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Published on December 8, 2007

Bush, announcing the initiative on Thursday, said 1.2 million American home-owners could be eligible for relief, which includes a freeze on home-loan interest rates and helping people refinance into more affordable mortgages.

Chalongphob said the rescue plan should ease the crisis, which would have an adverse effect on the Thai economy if demand in the US were to fall sharply due to the sub-prime fallout.

Thanks to the US initiative, he said, Thai exports would continue to expand and were likely to enjoy double-digit growth next year. Inflation, meanwhile, is at a manageable level.

The next Thai administration is unlikely to sharply reverse economic policy as the expected coalition government is likely to continue with a market-driven approach, albeit with some interventions, he said.

Nonetheless, the minister said that any political friction to the extent seen before last year's coup could act as a drag on the economy.

Chalongphob said economic activity in the first quarter of next year should, however, be dynamic, with expected robust sales of new cars and the introduction of new models of environmentally friendly vehicles.

The economy this year is set to grow more than 4.5 per cent.

Government Housing Bank president Khan Prachuabmoh shared the finance minister's views on Bush's action on the home-loan front, saying it would positively contribute to international trade. Exporters to the US will benefit from the sub-prime rescue package, he said.

Khan added that the US action demonstrated how important the real-estate sector is to the US economy - saving real estate means saving the US economy from a sharp reversal of fortune.

He predicted the US Federal Reserve would cut its key policy rate next week by 25 basis points from 4.5 per cent, in a further move to aid the real-estate sector and the economy in general.

He does not, however, believe the Bank of Thailand will cut its policy rate. The current one-day repurchase rate of 3.25 per cent is already very low, he said.

"Domestic rates for both lending and deposits will rise in the second half of next year," he said, adding that future rate hikes will be driven by inflationary pressure resulting from higher crude oil prices.

Bush said the measures announced on Thursday could help up to 1.2 million distressed US home-owners at risk of foreclosure on their properties. The plan will help struggling owners refinance sub-prime adjustable-rate home loans or freeze the current interest rates for five years.

Some analysts said the policy was likely to ease the pain of the US housing slump, but at an uncertain cost for markets and the financial system in the long run.

Joel Naroff at Naroff Economic Advisers told Agence France-Presse the plan was "more political than economic" and could have a variety of unintended consequences that could affect banks and financial markets and ultimately harm the economy.

"If they freeze rates, it means that instead of writing off the loans, the banks are still carrying these loans that are questionable," Naroff said.

"If there are freezes, it changes the structure of the entire market and could create problems with that market. There may be some short-term gains, but [also] longer-term problems that are unclear."

Economist Peter Morici at the University of Maryland said the rate freeze "will only push the problem to the next president".

"What is needed is a mechanism to provide permanent financing of fixed-rate, long-term mortgages," Morici said. "The Treasury seems obsessed with what investment bankers do best in a pinch, [that is,] short-term workouts that punt difficulties into the high grass."

Douglas Elmendorf, an economist at the Brookings Institution, said the plan "is an important step in the right direction but it is not going to solve all the problems".

Wichit Chaitrong

 The Nation