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Fiscal policy may end Thai 'chaos'
Political uncertainty following last year's coup will still hamper any real growth.
- By Amy Kazmin, Financial Times
- Published: 00:00 April 24, 2007
Thailand's political and policy "chaos" is taking a heavy toll on the economy, but the government - which took charge after last September's coup d'état - hopes fiscal stimulus and lower interest rates will revive growth, the new finance minister said.
"We are going through a great deal of chaos," Chalongphob Sussangkarn, who was appointed minister last month, told the Financial Times. "We have to do what we can to stimulate the economy. But with all the political uncertainty, it's not going to lead to a big spurt in economic growth."
The military-installed government's initial decision to terminate populist schemes created by Thaksin Shinawatra, the ousted former prime minister, had created hardship for rural Thais, Chalongphob admitted.
"Monies that should be going to the grassroots were not going there, and therefore they have been severely affected," he said.
Thailand's economy grew five per cent last year, driven by robust exports, even as mass demonstrations against Thaksin's leadership culminated in the coup. But, while the coupmakers have pledged to restore democracy by the end of the year, consumption and investment are sluggish amid anxiety about further turmoil.
"People are still wondering what will happen after this government leaves office and who is going to be in the political picture," Chalongphob said. "What will be the role of [Thaksin's] Thai Rak Thai party, or the role of Thaksin? . . ." It's therefore not surprising that confidence is low."
Besides political turbulence, investors have been badly shaken by policy confusion, including December's botched imposition of capital controls and proposals to make foreign investment laws more restrictive.
Thai planners now forecast growth as low as four per cent this year, well below the 7.3 per cent growth the World Bank projects emerging East Asia economies. Independent economists suggest even four per cent may be more than Thailand can manage.
The central bank last week lowered interest rates by 50 basis points. "If inflation is still low and growth is still not picking up much, monetary easing should continue," Chalongphob said.
The minister, appointed following his predecessor's abrupt resignation, is also reviving the flow of money to rural areas.
Under Thaksin, Bangkok injected about $1 billion a year into the rural economy through special projects, not counting money that poured in through aggressive lending by special state financial institutions. But "these policies were reversed quite sharply" after the coup, Chalongphob said.
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