Chaiyawat, a former Bank of Thailand governor, told a seminar on the sufficiency economy at the National Institute of Development Administration yesterday that based on a growth target of 4-5 per cent for gross domestic product (GDP), the country should enjoy quality growth without over-stretching its resources.

"Leap-frogging growth or high, yet risky growth should be avoided," he said.

To enhance economic potential, the government may introduce other measures to promote income growth in the populace.

In a departure from ousted prime minister Thaksin Shinawatra's policy to push growth and spending, Prime Minister Surayud Chulanont has said he would strive to adapt the sufficiency approach to economic policy to ensure stability and public happiness.

The concept was initially misinterpreted as meaning the interim government would go back to an economy closed to the outside world.

Separately, Deputy Prime Minister and Finance Minister Pridiyathorn Devakula said the English word "sufficiency" might be misleading. In fact, the approach suggests moderate and non-excessive investment.

At the seminar, Chirayu Isarangkun, director of the Crown Property Bureau and chairman of Siam Commercial Bank, said sufficiency was not an economic policy as such. But it's a philosophy with three principles intertwined - moderation, flexibility and caution. These three concepts should be applied to economic policy.

"For instance, we should not overshoot investment. Our decisions should be based on reasonableness," he said.

Chirayu said the approach was misunderstood by some as indicating a frugal economic policy. Instead, the approach is about the quality and stability of growth.

Chaiyawat said the sufficiency principle would translate into fiscal stability. First, supply and demand should be well managed. Otherwise, the government will run a budget deficit. This year, the trade surplus is in the red because of rising oil prices and high imports of capital goods.

Second, public debt should be reduced to maintain stability. This year, public debt is equal to 41 per cent of GDP.

The interim government has already said that this fiscal year, it would run a budget deficit of 2 per cent of GDP. Chaiyawat said that if demand and supply were managed based on the sufficiency approach, the budget should be in equilibrium in three years.

The sufficiency approach also focuses on risk-management by creating immunity to external shock. For instance, Thailand has faced oil shocks many times before, but the government was not serious about finding alternative sources of energy.

Meanwhile, Standard Chartered Bank forecasts GDP growth for next year at 5.2 per cent, much higher than the projection for this year at 4.1 per cent.

The bright outlook for next year reflects strong economic fundamentals, particularly high foreign reserves, low unemployment and inflation under control

"The country's negative factor, the political issue, has passed its worst time. We expect the cyclical downturn of the economy to bottom out this quarter. It will start picking up gradually from the first quarter next year," said Usara Wilaipich the bank's senior economist.

She sees the US Federal Reserve lowering its signal rate by the middle of next year from the current 5.25 per cent. And Thailand's policy signal rate is expected to follow this trend. However, interest rates at local banks - both deposit and loan rates - will remain unchanged until the end of next year. This is because liquidity is adequate for loan expansion.

The assumption that the country's policy rate will drop next year will be factored into the value of the baht, which may weaken to Bt39.20 against the US dollar by the end of next year, she added.

Jeerawat Na Thalang,

Somruedi Banchongduang

The Nation