M.R. Pridiyathorn upbeat on economy
Written by Admin on Thursday, September 4th, 2008
POLITICAL SHOWDOWN
M.R. Pridiyathorn upbeat on economy
DARANA CHUDASRI
Thailand’s fundamental economy remains strong, with the only real constraint being political upheaval and uncertainty, according to M.R. Pridiyathorn Devakula, a former finance minister and central bank governor.
”If the political problems can end quickly, the economy will continue strongly. Right now, politics is the only real factor holding back growth,” he said.
M.R. Pridiyathorn, speaking at a conference on economic trends yesterday, noted that second-quarter economic growth of 5.3% was only a slight decline from the 6.1% year-on-year growth posted in the first quarter.
Other countries in the region posted much sharper declines, with Singapore falling to 2% growth in the second quarter from 4% in the first, Malaysia dropping to 5% from 7.1% and Taiwan slowing to 4.8% from 5.8%.
Private consumption was also relatively resilient, with 2.4% growth in the second quarter compared with 2.6% in the first, thanks largely to provincial spending as prices for key crops such as rice, palm oil, sugar cane and tapioca remained high.
Government policies to increase the use of ethanol would help support farm prices, M.R. Pridiyathorn said.
”Farm income has risen by as much as 59% this year. We have never seen income rise this much upcountry, and this has helped create a buffer for the economy from shocks,” he said.
Falling global oil prices also boded well for the Thai economy in the near term, he said.
Exports have also well outperformed previous expectations, reaching a record high of US $16.78 billion or 43.9% growth year-on-year in July, even as global economic growth this year is set to slow.
On the other hand, government spending and investment has slowed, despite cabinet policies to the contrary. The government’s much-heralded 1.7- trillion-baht infrastructure megaprojects remain mostly stalled in the planning stage, limiting the potential stimulus benefits to the economy in the near term.
M.R. Pridiyathorn said besides domestic politics, another risk was whether additional banks overseas would be brought down over the next few months due to the US sub-prime mortgage crisis and the crunch in international credit markets.
If the crisis eased, funds that had fled Thailand and the region could return, he said.
Foreign institutional investors have been net sellers of over 100 billion baht in stock this year, as funds have sought to cut back their exposure to emerging markets due to the sub-prime crisis.
”The Thai market lost its sovereignty long ago. Foreign investors control 40% of the market capitalisation of the market and account for as much as 70% to 80% of daily trade,” M.R. Pridiyathorn said.
Interest rates meanwhile are expected to remain steady for the next few months, as inflationary pressure has eased with the decline in oil prices.
”Asia has mostly completed this round of interest rate hikes, and some countries are even moving to lower rates as economic growth slows,” M.R. Pridiyathorn said.
Kanit Sangsubhan, the director of the Fiscal Policy Office’s Policy Research Institute, said the baht was expected to continue to weaken against the US dollar as foreign investors continue to draw funds out of the country due to the sub-prime crisis.
”But in the long-term, I do not expect the baht to be on a depreciating trend,” he said.
Thanong Bidaya, a former Finance Minister, cautioned that the Thai economy faced two major risk factors: declining consumption and delays in infrastructure expansion.
Inflation had resulted in lower household spending, which would affect domestic consumption and economic growth.
Dr Thanong said logistics costs would only increase in the future unless the government moved to expand the country’s stalled infrastructure under the much-ballyhooed megaproject programme.
Failure to build new roads, power plants and irrigation networks would only result in added strain for utilities in the future, affecting economic growth and the country’s competitiveness, he said.
