FINANCE MINISTRY

Plan in place for economic downturn

Cut in interest rate should serve to boost consumption and investment, says Somchai

The Finance Ministry has prepared fiscal measures to boost the economy in case the economic situation deteriorates further, spokesman Somchai Sujjapongse said yesterday.

"We are not complacent. We're closely monitoring the economic situation and also have a contingency plan in case the economy is affected by several negative factors," Somchai said at a seminar jointly hosted by the Market for Alternative Investment.

However, Somchai said positive factors had emerged, as the central bank recently cut its one-day repurchase policy rate 0.25 basis point to 4.75 per cent.

The cut in the interest rate, combined with a fiscal deficit of 1.7 per cent of gross domestic product, should boost consumption and investment. Therefore the contingency plan, which includes an aggressive state-owned bank role and tax breaks prepared by the ministry, may not be necessary, he said.

He assured his audience that the government will speed up its expenditure after the 2007 budget bill was passed by the National Legislative Assembly early this month, with spending of Bt1.57 trillion and targeted revenue of Bt1.42 trillion.

The tourism and construction industries are expected to be the first to benefit from the spending, he said.

The Fiscal Policy Office will propose to Deputy Prime Minister and Finance Minister MR Pridiyathorn Devakula a policy guideline for other government agencies, urging them to hold seminars and training sessions earlier than usual. In the past, agencies would organise such events at hotels in the provinces in late months of the fiscal year.

But this year this type of public spending should start right away in order to compensate for the delay of the 2007 fiscal budget resulting from the political crisis. Usually, the fiscal year starts in October and ends in September, but this fiscal year was delayed by three months.

The government is expected to accelerate spending on housing projects for the poor under the Baan Ua Athorn and Baan Mankong projects, he said.

The Finance Ministry will also extend corporate income tax cut breaks for newly listed firms.

Meanwhile, people have expressed their dissatisfaction with government economic policy, as consumer confidence has indicated. An Abac poll recently showed that respondents gave a poor grade for economic policy.

Consumer confidence has been hit by the Bangkok bombings on New Year's Eve and a reduction in populist policies, while investors are worried about the central bank's capital controls, the draft amendment of the Foreign Business Act and political uncertainty.

Somchai conceded there was a potential risk in the political situation. If there is no political violence, economic growth this year would be about 4-5 per cent, he said.

The ministry is also prepared to cut tariff rates on auto parts and raw materials for the food-processing industry, aiming at maintaining the competitiveness of these sectors.

Wichit Chaitrong

Thailand News
The Nation Thailand
Friday January 26, 2007