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NEWS UPDATES 7 July 2010

Investors prod Thailand

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International investors have urged the Thai government to develop a long-term strategy to ensure strong economic performance and income distribution.

Panelists the opening of a two-day Euromoney conference said Thailand had to improve education and have a clearer development strategy as it could no longer rely on cheap labour as a competitive advantage, reports the Bangkok Post.

Prime Minister Abhisit Vejjajiva said that the government was trying to solve the country's fundamental problems as part of its reconciliation plan and was canvassing participation from various sectors.

The local corporate sector could benefit from import tax reduction under the Asean Free Trade Area agreement (Afta) and with closer ties with Asean's key trading partners. The government would closely monitor global economic risk, although the overall economy was strong in the first half of the year. Tarisa Watanagase, the Bank of Thailand governor, said economic stability remained sound in terms of low corporate sector debt, the financial sector's strength and macroeconomic fundamentals.

The central bank is expected to increase interest rates this year, as the economy has improved significantly since the global recession. But she said the government should review tax structures to better cope with Thailand's ageing society. "At the moment, only one-sixth of the labour force is in the tax base," said Dr Tarisa. "Tax revenue accounts for only 16 percent of gross domestic product, half that of developed countries."

But long-term economic development could regress due to the lack of a clear framework from the government, said Dean van Drasek, executive director of AK Partners and Arch Advisory, a financial services consultancy.

Some weaknesses in education were apparent, such as understaffed schools and low-paid teachers. Likewise, the number of engineering graduates is low. Meanwhile, it is evident that successful economies like South Korea have high numbers of engineering graduates, he said.

"Thailand may still enjoy 4 percent to 5 percent growth in the future. But unless there are some new programmes coming in, it will be falling behind the region," said Mr. van Drasek.

Eric G. John, the US ambassador, said competition among Asean countries to attract foreign direct investment had intensified, but Thailand was a key manufacturing base for U.S. firms in the region.

Some U.S.-based hard disk drive firms are expected to expand capacity and increase employment this year, he said.

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