Treasury Outlook

We have experienced the effects of the subprime mortgage fiasco in the United States, and the dramatic collapse of the credit derivatives market which forced banks in the US and Europe to make substantial writedowns. These banks not only need new capital, but also require considerable help from their central banks in terms of liq¬uidity.

So what was a financial crisis has now transformed into a fullblown economic crisis. Corporations in the US and Europe are finding it difficult to obtain new funding, while sales have been and are likely to continue to be sluggish. Unemployment rates have started climbing, which will eventually affect consumer spending. Many global transnational companies have issued warnings about their earning prospects.

Last week, US Treasury Secretary Paulson announced he would revise the US$700billion (Bt24.5 trillion) financialrescue package, shifting the focus from buying toxic assets from troubled banks to directly helping con¬sumers. Unfortunately, markets worldwide were not encouraged by this news and the Dow Jones Industrial Average Index closed more than 400 points lower following the announcement.

Economists and market participants expect that the US and European economies will slow sharply in the next few years, which will mean lower demand for goods from emerging countries. The US has maintained a huge trade and currentaccount deficit, which helped create surpluses in emerging countries such as China, South Korea and Southeast Asian nations. With the expectation of a sharp economic downturn in the industrialised major economies, emerging countries are likely to face severe economic hardship.

These countries, including Thailand, depend largely on exports as their main engine for growth. If they cannot export, to whom will they turn in order to absorb their production capacity? Last week, China announced a massive stim¬ulus package of $586 billion for 20092010 to mitigate the effects of the global downturn. The Thai government plans to spend $2.8 billion on its own stimulus package in an effort to revive the economy. We expect other countries in the region to come up with similar schemes.

We are quite concerned about the situation in Thailand, given the knockon effects from the world economy. The country also faces considerable internal problems, which require immediate solutions. We can only hope that the political situation stabilises soon, so that all the concerned parties can work together and manage the country through this deepening crisis.