Experts call for policy continuity

The Nation (2 November 2007)

Smooth transition seen as vital for expected coalition government

The private and public sectors agree that despite an expected economic recovery next year, political uncertainty flowing from an expected coalition government after the election is a key risk. They suggest the new administration continue to implement the policies of the interim government in order to achieve as smooth as possible a transition.

At a seminar held yesterday by the Thai Listed Companies Association on "Factors to Stimulate the Economy After the General Election", participants included representatives from the Federation of Thai Industries (FTI), the Federation of Thai Capital Market Organisations, the Bank of Thailand (BOT) and the World Bank.

They expressed the hope that new government would stabilise politics and warned business operators to adjust to pressures from rising oil prices, rising interest rates and a volatile foreign-exchange rate. But they believe capital inflows will continue.

FTI chairman Santi Vilassakdanont said despite capacity utilisation at 75-76 per cent, businesses were hesitant to expand investment as they are waiting for the next government to announce its economic policies. They want to see how much these policies will boost the confidence of investors and consumers.

Nonetheless, an economic recovery is expected next year. World Bank country economist Kirida Bhaopichitr said the number of companies applying for Board of Investment privileges had doubled from last year, reflecting the potential growth of the economy over the next one to two years.

She suggested the new government implement flexible economic policies and clarify those that affect foreign investors, including the 30-per-cent reserve requirement, the amended Foreign Business Act and the expected Retail Business Act.

The World Bank estimates that the Kingdom's gross domestic product (GDP) will by grow by 4.6 per cent next year, compared to about 4.3 per cent this year.

However, that is still low when compared to China, Vietnam, Singapore and the Philippines. Therefore, despite the anticipated economic recovery, Thai growth is still expected to be relatively low.

Kirida emphasised the importance of the competitiveness of Thai business operators amid turbulence next year sparked by oil prices, foreign-exchange rates and a lower volume of world trade. The World Bank expects global trade to grow at 7.5 per cent next year, from 10 per cent this year.

Federation of Thai Capital Market Organisations chairman Kongkiat Opaswongkarn said capital inflows would continue next year following a huge influx over the past two years.
He said several foreign fund managers believed capital would continue to flood into Asia as the US economy is in a period of slowdown. This might even boost the baht to the level it was at before the 1997 financial crisis.

Therefore, business operators must adjust, while the new government must make sure there is continuity in the implementation of the economic policies of the current administration. "I don't worry about the Thai economy, because it can continue growing. What I'm worried about is politics. The new government will be a coalition. If they can't do what they promise, the economy will face turbulence," Kongkiat said.

BOT Assistant Governor Amara Sriphayak said the current government had already decided on certain key policies, such as a fiscal deficit to finance mega-project investment and the central bank's monetary policy. The new government should therefore continue to implement these policies, in order to make the transition a smooth one. "The concern about politics is the psychological factor that puts pressure on the GDP. In addition, the new government shouldn't worry about the stronger baht, as it could weaken," she said.