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Published on March 1, 2008

Economic guru Virabongsa Ramangkura said yesterday that Thailand may fail to reach its new target of 15-per-cent export growth this year, due mainly to the failure of the government's financial policy to halt the upward spiralling of the baht.

Commenting after speaking to 60 Thai trade counsellors from overseas and 600 businessmen in Bangkok, Virabongsa said the baht would continue its appreciation this year. This will hit the export sector hardest, which is the country's major engine for economic growth, he said.

The Commerce Ministry on Wednesday revised upward its export target for the year from 10-12.5 per cent to 15 per cent.

To ensure reaching this target, Virabongsa urged the government to aggressively cut the policy interest rate rather than be concerned about inflation.

"The Bank of Thailand has proceeded with the wrong financial policy. No country is concerned about curbing inflation rather than stimulating the economy as a whole," said Virabongsa, a former deputy prime minister who is now the chairman of the executive board of Advance Agro.

For instance, he said, the Chinese government has a clear policy to focus on exchange-rate targeting, while some countries have focused on employment rates. But only the Bank of Thailand has targeted inflation, which has created very few results for the national economy.

He stressed that Thailand is facing "stagflation" and the mistake will last throughout the next two years. The country's continued economic slump and high inflation have been the major causes of recession.

"If the government and the Bank of Thailand do not immediately revise their financial policy, the problem will be very difficult to handle," he said, adding that if the government ignored this factor, it could cause a domino effect in the whole economy.

Although exports may increase gradually in US dollar terms, the country will gain very minimum benefits from the rise and face only slight growth in baht terms. He said that only the automobile and electronic-appliance sectors would enjoy growth, while the agricultural sector, which mainly uses local content, would suffer from the stronger baht.

Besides domestic factors hitting the Kingdom's economy, external negative factors, in particular the US recession, will continue the process of stagnation.

Virabongsa said that the US problem would also have an affect on the European Union and other countries. Only China and India will still perform well in the world economy, as their economic policies are "efficient".

Virabongsa also predicted that China will play a more significant role in the world's economy for the next five or six years. Although some countries are concerned that China's economy may reach a bubble period, it has not yet reached one, he said.

India will also "supplement" China's economy and continue to grow, particularlyin the high-technology sector.

Other negative factors hurting the Thai economy are skyrocketing oil prices and a slowdown in the tourism and service sectors.

Department of Export Promotion director-general Rachane Potjanasutorn said that the government should succeed in driving export growth to its targeted 15 per cent.

Many other countries have revised upward their targets for export growth this year. The US revised its export growth target to 5 per cent from 2 per cent; Eastern Europe to 32.5 from 25; Australia to 30 from 20; Japan to 12.5-13 from 10; Asean to 12.5 from 9.1; and the European Union to 9 from 7.

Petchanet Pratruangkrai

The Nation