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Published on February 1, 2008

However, such investment should be aimed at spurring productivity in the service sectors, particularly through government fiscal or policy support, said the World Bank's economist in Thailand, Kirida Bhaopichitr.

She believes that by raising the bar in professions such as accounting and engineering, the Thai manufacturing and industrial sectors, which the government has been "over-supporting", will benefit as well.

Over more than 10 years, the Kingdom has slipped down the world's Knowledge Economy Index, and now trails behind Malaysia, which it once led. The economist believes that Thai money has not been working hard enough.

She said the Bank of Thailand's key policy responses, including the 30-per-cent capital reserve requirement, might be effective in the short run, but could be costly and unsustainable in the long term. And with the baht strengthening against a weakening US dollar, the government should target specific industries' needs, instead of fighting a costly exchange-rates war. "After all," she said, "not everyone needs to be protected against the weakening dollar."

According to Paul Donovan, managing director of worldwide financial services firm UBS Global Economics, Thailand is among a few emerging Asian economies that should come out of the global slowdown relatively unscathed. Although American consumers are spending less, domestic demand in Thailand should offset any export flop, he said.

And Aberdeen Asset Management's Ratanawan Saengkitikomol believes the new civilian government will see private investment driving business activities back to pre-crisis levels.

Not all Asian economies will fare as well. South Korea, with its widespread credit problems, and Hong Kong and Taiwan, with their high exposure to international trade, will suffer much hardship this year, Donovan said.

He described as unprecedented the lack of response from US banks and financial institutions to the Federal Reserve's interest rate cuts. "[So far] they have not been passing on the rate cut," Donovan said, adding that all these issues paint a rather gloomy picture for the next two years.

Ki Nan Tsui

 The Nation