INTERVIEW – Post-coup uncertainty threatens Thai economy – finance minister

ABC Money

Published:
Wed, 02 May 2007 05:02

By : Agencies

BANGKOK (XFN-ASIA) – Thai finance
minister Chalongphob Sussangkarn said political uncertainty following
last September’s coup has become the biggest threat to the kingdom’s
economy, which could be heading towards its lowest growth in six years.

In an interview with Agence France-Presse, Chalongphob said the
military-installed government will soon launch measures to boost the
sluggish economy, but cautioned against optimism in post-coup Thailand.

‘After the coup, people are waiting to see a clear signal as to what
the political situation will look like after the next election,’
Chalongphob said, referring to the December polls promised by the
ruling junta.

‘But people are not sure about what’s going to happen and this is
really affecting our economy, and political uncertainty is the biggest
threat to the economy,’ said the former World Bank economist.

Amid falling public support for his government, Prime Minister Surayud
Chulanont, installed by the army after ousting business-savvy premier
Thaksin Shinawatra, announced in March the country would hold elections
in December.

But Thai voters are jittery as the Constitutional Court is set to rule
on vote fraud charges against the nation’s two biggest political
parties — Thaksin’s Thai Rak Thai party and the main opposition
Democrat Party — on May 30.

If found guilty, the parties would be dissolved and top executives
banned from politics for five years, meaning prominent leaders could
not run in the December poll.

‘At the moment, things are very uncertain. There has been nothing
concrete yet to show that when we get to the next election in December,
things will be different from the situation before the coup,’
Chalongphob said.

The September putsch capped months of street protests in Bangkok
demanding Thaksin’s ouster over alleged abuse of power and corruption.
The weary public initially welcomed the coup with high hopes for a
return to political normality.

But the military government has recently come under increasing
criticism over a number of policy miscues, including its poor economic
management and an escalating insurgency in the kingdom’s
Muslim-majority south.

Hit by an uncertain political outlook, Thailand’s consumer confidence
dropped to a five-year low in February, and the central bank last month
cut its growth forecast for 2007 to 3.8-4.8 pct from 4.0-5.0 pct
earlier.

If the economy rose just 3.8 pct, it would mark the lowest growth since
2001, when the kingdom’s gross domestic product (GDP) grew 2.2 pct.

To shore up the flagging economy, the government will implement a
stimulus package, including extending more loans to farmers and
grassroots workers from state-owned banks, and easing tax measures,
Chalongphob said.

‘We need to inject a certain amount of money to turn the situation
around. But it’s not going to go overboard. We tend to focus more on
what can be done this year because after the election in December, we
will be gone,’ he said.

Chalongphob declined to give further details on the package but voiced
hope that it would help restore business confidence hit by the
government’s policy blunders, including the central bank’s
controversial capital controls aimed at halting the Thai baht’s rise
against the dollar.

Imposed in December, the capital rules required 30 pct of all incoming investment to be held by financial institutions for up to one year. The announcement caused a stock sell-off in the month, with losses worth a staggering 23 bln usd.

Many exemptions have been made since the December debacle to water down
the currency rules, but the general policy remains in place.

Chalongphob, appointed in March after his predecessor and former
central bank governor Pridiyathorn Devakula quit suddenly, had
previously come out against the draconian currency rules.

His appointment as finance minister had raised hopes in the currency
market that Thailand would scrap the 30 pct rules, but Chalongphob
defended his decision to keep the capital controls.

‘When I became the finance minister, I knew there were speculators
speculating on my ordering the Bank of Thailand to change the policy,’
he said.

‘If that happened, the baht would strengthen very rapidly, and I did
not want to create a shock in the market,’ Chalongphob said.

But despite the capital controls, the Thai baht continued to rise
against the dollar, staying at a nine-year high in the 34.00-35.00
range.

With the local currency soaring, business leaders have called on the
government to implement protective measures for exports, the backbone
of the Thai economy, as the strong baht makes Thai exports less
competitive abroad.

But Chalongphob said not only exports but the overall economy faces pressure due to a lack of political clarity.

‘Right now, there is too much confusion. People are waiting for a clear
picture as they cannot predict what will happen’ to Thai politics, he
said.

shi/gs/jw

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