The Bt26.1 billion includes spending for transportation and logistics projects. It is a small part of the Bt290-billion budget the government plans to spend on mega-projects this year.

The government has borrowed only Bt996 million domestically for its transportation projects, while Bt18.1 billion is being raised externally for transportation projects, Kosidthi said.

This has happened while the gap between bond supply and demand in the domestic market is still wide open, with life insurers having a lot of room for investment and waiting for bonds to match it, he said.

"If the government takes mostly external loans, it's going to get back [to a situation] like 1997," he said. "It's safer to borrow from abroad for investments that should be made in foreign currency, but if anything can be raised domestically, then issuing domestic bonds should be an option."

An increased bond supply would also help increase the yield curve and increase liquidity in the Thai debt market, he said.

Kobsidthi also raised concerns about falling household savings in Thailand, a topic on which the Bank of Thailand has also expressed unease. The central bank has urged the government to find means of boosting household savings.

"The trend of savings [in Thailand] has shifted from household to corporate, because most companies aren't investing now, even if their capacity to do so exceeds 70 per cent. This is because of the uncertainty created by the political vacuum. Also, some of the government's policies, such as the 'Bt30-remedy-for-every-disease', or the debt waiver for farmers, have also contributed to the decrease in household savings," Kobsidthi said.

"At the moment, domestic savings remain sufficient to finance investment over the next one or two years. However, they will not be sufficient if investment accelerates in the future. We might need to borrow from abroad and

this will increase the risk of repeating the 1997 financial crisis," he said.

For the present, lingering political turbulence is forcing both local and foreign investors to hold themselves at bay.

 Meanwhile, he said that Japan's economic recovery and continuing robust growth in China would be able to offset any impact on Thailand from a slowdown in the US economy.

However, if Japan raises its interest rate, capital flow may shift to Japan and Thailand might have to jack up its rates further to attract funds, he said.

"The Thai economy is correlated with the US economy, even though we've floated our currency. But if the Japanese government raises its interest rate today, as expected, it will affect the Thai economy," Kobsidthi said.

HSBC forecasts that the value of the baht at the end of this year will be Bt37 against the US dollar.

Peter J Morgan, the bank's chief economist for Asia-Pacific, said oil prices would continue to have a major impact on the global

economy. While oil price hikes

will decelerate, the price will remain as high as US$60 (Bt2,276) to $70 per barrel for the rest of this year.

Piyarat Setthasiriphaiboon

The Nation