Kazi Matin, lead economist for South East Asia at the World Bank office in Bangkok said yesterday the political situation would delay private and public investment.

"A big question is how long the political uncertainty will last. The longer it lasts the greater the impact," he told a press conference.

Political tension has eased to some extent since caretaker Prime Minister Thaksin Shinawatra announced he would not accept the premiership of the new government. However, doubts hang over whether a new government can be formed in the next few months.

Matin believes that higher export growth and slower growth of imports this year could boost GDP growth to 5 per cent, up from 4.5 per cent last year.

The volume of exports is expected to expand by 6.8 per cent, up from growth of 4.4 per cent

last year, while the growth of imports will slow to 6.6 per

cent from 9.3 per cent last year.

"Export growth has been an important driver of recovery so far, raising its shares in [the growth of] GDP from around 45 per cent in the pre-crisis [pre-1997] period to 65 per cent today," said Matin.

Domestic demand, however, has been dampened by political uncertainty, depressed confidence, rising real interest rates and high oil price, according to Matin.

Private investment growth is forecast to slow down to 9.5 per cent from 11 per cent, as investors remain worried about political uncertainty and the above-mentioned risk factors.

Public-investment growth is also forecast to slow to 6.5 per cent, lower than expected earlier. Only half of investment plans worth Bt290 billion will be spent on mega-projects this year. Public-investment growth last year was 11.7 per cent.

Private-consumption growth is forecast to slow to 4 per cent from 4.4 per cent last year.

Rising household debt also constrains consumption, said Matin.

However, he said it was not clear whether the government's populist policies contributed significantly to rising debt. He said the World Bank did not make an assessment on the government's populist policies.

The World Bank suggests that any new government implement reforms designed to increase private investment. The government should reduce the regulatory burden on firms to reduce their transaction costs, it said. Also, vocational education should be strengthened to fill existing skills gaps. The bank is also recommending more investment in infrastructure improvements, especially in the East and Central regions, as well as in mass transit in Bangkok.

The bank also calls for more public spending in the Northeast to reduce poverty, as the region receives fewer public resources per capita than other parts of the kingdom.

Specifically the bank recommends promoting transport links and measures to facilitate trade with Laos, Cambodia, Vietnam and Burma, which would increase economic activity in the Northeast

Matin suggested that Thailand continue to liberalise in telecoms, banking, insurance, business services and ports.

"Restriction in these sectors

in Thailand is high when compared with Malaysia and developing countries in Latin America," he added.

Wichit Chaitrong

The Nation