Thailand, Under Siege, Spends More to Buoy Growth

By Daniel Ten Kate and Bernard Lo

Oct. 31 (Bloomberg) -- Thailand's government, under siege after months of protests and facing a global recession, is counting on spending and tax cuts to help the nation weather a deepening economic slump.

``We are preparing to put down some quick disbursement projects in the government budget,'' Suchart Thadathamrongvej, 56, Thailand's second finance minister in nine months, told Bloomberg Television in an interview today. ``We need the government to rescue the economy.''

Southeast Asia's second-biggest economy may grow at the slowest pace in four years in 2009 as export demand cools and domestic spending falls. Violent anti-government protests, which have eroded consumer and business confidence since they began May 25, worsened when Oct. 7 clashes with police killed two.

The government plans to increase spending by 100 billion baht ($2.9 billion) and extend property tax cuts to buoy growth, Suchart said earlier this week. The money, amounting to 5 percent of a 1.84 trillion-baht budget for the fiscal year starting Oct. 1, will target job-creation, he said.

``Setting a target doesn't solve a crisis,'' said Ammar Siamwalla, an economist with the Thailand Development Research Institute, a private think tank. ``Thailand has always had a problem with disbursement of funds from its budget and they will be particularly slow given that its been a headless country for the last three years.''

Third Premier

Thailand's third prime minister this year took office last month after his predecessor, the nation's first elected premier since a 2006 coup, was forced to resign when a court ruled he'd broken the constitution. After Suchart joined the government in August, he called on the central bank Governor Tarisa Watanagase to resign for raising interest rates a month earlier, when inflation was the fastest in a decade. He vowed to reconcile after being appointed finance minister on Sept. 24.

The government has faced protests since May by a group of mainly middle-class Bangkok residents that claims the administration is a proxy of former Premier Thaksin Shinawatra, ousted in the putsch. The so-called People's Alliance for Democracy says it won't end its rallies, which have led to at least three deaths, until the government resigns and Thaksin's allies are removed from politics.

Politics

``I don't think politics is hurting the economy much, the world financial crisis has more effect,'' said Suchart, who was previously an economics professor at a Bangkok university.

The government, which draws most of its support from rural voters, announced Oct. 29 it would double the amount of money given to village micro-credit programs and continue funding loans for small businesses. It will also extend tax cuts on some stock fund investments and property transfers to stimulate domestic consumption.

``The government has announced lots of plans, but we haven't seen any serious performance,'' said Isara Ordeedolchest, an economist at KTB Securities Ltd. in Bangkok. ``It may be quite difficult for them to push ahead projects at this time amid political uncertainties.''

Consumer confidence is at the lowest level in 10 months. A business sentiment gauge is at its weakest in more than a year. Thailand's benchmark stock index has lost more than half of its value since the protests erupted in May. The baht this week touched an 18-month low against the dollar. The currency slipped 0.3 percent to 34.92 per dollar as of 7:56 a.m. in Bangkok.

Slowing Exports

Growth in exports, which comprise about 70 percent of gross domestic product and have been the economy's main growth driver, may slow to 10 percent next year from a forecast 25 percent this year, the government predicts.

``Our exchange rate is competitive enough to make exports look attractive to foreigners,'' Suchart said.

GDP growth next year may be less than 4 percent, Suchart said on Oct. 20. Yesterday, he said spending may add another 1 percent. The economy will probably expand by 5.1 percent this year, the government predicts.

``The expected gigantic drop-off in demand will have to be countered in some way,'' said Thailand Development Research Institute's Ammar. ``We need to pump-up purchasing power to get the economy on its feet.''

To contact the reporters on this story: Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net; Bernard Lo in Hong Kong at blo2@bloomberg.net