Deputy Prime Minister and Finance Minister MR Pridiyathorn Devakula has signalled a shift in the government's economic policy by giving assurances that the economy will be boosted by both a fiscal deficit and lower interest rates.

Government spending and the central bank's low-interest-rate policy are expected to accelerate expansion of both private consumption and investment, Pridiyathorn told exporters at a CEO forum hosted by the Thai National Shippers' Council.

His statement marks a shift in the government's monetary and fiscal stance. Until last month, it maintained high interest rates and was trying to preserve fiscal discipline. However, it now intends to boost the economy out of the doldrums through government spending, because the uncertain political situation has led to declining consumer confidence.

Consumption and investment expanded at a low rate of 2.9 per cent in last year's third quarter, due to political uncertainty and  high oil prices. The National Economic and Social Development Board is yet to release data for the fourth quarter.

Pridiyathorn admitted it would take time for private consumption and investment to recover. Therefore, the government has decided to accelerate the pace of private consumption and investment by running a fiscal deficit equal to 1.7 per cent of gross domestic product for the current fiscal year, which ends in September.

Although public spending in the first two weeks of last month was slow, it will accelerate, he said. Government expenditure for the fiscal year will be Bt1.57 trillion.

The property sector will be boosted by this week's Cabinet approval of a timetable for implementation of Bangkok's mass-transit projects, first bidding for which is now scheduled for April. As the property sector makes its moves, there will be a spillover effect to other sectors, generating more economic activity, said Pridiyathorn.

Lower crude-oil prices have eased inflationary pressure, leading the Bank of Thailand to cut the one-day repurchase rate - its policy rate - by 25 basis points to 4.75 per cent last month. The central bank's high-interest-rate policy, aimed at keeping inflation in check, has come to an end, he said.

His comments may signal further rate cuts, but he made no such reference. Predictions in the financial market suggest the BOT may cut its rate by 100 to 150 basis points this year.

Pridiyathorn said he planned to invite private companies to participate in the management of ports and rail transport services, in order to improve the logistics system.

He also said Industry Minister Kosit Panpiemras was considering opening a new industrial zone in the southern provinces, as the Eastern Seaboard is too crowded.

Pridiyathorn assured business leaders that the government's strategy of boosting the economic real sector would lead to a recovery in the financial market, which is suffering from the BOT's capital control measures aimed at preventing the rapid appreciation of the baht against the US dollar.

The reserve requirement has saved the export sector, he said.

Wichit Chaitrong

The Nation