Despite some short-term challenges, the Thai economy should remain buoyant with a high possibility of cashing in on

the "Asian boom" if market mechanisms are used effectively, a

senior central bank official said

last week.

"Challenges in the medium term lie in the formation of economic policies that allow Thailand to fully benefit from Asian re-

gional growth. This will draw continued inflows to the area," Bank of Thailand deputy governor Bandid Nijathaworn said during an exclusive briefing with The Nation.

Such inflows would bring both risks and opportunities. Thailand should be flexible and resilient to global changes. And the means to this lie in the strength of the market mechanism, he said.

"State intervention should

be kept to a minimum to allow

the private sector to use the mechanism to adjust to changes," he said.

Bandid did not specify in

which areas the government should reduce its role. He based his recommendation on the

general economic theory that

the private sector is best placed

to know what to do when faced with a particular set of circumstances.

Amid higher fuel bills and higher interest rates, there have been complaints from manufacturers about rising costs.

Several products are subject to price control by the Commerce Ministry, which fears that allowing prices to float would exacerbate consumers' living expenses.

Controlled commodities in-clude steel and cement, both key construction materials.

"Given that nobody knows for sure at what level cement prices would peak, how could anyone make an informed investment decision?" said one economist who is against price controls.

With capacity utilisation averaging 73 per cent, the Bank of Thailand earlier this year expected private investment to pick up. However, private investment in the first two months of the year only rose 5.4 per cent.

The anti-price control economist admitted that if the market mechanism were fully exercised, there could be an inflation spike. But that would last only a month or so, and then businesses and consumers would adapt themselves to the new environment.

Inflation, apparently, is not a major concern for the Bank of Thailand.

In a statement last Monday, Bandid attributed the 25-basis-point increase in the central bank's benchmark rate to satisfactory economic growth and controllable inflation in the first three months of the year.

"Headline inflation edged up in March 2006, but its quarterly average was lower than that of the previous quarter. Core inflation was stable for the last three to four months and is expected to decline in the latter half of this year," he said in the statement.

Instead, while the outlook for the global econo-

my remains buoyant, which will boost Thai exports, Bandid

said the local economy could be affected by six uncertainties: the momentum of US economic growth; oil prices; the impact of capital flows on the financial

market; how the resumption of private investment affects domestic consumption; what effect

government investment will have on domestic demand; and will reform policies on privatisation and trade liberalisation boost foreign investor confidence?

"To date, the central bank is confident that the economy is resilient enough to absorb the adverse impact of any of these factors. If confidence is restored promptly, domestic consumption and private investment should turn around quickly and this would benefit the economy," he said at the briefing.

Bandid also said the economy in 2006 would face challenges left over from last year and would be hard-pressed on how much it may grow amid global competition and rising interest rates.

He said economic indicators over the first two months of the year showed satisfactory results, despite a slowdown in domestic demand due to higher oil prices and a fall in consumer and investor confidence. However, export growth is still the key growth engine.

Bandid also said there were fewer obstacles for the supply-side sector due to less likelihood of problems from drought, continued industrial growth and the recovering tourism industry.

The country's financial stability remains strong, he said, with high international reserves and expectations of lower inflation in the second half of the year.

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