Focus now on bank lending

The Finance Ministry is preparing a second round of economic-stimulus measures, including a huge credit-guarantee facility that could encourage commercial banks to lend up to Bt300 billion in fresh funds to support weakened industries.

"We will soon submit these additional measures to the Cabinet, since we now realise the crisis is very deep," said Finance Minister Korn Chatikavanij.

Korn yesterday discussed with Bank of Thailand Deputy Governor Atchana Waiquamdee and several leading economists the first stimulus package approved by the Cabinet earlier this month.

Atchana suggested that the state-owned Small Business Credit Guarantee Corp (SBCG), for example, could provide up to Bt100 billion in bank-loan guarantees.

This would then allow commercial banks to provide up to Bt300 billion in credit to the private sector.

"Don't pressure the banks to reduce their interest-rate spread, as their risk premium has increased as a result of the economic situation," she said.

Korn had earlier called on banks to narrow the spreads, but to no avail.

If the SBCG model is used, there is no immediate need to inject more capital, but the government has to create a "public account" at the SBCG separate from its usual credit-guarantee business. This means the government will shoulder the responsibility if there is future damage to the public account.

However, the government needs to immediately set aside a budget of Bt1 billion to subsidise the SBCG's operations, so that it can reduce the current guarantee fee from 1.75 per cent to 1 per cent, Atchana said.

Central-bank and Finance Ministry officials are working out details of the planned credit-guarantee facility.

Speaking at the same meeting, Narong Phetprasert, economics lecturer at Chulalongkorn University, suggested that the government allocate 10 per cent of the Social Security Fund as loans to financially distressed workers.

Somchai Jitsuchon, economist at the Thailand Development Research Institute (TDRI), said the government needed to introduce inheritance, land and property taxes to redistribute wealth.

"This will help create long-term domestic demand and is better than a short-term economic-stimulus package," he said.

Somkiat Tangkitvanich, research director at the TDRI, said the government should improve the method of state procurement in order to lessen corruption at state agencies.

Mingsan Khaosa-ard, a lecturer at Chiang Mai University, urged the government to promote the tourism industry by providing a subsidy for schoolchildren's travel.

Kirida Bhaopichitr, an economist at the World Bank, suggested the government launch public-works projects that employ the poor via a self-selecting method, so that the needy really get the benefits.

Pasuk Pongpaijit, economist and social critic, said the public should not worry much about the rising public debt during the crisis and the government should give more handouts to people in the North and Northeast.

The finance minister said the impact of the first package would be evaluated before the second round of stimulus measures was launched.

Thailand will also seek closer cooperation with other governments in Asia over stimulating the economy, he said.

Korn is due to meet the finance ministers of Asean countries plus China, Japan and South Korea next month, when they plan to discuss how to increase domestic demand in the region to offset the lower demand in the United States and Europe that has adversely affected exports.