, orders normally rise in the final quarter of the year, and this year should be no exception, he said.

At today's meeting, the economic steering committee will propose the establishment of a fund to manage capital flows, so as to stabilise the baht.

Santi said exporters would be satisfied if the baht weakened to 35 to the dollar. This level will also encourage more local operators to expand into exporting.

Another proposal is to waive corporate taxes on gains from foreign investment, in order to encourage Thai companies to invest outside the Kingdom.

"This kind of tax privilege may be added as one of the Board of Investment's conditions," Santi said.

However, the qualifications and industries of the companies eligible for the exemption must be seriously discussed, he said. The industries to be promoted should include construction, food and textiles.

Another proposal is a special fund to provide soft loans to companies, in order to help reduce investment risks.

Yet another is the establishment of industrial estates in border provinces like Tak and Ranong in a bid to prevent labourers from migrating to Bangkok.

The estates will help small- and medium-sized enterprises that have weak potential for exporting to benefit from cheaper labour costs and expand their markets into neighbouring countries, Santi said.

Chalida Ekvitthayavechnukul

The Nation