Published on February 22, 2008
I have summarised the key points of our conversations on Thai politics and the key issues of the economy as follows: Can the Samak government jump-start the economy?
Can the Samak government jump-start the economy?This is the key question of the foreign fund managers, who are all wondering whether the Samak government can get its act together to push the economic programme forward. Thailand has been off the radar for foreign fund managers over the past three years, a period of lost opportunity. Now the fund managers are eyeing Thailand with interest because it has a new democratically elected government. Besides, Thailand is a growth story. Thai inflation also remains under control, while China and Indonesia are now experiencing difficulties reducing price pressure.
The government is a coalition, and there is no unity in the implementation of the economic programme. As prime minister, Samak Sundaravej would like to have control over mega-projects, the only field he is interested in or can claim knowledge of. He has appointed Sahas Bunditkul as his deputy to help him screen the mega-projects and mass transit systems.
Going forward, Samak might get into conflict with the transport and communication minister Santi Prompat when the government attempts to implement the mass transit systems. Santi is an ally of Pongsak Raktapongphaisan, who is very close to ousted prime minister Thaksin Shinawatra.
Dr Surapong Suebwonglee, the finance minister, will be the key man to watch because he controls the government's purse. He will be playing around with the budget so there is enough money to finance the mega-projects and the populist spending. The plus side is that Surapong can't raise the country's debt to gross domestic product, now standing at 38 per cent, beyond 50 per cent. With experience in government between 2001 and 2006, Surapong and his team will be good at boosting domestic consumption through the populist programmes. Reviving private investment will be a bigger challenge because it involves Thailand's competitiveness as a whole.
How long will the Samak government last?My bet is that the coalition is going to last at least two years because politicians hate election campaigns. They need time to recoup their investment. It is now in everybody's interest to let Samak run the government to keep the country moving. If he can revive confidence by jump-starting the economy over the next six to nine months, he will become a popular PM, barring his quick tongue. Watch out for a looming showdown between Samak and Thaksin.
When will ousted prime minister Thaksin Shinawatra come back?
His son, Panthongthae Shinawatra, has said Thaksin will return to Thailand in March. But Thaksin's plan to return has kept changing. Chalerm Yoobamrung has been brought in as interior minister to guarantee Thaksin's safety. Opinions are still divided on the prospect of Thaksin's coming back. Some believe that it is still too risky for him to return, while others say he has won back his political influence and is confident of making a comeback.
When will the capital controls be removed?Dr Surapong, the finance minister, would like to remove the capital controls. He is waiting for the right time. The capital controls now make it impossible for him to raise capital of at least Bt500 billion through bond issues, which require foreign participation, to finance the mega-projects.
The Bank of Thailand is afraid that it does not have other support measures to curb the baht's appreciation if the 30-per -cent reserve requirement is removed. It never had any intention of removing the capital controls, at least in the medium term. The central bank is also afraid that foreign capital might flood in to prop up Thai properties, whose value is now about half the region's average. For this reason, the banking authorities have been keen to curb foreign investment in Thai property funds. They are afraid that foreign investment in Thai properties might create an asset price bubble and harm the Thai economy in the longer run.
What is the main concern of the Bank of Thailand on price stability and pro-growth policy?The latest signal from the banking authorities is that they would like to pursue a pro-growth policy. This means they are willing to cut interest rates to help boost economic growth. Price stability has become a secondary concern. This is also what Surapong, the finance minister, would like to hear. He said earlier he would like the country to switch from maintaining price stability to embarking on a pro-growth policy so that the economy can fully realise its potential of a 5.5 to 6.0-per-cent growth rate.
Still, some are warning that the central bank should not switch gear too soon, as inflation remains a threat, particularly for low-income earners. If prices are allowed to rise through pro-growth policy, the majority of Thais will suffer.