A weak govt is confronted by tall tasks

The Somchai Wongsawat administration will address Parliament today on its policies as it settles down to manage the country. The address and debate will last until Thursday. Thailand is facing serious problems both at home and abroad, and we need a strong leadership to guide the country out of these turbulent times.

On the home front, hopes of reconciliation between the government and the People's Alliance for Democracy (PAD) have been dashed after the arrest of key anti-government leaders, who have been charged with treason. The arrest of Lt-General Chamlong Srimuang on Sunday has heightened fears that there will be more confrontation between anti-government protesters and the authorities. The PAD is now trying to woo more people to its cause at Government House, which it has occupied for several weeks.

Initially, General Chavalit Yongchaiyudh was assigned to negotiate with PAD leaders on a reconciliation deal. It appeared to have made some headway. Indeed, some PAD supporters have become tired after protesting on the streets for so long.

The PAD, which is calling for the removal of the government and the Thaksin regime, would have liked to disperse after the parliamentary address, or before the funeral of Her Royal Highness Princess Galyani Vadhana in mid-November, or before His Majesty the King's birthday on December 5. But after the police arrested one of its leaders, Chaiwat Sinthuwong, on Friday, the political situation took a turn for the worse.

On Sunday, Chamlong showed up at a polling station in Dusit district to vote in the gubernatorial election. He did so, knowing that he would be arrested. With Chaiwat and Chamlong in custody, all talks for a truce between the PAD and Chavalit has ended. Political tensions are rising in Bangkok again.

At the same time, a news report emerged from London that former prime minister Thaksin Shinawatra and his wife Pojaman have made an asylum request to British authorities. The Somchai government is also shaky, with many believing that it might not last until the end of this year.

Apart from the political crisis, Thailand faces issues on the international front. The financial turmoil will make for tight credit conditions in the Thai money market. Exports will certainly be affected next year as this year's orders have already been placed.

The US financial crisis is now spreading to Europe, and we are facing a global credit squeeze. It is becoming very difficult for US and European banks to borrow short-term as part of their liquidity management operations. US banks can only rely on the Federal Reserve for short-term funding as the credit market has shut down. More US banks will fail in the coming months and next year.

European authorities are looking at ways to save their banks, too. The Irish government, for instance, has provided a two-year guarantee on deposits and wholesale funding at six major financial institutions.

Demand for US dollars in the European financial markets has been high, forcing the European Central Bank to inject US$30 billion into the market to alleviate the credit squeeze. European banks now find it difficult to issue bonds to raise liquidity and have to resort to short-term commercial paper instead. It could come to a point when the European financial institutions are clogged by the massive amount of commercial paper piled up, like a delta at the mouth of a river.

Thailand will also be affected by the US and European crisis. Already several companies have postponed their bond issues because of rising costs. The credit squeeze will require particular attention from the Bank of Thailand in managing liquidity appropriately. The baht might also come under selling pressure as investors pull their money back to settle debts in the US. The authorities will aim to keep the baht in the range of Bt34-Bt35 to the dollar.

If the US goes into recession - and data shows that it will - demand will fall. The US has been buyer of the world's goods. A recession there will have a global impact. Now is the time for crisis management. It will not be an easy task at all for the Somchai government, which does not expect to stay long anyway.