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Thailand

October 22, 2007

THAILAND : Economy
FM says Economic Growth will accelerate

Thai Finance Minister Chalongphob Sussangkarn said the country's economy will pick up next year after the government increased spending and foreign investment recovered.
The expansion may ``easily'' exceed 5 percent in 2008, up from an estimated 4.5 percent this year, he said in an interview yesterday in Washington.
Growth ``certainly will pick up because of these investment projects, whether on the public-sector side or the foreign- investor side, that will be kicking in,'' Chalongphob said.
Thailand, which has depended on exports since a September 2006 coup eroded domestic confidence and demand, has lifted public spending and lured back international investors to shore up growth. Chalongphob anticipates that will help compensate for a global slowdown.
``Over time, maybe the pace of export growth may slow down a little bit, particularly with the problems in the subprime market, which may affect the U.S. economy,'' Chalongphob said. ``So we already put in place the additional engines that will help to push the economy along if exports begin to decline, and this is through investment.''
Thailand's cabinet agreed on Oct. 16 to spend 59 billion baht ($1.9 billion) to build a railway line in Bangkok, the third mass-transit project approved by the government for the capital. Ford Motor Co., the second-largest U.S. carmaker, and its Japanese affiliate Mazda Motor Corp. said Oct. 9 they will spend more than $500 million to set up a plant in Thailand.
No Turning Back
``Foreign business confidence has actually gone way up'' after the government tried to show investors it's not ``turning our back to the world,'' Chalongphob said.
The military-backed government, headed by retired army general Surayud Chulanont, is also counting on an election in December to revive an economy blighted since a September 2006 coup. If the ``political climate in Thailand becomes more normal after the election, which is due on Dec. 23, then we should be able to begin to move back toward our natural rate of growth'' of 6 to 7 percent starting in 2009, Chalongphob said.
Consumer confidence is at a five-year low after sliding in 11 of the past 13 months. The central bank cut its benchmark rate at five of seven meetings this year to buoy consumption.
The direction of rates is ``very difficult to conclude at this point,'' the minister said. Another cut in U.S. interest rates would be a consideration, he added.
`Relatively Low'
The inflation rate remains ``relatively low'' at a little above 2 percent, and the country has ``room yet to absorb the increase in oil prices,'' Chalongphob said. Consumer prices increased from a five-year low in September after retail gas prices were raised five times.
Thailand will keep capital controls ``as of today,'' Chalongphob also said. ``You have to look at the external environment. When things calm down, and the timing is right, of course, there's no need to have these capital controls if conditions do not call for them.''
``I'm sure if we get to that point, yes'' the controls would be lifted, he added.
The central bank in December imposed limits on international investment to cool gains in the baht, prompting the stock market's steepest slide in 16 years. Most controls were lifted in March for overseas investors taking hedging measures to avoid profiting from baht fluctuations.
Favoring Controls
Most countries are leaning toward controls and greater management of their currencies as exporters pressure their governments, he said. Thailand, like Malaysia, the Philippines, Argentina and other countries, is preventing its currency from appreciating, he said.
``Countries are now converging towards a foreign-exchange policy with a lot of management and leaning towards less flexibility,'' the minister said. ``You cannot afford to be very flexible while your competitors are less flexible. If you want greater flexibility on foreign exchange, then it needs to be more a regional solution.''  Courtesy Bloomberg

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