Govt has confidence in economy : Solid growth likely, says Pridiyathorn

Govt has confidence in economy : Solid growth likely, says Pridiyathorn.

POST REPORTERS

The government will accelerate disbursement of funds from the 2007 budget, says Finance Minister Pridiyathorn Devakula, who is confident the economy will continue to show solid growth this year. He also defended recent reforms to the Foreign Business Act and new reserve controls on foreign inflows, which he said were made in the longer-term interests of the economy.

Bidding for new mass transit projects in Bangkok will start as early as March, while the government expects to sign a free trade agreement with Japan next month.

M.R. Pridiyathorn, who is also deputy prime minister, said while consumption is expected to slow this year, accelerated fiscal spending and new mega-projects will help spur economic growth.

The Thai-Japan free trade agreement would also boost Japanese investment, he said. Despite people's concerns, the agreement would benefit the country in the long run.

M.R. Pridiyathorn, who was governor of the Bank of Thailand before being appointed to the interim government in October, said the economic fundamentals remained solid.

He acknowledged that two controversial policies _ the Dec 18 reserve controls on foreign inflows and reforms to the Foreign Business Act _ had disrupted local financial markets and investor sentiment, but said that both were aimed at protecting Thailand's economic stability.

Failing to stem the rapid appreciation of the baht from speculative inflows would have created a collapse in exports and jeopardised economic growth, he said. The baht had risen 17% last year against the US dollar, compared with 7% to 8% for other Asian currencies and 3% for China's yuan.

Despite heavy intervention by the central bank, by mid-December, the baht was quoted at 35 to the dollar and continued to strengthen, threatening export orders for the immediate future. In response, the Bank of Thailand announced on Dec 18 that foreign inflows would be subject to a 30% reserve rule, which would be refunded after one year. Shorter inflows would be subject to a 10% penalty.

The move caused the Stock Exchange of Thailand to suffer its largest ever one-day loss the next day of 14.84%, prompting the government to make an embarrassing reversal and announce that equity investments would be exempted from the reserve rule.

M.R. Pridiyathorn acknowledged that authorities had underestimated the panic which the moves would cause in the financial markets, and said the retreat was needed to protect the economy.

''I don't think you can say anyone is guilty ... [The SET crash] wasn't logical,'' he said.

''If I have to lose my job [because of the reversal], I'm ready to accept that. I took action to save the country.''

Reforms to the Foreign Business Act (FBA) were also needed to clear up legal uncertainties faced by thousands of businesses operating with foreign nominee shareholders, he said.

The Commerce Ministry last year announced that Kularb Kaew, a holding vehicle controlling an indirect stake in Shin Corp, was actually a nominee of Singapore's Temasek Holdings. The case is now under investigation by the Department of Special Investigation.

M.R. Pridiyathorn said the FBA reforms were needed to eliminate the uncertainties.

''I have no choice. The spirit of the law is to limit foreign shareholding to 50% including nominees. However, it has never been properly enforced,'' he said.

''The market would be disrupted even more if police investigators conclude that Kularb Kaew is a nominee.''

Under the reforms, companies operating in controlled sectors would have one year to restructure their foreign shareholdings. Overall, 1,337 firms are expected to be affected by the changes, including just 15 firms listed on the stock exchange.

Bangkok Post
Monday January 15, 2007