Fear factor has to go if economy is to recover

A turning mood from greed to fear is really painful, and we are now in a state of great fear.

The government plans to inject extra cash, estimated to be about Bt100 billion to Bt180 billion, in the next few months. It aims to lessen the impact of the sharp economic downturn caused by both the global economy and local political uncertainty.

The Thai and other governments have tried to do shore up economies from a deep recession. This is a historical moment when most governments are forced by market conditions to coordinate their policies.

The Thai economy will be pulled out of trouble if the world economy recovers quickly, since exports are one of the key drivers of our economy.

After learning from many mistakes in past crises, many governments are smarter. They move quicker to inject cash into their economies and their central banks also sharply cut interest rates.

Fiscal and monetary expansions, however, have not yet pulled the market out of fear.

Bankers and consumers around the world are engulfed by fear.

Particularly in the United States and other developed countries, bankers are reluctant to lend due to the high risk of bad loans.

"Central bankers can create conducive environments for doing business by cutting interest rates, but we cannot force banks to lend," said Atchana Waiquamdee, deputy governor of the Bank of Thailand.

Economic bubbles are caused by greed. The bursting of the economic bubble has hurt many banks and consumers in the US.

Americans who stored their wealth in real estate and other financial assets have felt the pinch, as the value of those assets has sharply declined.

"A typical American has low savings, as each largely lives on his or her credit. And now they have started to save money, which means cutting spending," said Ammar Siamwalla, the respected economist at the Thailand Development Research Institute.

Though the share of Thai exports to the US is only about 15 per cent of our total exports, the market is important because it is primarily for final products. Thailand's exports to other Asian countries have increased in recently years, but they are largely parts and accessories for final products. Then final products find their way to the US and other developed countries such as the European Union and Japan, which are also facing recession.

 Most market participants are pessimistic about a quick recovery from recession in the developed economies. 

 The International Monetary Fund has suggested that the recession, accompanied by a credit crunch, will last longer than normal recessions. Usually recessions end within four quarters, but the combination of recession and credit crunch will be longer than four quarters.

The credit crunch is partly caused by banks' fear of lending to investors, consumers and other banks.

The mood of fear is dangerous, as it could lead to a downward economic spiral in a selffulfilling prophecy. The process starts when people believe the future is doomed, leading them to cut spending, which could aggravate the downturn into a depression.

Government spending is assumed to counter this selffulfilling prophecy, as governments try to assure everyone that the future is not bleak.

The recent sharp drop in oil prices was expected to alleviate people's worries. "If the average crude oil price stays at about US$50 to $60 [Bt1,740 to Bt2,085] a barrel and does not rebound in the near future, that would help the world economy turn around," said Teerana Bhongmakapat, dean of Chulalongkorn University's economics faculty.