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Dear
friends,
For
Thailand’s
new
government,
political
reform
seems to
rest two-fold
on the
making
of
constitutional
amendments
while
also
resolving
an
economic
recession
due to
petrol
price
rises
and the
changing
value of
the
baht.
There is
no
consensus
on
Thailand’s
macro-economic
management,
however,
on
whether
a new
government
should
apply a
economic
policy
of trade
deficit
in order
to
stimulate
the
economy
while
the Bank
of
Thailand
meantime
tightens
its
monetary
policy
and the
interest
rate
controls
inflation.
With the
economy
in this
state,
it is
unclear
what its
finance
policy
should
also be.
Thailand’s
economic
situation
in 2006
has
slowed
below
expectation
due to
the
crippling
of
almost
every
economic
engine
of
consumption
and
investment
in the
private
and
government
sectors,
and also
in terms
of
foreign
trade.
Private
sector
consumption
and
investment
will now
slow due
to a
lack of
confidence
in the
economic
situation.
A
dramatic
rise in
the
price of
petrol
will
increase
commodity
prices
in
general,
while a
tendency
toward
higher
interest
rates
cuts
down
private
spending
and
increases
savings.
In the
meantime,
debt
payment
expenses
are
higher.
Government
sector
investment
and
expenditure
has been
unable
to drive
the
economy
that
much due
to
political
problems
resulting
in re-election,
a three
month
consideration
delay on
the
Budget
Act of
2007,
plus
postponement
of the
Mega-Projects
investment
plan
from the
second
half of
this
year to
next
year.
Foreign
trade
can
expect
to be
affected
by a
weaker
US
dollar
and a
Thai
capital-market
investment
rush,
which
will
slow
down
export
and
tourism
income.
However,
Thai
products
still
have
export
opportunities
with
trade-partner
countries
in
addition
to USA,
due to
healthy
expansion
of those
economies
and
sharing
the same
direction
of
currency
value as
Thai
baht.
Applying
finance
policy
to
economic
situations
currently
under
the
effect
of
supply
shock,
is very
difficult
due to
any
resulting
economic
stimulation,
which
could
then
increase
inflation
and harm
economic
stability.
The use
of a
tightened
monetary
policy
to
control
inflation
rate
will,
moreover,
increase
any
economic
recession.
Due to
rising
world
oil
market
prices
uncontrollably
pushing
costs
and thus
inflation
upwards
nowadays,
to
increase
interest
rates in
order to
control
inflation
would
also not
be very
effective
at
present.
Apart
from
this,
people
and
business
dealers
in
general,
lack
confidence
in
Thailand’s
future
economic
condition.
So the
use of
ultra-restrictive
monetary
policy
to
control
private
sector
consumption
becomes
unnecessary
due to
the
practice
of
private
sector
investment
expenditure.
At the
same
time,
Thailand
does not
need to
increase
its
interest
rate to
keep on
par with
the
rising
USA
interest
rate
because
short-term
investments
are
currently
flowing
into
Thailand
in huge
amounts.
Thus,
the Thai
baht is
strengthened,
which
may have
a
negative
effect
on
export
and
travel.
In
addition,
investment
outflow
may
therefore
not
require
protection
through
super-increased
interest
rates;
although
short-term
investment
should,
on the
other
hand, be
allowed
to flow
in order
to
sustain
baht
value
stability
and
encourage
exports.
The too-high
interest
rate
would,
moreover,
be
harmful
to
people
at
grassroots
level
due to
the
previous
government’s
populist
policies
that
gave
people
easy
access
to funds
and
caused a
rapid
increase
in
household
debt in
Thailand.
Should
interest
rates
increase,
it would
therefore
cause
decreasing
debt
settlement
amongst
the
people,
and as
the
result,
Non-Performing-Loans.
In terms
of
monetary
policy,
the new
government
should
accept
that
there is
still a
need to
manage
the
deficit
budget
so that
the
government
sector
still
has some
monetary
tools it
can use
in order
to
stimulate
the
economy
and
sustain
economic
stability.
One
special
example
is noted
in the
current
decrease
of the
Diesel
Department
due to
the
excise
tax,
which it
is hoped
will
decrease
any
pressure
from
inflation
and
increase
the
compatibility
of the
local
production
sector
for
similar
production.
Apart
from
these
measures,
the new
government
should
give up
the old
policy
stating
that the
government
will use
the
country’s
investment
budget
for all
of its
mega-projects,
and also
the
condition
for
overseas
managers
to make
construction
bids
without
TOR. But,
rather,
it
should
push
through
some
projects
that
have
already
been
thoroughly
studied
and
designed
in order
to draw
foreign
investment
directly
into the
country
and
therefore
motivate
the
present
economy.
Most
importantly,
whoever
takes
charge
of
issuing
the
country’s
finance
and
monetary
policies
must be
able to
coordinate
with
others
in order
to
capture
the
scope,
the
mixture,
and the
balance
of
monetary
policy.
Hopefully,
then,
issues
will not
result
in
conflict,
causing
people
to lose
even
more
confidence
in the
government’s
ability
to
successfully
manage
the
economy.
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