Banthoon Lamsam, chief executive officer of Kasikornbank, said the latest stimulus package from the interim government was only part of the measures needed to support economy. Other measures were also needed to repair the gloomy economy right now, turning it into a complete package.

"The one key to encouraging Thailand's economy is real investment from both the government and the private sector," he said.

Though some perceive the Bt44-billion stimulus package as another form of populist policy as championed by the former government, Banthoon said it depended on one's point of view. However, he believes that if the private sector decided to undertake more investment, it would give a boost to the economy.

The Finance Ministry on Wednesday launched the first economic stimulus package in its term to help low-income groups and people with small businesses get access to loans.

Banthoon said that to increase private investment, the government should tackle the uncertain environment within its one-year time frame.

Prime Minister Surayud Chulanont's military-installed government has faced public discontent over the economic slowdown caused by sagging investor and consumer confidence.

Phatra Securities' Research Group managing director Supavud Saicheua said that, superficially, the stimulus package might sound like another form of populist policy from the previous government, but in fact the details were more delicate and different.

"The package will focus on three areas: providing housing to lower-income people, encouraging farmers to increase value-added components in their agricultural products by emphasising processed products, and helping small and medium-sized businesses," he said.

He added that the package emphasised investment rather than consumption. However, the Government Savings Bank, the Government Housing Bank, the Small and Medium Enterprise Development Bank of Thailand and the Bank for Agriculture and Agricultural Cooperatives - all assigned to extend new loans under the package - were warned to consider loan approvals carefully in order to minimise the risk of non-performing loans.

"The package is to drive investment. On the other hand, it should be conducted carefully," said Supavud.

More loans may have a psychological impact, but the bigger issue is investor confidence, economists said.

Innovative credit schemes are needed to support low-income groups, Dhurakij Pundit University Pairoj Vongvipanond economist said in response to the Finance Ministry' new credit worth Bt44.04 billion from state-owned banks to support the grassroots.

He said innovative micro-credit would be much better than simple loans from state-owned banks. The micro-credit scheme implemented in Bangladesh is a good example, he said, with small loans provided to the poor without collateral while the rate of debt repayment is very high.

Demand for loans is also down as economic growth has been decelerating, said Pairoj. "More loans may have a psychological effect on low-income groups, but not help much. To achieve growth potential, the government should win back confidence from investors and consumers," he suggested.

Investors, especially foreigners, are worried about government economic policies through which they suspect the government may want to nationalise their assets, he added.

The government, by attempting to amend the Foreign Business Act, enforcing compulsory medicine licensing, and limiting the expansion of giant retail operators, has adversely affected investor confidence, he said.

Sompop Manarungsan, an economics lecturer at Chulalongkorn University, urged the government to introduce productive projects, otherwise loans from state banks would be wasted.

He said the government had done the same as the ousted Thaksin Shinawatra administration, which could further increase debt for low-income groups. He proposed that the government restructure the agricultural sector.

Usara Wilaipich, senior economist of Standard and Chartered Bank (Thai), said the Bt44-billion stimulus package would have a very slight impact on boosting the entire economy because it was so tiny compared with the gross domestic product of Bt6 trillion.

The package, however, would benefit grassroots people who could obtain liquidity for consumption.

"The stimulus package has no impact on the economy as it does not involve mega-projects which are able to boost the wider economy, including investment, employment and business sectors. However, the measures are better than nothing," she said.

Usara added that the government should play an aggressive role in boosting the economy, as the private sector has not been spending. It should accelerate its budget disbursement, mega-projects and tax cuts, because easing monetary policy would take longer to increase domestic demand amidst an uncertain political situation.

"Transmission mechanisms of easing monetary policy through the economy have a longer time lag than usual because people do not have prospects for the economy in the future. Despite lowering interest rates, consumers and investors have not yet spent more amid the political uncertainty," she said.

Thanomsri Fongarunrung, senior economist of Phatra Securities, agreed that the stimulus package was not enough to boost the economy, but said it was necessary for grassroots people with a lack of purchasing power.

"The government may mainly focus on employment in the rural sector and rely largely on the investment budget in order to create a multiplier effect in the economy," she said.

Finance Reporters

The Nation