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NEWS UPDATES Asean Affairs                   14  September 2011

Central Thai bank OKs debt level

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The government's budget deficit of 350 billion baht for fiscal 2012 is suitable for economic needs as it keeps public debt in check, says Prasarn Trairatvorakul, the Bank of Thailand governor.

Compared with the deficit of 420 billion baht in the 2011 budget, the sum allocated for the next fiscal year would give an equal boost to the economy, given that 2010 was when the global economy had yet to recover strongly from the global recession, he said yesterday.

"I think the amount of the fiscal deficit is about right at this point in time," Dr Prasarn said. "It also allows the government to maintain fiscal discipline so that it has bullets to use in times of future need."

The central bank governor said headline public debt was below fiscal discipline benchmarks. In any case, critics say the government's plan of huge lending through state-owned banks implies liabilities that would require fiscal money to offset future losses.

"Given that public debt stands at 40 percent of gross domestic product], we are currently in quite a good fiscal position," Dr. Prasarn said. "This means we could preserve our strength for the future."

The governor's comments contribute to a dovish tone that the size of the budget deficit would fuel pressure on inflation and led the Monetary Policy Committee to increase the policy interest rate from 3.5 percent by much more.

Dr Prasarn said the fact that some regional central banks kept policy interest rates unchanged would have no bearing on the MPC's decision at its next meeting Oct 19, as the local rate when adjusted for inflation, at minus 0.35 percent, stood much lower than in other countries.

Over the past week, central banks in South Korea, Indonesia, the Philippines and Malaysia kept their rates unchanged as they continued to assess the impact of slower growth in the US and EU.

"We have sufficient bullets for the future, both in monetary and fiscal policy," Dr Prasarn said. "The policy interest rate at 3.5 percent provides quite a good stability. There is enough room for future needs if there is external shock. Each regional country has a different context regarding inflation."

Local inflationary pressure has persisted, despite a worsening trend for the economies of the United States and Europe. But the key factor for consideration is how it affects the Asian and Thai economies, Dr Prasarn said.



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This year in Thailand-what next?

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It is commonplace in journalism to write two types of articles at the transition point between the year that has passed and the New Year. As this writer qualifies as an “old hand” in observing Thailand with a track record dating back 14 years, it is time take a shot at what may unfold in Thailand in 2011.

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