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Published on March 21, 2008

Yesterday I placed the same order. A lady there told me that they had raised the price of seafood spaghetti from Bt210 to Bt230. The price adjustment was almost 10 per cent. The other day, my Bt1,000 banknote could only fill up half of my car's gas tank. I am not feeling very happy at all.

With the present economic situation, most Thais are not feeling too happy either.

Right now Thailand is facing two major economic problems: high inflation and sluggish economic growth. These are not easy to tackle. The US financial turmoil is not helping either.

Indeed, the rest of Asia is facing inflationary pressure, driven by higher energy and food prices. China's inflation continues to accelerate, with the consumer price index rising 8.7 per cent year-on-year in February. Indonesia's inflation, in the same period, stood at 7.3 per cent, compared with 6.6 per cent for Singapore, 5.5 per cent for India, and 5.4 per cent for Thailand and the Philippines. Vietnam's central bank has been lousiest of all, allowing inflation in February to surge to 15.7 per cent.

Inflation hurts the majority of Thais the most, particularly those who earn daily wages. So the task of the government is to make sure that it can bring inflation under control. Thailand is facing a supply shock, driven by higher oil prices. It is not certain whether the government has communicated well with the public about the need to look for alternative energy sources or to save costs. We all need to change our consumption behaviour.

Mingkhwan Saengsuwan, the commerce minister, has been attempting to implement price controls on key consumer products. He can do so only temporarily. Price distortion won't last very long. Still, most of the retail stores already intend to reduce prices of selected items to stimulate the purchasing power of Thai consumers.

In a way, Prime Minister Samak Sundaravej was correct when he commented that if the price of pork was too high, we should eat chicken instead.

China is keeping its economic problems under control, at least until the Summer Olympics have passed. After that, it will have to deal with economic overheating by both slowing down economic growth and putting the brakes on inflation. Were China to go through a big economic adjustment, Thailand and the rest of Asia would be affected. This is not to mention the US financial turmoil, which is now rocking the world financial markets and hurting global growth.

The Thai banking authorities will have to stay vigilant on combating inflation. There have been calls for the Bank of Thailand to slash interest rates to stimulate economic growth and to reduce the gap between the US and Thai interest rates. With the threat of runaway inflation, the banking authorities should hold the rates for now.

Sluggish growth is another problem for Thailand. Over the past two years, Thailand has been off the radar of foreign investors. Thailand's growth rate is lagging behind that of neighouring countries'. DBS Group Research has just published (March 20, 2008) economic growth figures for the region. Thailand's growth rate is forecast this year at 5.6 per cent, compared with 6 per cent for Singapore, 6.2 per cent for Malaysia, 6.5 per cent for Indonesia and 6.6 per cent for the Philippines.

The relatively low growth rate for Thailand is due to weak investment. The Samak government has already introduced a Bt43 billion stimulus package to boost consumption and investment. The package will not mean much for long-term economic benefits because it is largely a financial handout. The US financial turmoil will result in a slowdown in Thai exports. This will offset any benefits that will arise from the Thai government's stimulus package.

Dr Suraphong Suebwonglee, the finance minister, has admitted that the stimulus package represents only a short-term measure for the government. But the government needs to do something to please the electorate, otherwise it will be accused of doing nothing in the face of inflation and economic difficulties. Suraphong said that, over the next six months, he would rather focus on structural reform such as improving the education system, to lay the foundations for long-term growth.

It is not easy to boost public investment. Even with projects already signed for implementation, there won't be enough steel to meet the demand.

Thailand should focus on handling inflation and keeping a moderate growth rate moving. At the same time, it should seriously undertake structural reform, which has been ignored. This is the most difficult task, and the effort won't result in political payback in the immediate short term.

Only then can Thailand become a more attractive country for foreign investment, which is necessary to keep the growth potential of the country at 6-7 per cent.

thanong@nationgroup.com

Thanong Khanthong

The Nation