The economy has been under pressure not only from rising oil prices and inflation but also political instability, and desperately needs help from the government, Virabongsa told a seminar on the "Thai economy and exports in the second half", organised by Exim Bank.

The Agriculture, Industry and Commerce ministries are involved in setting economic policies.

Supavud Saicheau, managing director of Phatra Securities, said political uncertainty was one of the most worrisome issues.

"I can say something about inflation trends or rising gasoline prices. But it's difficult for me to evaluate the political situation now," he said at the seminar.

Virabongsa said the political vacuum had put a stop to a range of activities that should have been promoting exports, a main engine of the economy. For instance, the process of bilateral trade talks and negotiations to create mutual product standards with major trading partners has had to be suspended.

"We have to accelerate our decision to provide investment infrastructure because investing in facilities of such huge scale takes time. It requires the government's support because these infrastructure projects won't be undertaken by the private sector alone," he said.

Although exports did well in the first half of the year, international variables in the second half may make it more difficult for Thailand to continue the momentum, he said. The volatile international financial market may affect the exchange rate and the country's international reserves.

Compared to his predecessor, US Federal Reserve Chairman Ben Bernanke has so far failed to send signals to the market, causing the massive flows of capital seen in the international market recently, he said.

Inflation in the United States has been heating up, continuing the pressure on the US trade and current-account deficits. In the past when there was an economic crisis in the US, people tended to buy up American goods. But now people have shifted to investing in oil, which drives up inflation. The US economy is also slowing down and there are signs that the property sector there will feel the impact soon.

Bandid Nijathaworn, deputy governor of the Bank of Thailand, conceded that the domestic uncertainty had affected the economy to some extent.

"The Bank of Thailand is trying to look after the problems to enable the economy to grow after the instability ends," he said.

Since the US economy will be slowing down, Europe and Asia will be the two main regions driving global growth, he said, adding that it is still questionable how far the world economy can grow without much contribution from the US.

Domestically, interest rates are approaching a stable level and thus inflation should be tempered soon, but the pace may be slower than expected due to the continuing rise in oil prices, Bandid said.

Supavud said persistent political complications had forced investors to put off making any decisions because they have to wait to see what the new government looks like. Investors are worried that some investment policies may not be continued when the government changes.

"This is the major factor discouraging foreign investment, even more than oil and interest rates," he said.

He also believes that international financial unpredictability will continue, but the central bank will be able to take care of any developments.

Supavud however warned exporters to be prepared for further appreciation of the baht. Although inflationary pressures in the US and European Union are likely to dissipate soon, the world market will likely keep seeing cheap goods pouring out of Asia and other developing regions, unlike in the past when the developed countries were the major suppliers of goods to the world.

Wichit Chaitrong

The Nation