Caretaker Finance Minister Thanong Bidaya yesterday expressed grave concern over the health of the economy next year because expenditure from the 2006-2007 budget could be delayed by at least nine months as a result of the prolonged crisis in forming a new government.

Speaking at an economic seminar organised by GG News and Post Today, Thanong said that if an election were held on October 15, a new government would be formed in December. However, it will be March before the Parliament will be able to pass the 2006-2007 Budget Bill.

Then it will take another three to nine months before the various government agencies can call for bidding for the investment projects that account for about 25 per cent of the entire Bt1.4-trillion budget of fiscal 2006-2007, he said.

The Bt1.4-trillion budget has also been calculated on the assumption that the economy will grow by 5 per cent next year, with inflation of 3.5 per cent.

Thailand is presently facing an unprecedented political crisis following the House dissolution in February. The April 2 snap election was nullified by the Constitution Court and the Election Commission is trying to organise a new election on October 15, but nobody can be sure the election will actually take place on that day.

With the prolonged absence of a sitting government, Thanong has been expressing alarm over the toll the crisis will take on the economy, which is already facing a slowdown.

Economic growth in the first quarter was driven largely by inventory depletion rather than by fresh investment, at a time when consumption appeared to be sluggish. He has warned that economic growth in the second and third quarters might slacken further.

"It is very difficult to predict what will happen to the economy next year," he said. "The situation is very delicate. There will be a delay in budget expenditure. The investment portion of the budget can only be spent in the second half of the fiscal year.

"The new government must set its priority by releasing money out of the budget as quickly as possible."

Meanwhile, the caretaker government must resort to other non-budgetary measures to prop up the economy, such as accelerating investment from state enterprises and the private sector.

"The new government must make a bold decision by implementing investment programmes, otherwise we might experience unexpected problems," Thanong warned. "Right now we have to give emphasis to the existing budget in order to help cushion the economy in the third quarter."

With his concern over the country's economic health in the near future, Thanong has been sending out signals that he does not agree with the Bank of Thailand raising its short-term rate yet again, for fear that higher interest rates might damage the economy even more.

But the Bank of Thailand has hinted that it is still very concerned about price stability and claims there is still room to raise interest rates higher, in order to curb inflation.

Bank of Thailand Governor MR Pridiyathorn Devakula appears to have a different view of the economic situation. He believes the economy is still performing rather well, although it has suffered from high oil prices.

"The economic slowdown can be attributed to higher oil prices. The impact from political factors is very small," he said at the same economic seminar yesterday. He went on to explain that exports, tourism and private investment had not been performing too badly.

The investment slowdown is due to investors' concerns about the effects of high oil prices. They would like to see a clearer picture of oil prices before making further investment decisions, Pridiyathorn said.

The role of the private sector is more important in its contribution to economic growth than that of the public sector, he added.

"If the private sector is not discouraged, it should help the Thai economy to move forward. Over the past six to seven months, the government has been doing nothing. The mega-projects have not got off the ground yet."

Any attempts to boost the economy will not help it to grow beyond the original target of 4.25 to 5.25 per cent this year, Pridiyathorn said.

The central bank has given more priority to controlling inflation out of fear that price pressure might affect overall economic stability in the near future.

Pridiyathorn declined to comment on the central bank's monetary policy yesterday, but the financial markets believe the monetary authorities will raise the short-term rate by another 25 basis points, to 5 per cent, early next month.

Caretaker Energy Minister Viset Choopiban said oil prices were continuing their high trend, although prices might be moving in a range of US$60-$70 (Bt2,290-Bt2,670) per barrel at present.

In the first four months of the year, Thailand imported an average of 850,000 barrels of oil per day. But the pace has since slowed to about 812,000 barrels a day.

Viset would like Thailand to cut its consumption of imported oil by 10 per cent.

Anoma Srisukkasem

The Nation