Thailand, Facing Economic Shrinkage, to Lift Spending

By Haslinda Amin and Daniel Ten Kate

Dec. 24 (Bloomberg) -- Thailand plans to increase domestic spending to boost economic growth as exports fall and tourism recovers from anti-government protests that shut down Bangkok’s airports last month, Finance Minister Korn Chatikavanij said.

“We are intending to kill two birds with one stone,” Korn, a former chairman of JPMorgan Chase & Co.’s Thailand unit, said in an interview with Bloomberg Television today. “On the one hand, we are helping reduce the cost of living pain for the rural poor, on the other hand boosting the domestic economy through domestic consumption as a result of putting money in their hands in the most efficient way.”

The added spending may cause Thailand to run a budget deficit of as much as 400 billion baht ($11.6 billion) in fiscal 2010, Korn said. That compares with a proposed shortfall of 350 billion baht on the 1.84-trillion-baht budget for the fiscal year ending Sept. 30, 2009. Thailand’s public debt to gross domestic product ratio is “relatively low” at 35 percent, he said, allowing room for fiscal stimulus.

Korn’s Democrat party, which last held power in 2001, inherits an economy set to shrink this quarter for the first time in nine years. A global recession and an eight-day airport blockade have curbed exports and tourism, which together make up more than 80 percent of Thailand’s gross domestic product.

Political Uncertainty

Prime Minister Abhisit Vejjajiva, elected by parliament last week as the third premier in four months, has pledged to boost expenditure to spur growth. Korn, his University of Oxford classmate, said yesterday the government may spend a further 80 billion baht on top of the 100 billion baht in additional funds for the current fiscal year approved by the former government last month.

“Thailand is facing wars on both sides as the global economic crisis hurts exports and political uncertainties put pressure on domestic demand,” said Somprawin Manprasert, an economist at Tisco Securities Ltd. in Bangkok. “There is nothing much we can do about exports, but what we can do is boost local consumption.”

Thailand’s exports in November shrunk for the first time in more than six years, falling 18.6 percent in the largest monthly contraction since at least 1992, according to data compiled by Bloomberg. The government expects 2.5 million fewer tourists this quarter and next because of the airport blockade, a loss of 100 billion baht in visitor revenue.

“There is sufficient room for the kind of fiscal stimulus that we believe is necessary to prop up the economy and to also create the jobs that will be necessary in the face of the downturn that we expect next year,” Korn said.

Wooing Rural Voters

Abhisit, whose party supported the protesters who closed down Bangkok’s airports, was elected by lawmakers on Dec. 15 with the help of defectors from the former ruling party, which was dissolved by a court on Dec. 2 for vote buying. He faces deep divisions between the urban middle class that supports him and rural farmers who have backed former Prime Minister Thaksin Shinawatra and his two successors.

“In terms of tenure, we have three years left on the current mandate,” Korn said. “We need to create the kind of political stability that is necessary to force a return of investor and business confidence.”

A year ago, Thaksin’s allies in the now-disbanded People Power Party won the first election since he was ousted in a 2006 coup, taking 75 percent of constituency seats in the northeast, the country’s poorest region. It won rural votes by slashing health-care costs, handing out low-cost loans and propping up crop prices, policies that Abhisit has pledged to continue.

Abhisit’s Challenge

“Abhisit has his own challenges because he needs to satisfy two very different groups of people if he wants to succeed,” said Carl Rajoo, an economist at Forecast Singapore Pte. “We are waiting to see how he’s going to achieve that, how he’s going to balance that.”

Supporters of the ousted government plan to rally on Dec. 28, one day before Abhisit is scheduled to unveil his policies to Parliament. The cabinet may hold a special meeting immediately afterward to approve an economic stimulus package, Abhisit said yesterday.

To contact the reporter on this story: Haslinda Amin in Singapore at hamin1@bloomberg.net; To contact the reporter on this story: Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net