Large cut in policy rate 'key to boosting growth'

Piyasvasti Amranand

The Monetary Policy Committee (MPC) should slash its policy rate by a full percentage point because the government's stimulus measures may not be enough to boost economic growth, former minister Piyasvasti Amranand said yesterday.

"The announced measures will just buy time, but don't think that they'll be the answer to everything. The government should come up with more measures," Piyasvasti said.

The former energy minister, now chairman of advisers at Kasikornbank, said there was room for the rate to be dropped from 2 per cent at the MPC's meeting on February 25 as inflationary pressure was low.

However, whether the rate should be cut right down to zero depended on future economic conditions, he said, on the sidelines of a seminar entitled "Do government economic measures restore Thai investors' confidence?"

While noting that an economic contraction was eminent due to the global recession, he urged the government to fix problems at loss-making state enterprises and ensure speedy budget disbursement.

Kobsak Pootrakool, a senior executive at the Bank of Thailand's monetary policy group, said interest rates could indeed fall further, as conditions could remain subdued until the middle of the year and inflation could fall sharply in the third quarter.

"The crisis is more severe than in 1997, particularly for exports, which may not expand as much as the expected 5 per cent. Amid limitations in exports and investment, it doesn't matter whether Thailand's GDP should grow 0.2 per cent or contract. What matters is how to survive the crisis," he said.

While the first economic package worked to some extent in restoring confidence, the government still needed to do more to address economic problems over the long run, he added.

Athip Bijanonda, president of Supalai, also expects the local economy to downsize but if the global economy bottoms out, probably in the latter half - thanks to the US economic stimulus package - then Thailand would be the first to recover. Yet, the government should proceed with mega-projects now and employ measures to boost purchasing power and consumption.

Kongkiat Opaswongkarn, CEO of Asia Plus, called for measures to strengthen business in the long term, aside from short-term measures to boost spending. Still, he anticipated the crisis should hit bottom late this year.

The economic growth rate has become a hot issue after former deputy prime minister Olarn Chaipravat forecast that the economy could shrink by 4 per cent this year without any fiscal measures.

Prime Minister Abhisit Vejjajiva and Deputy Prime Minister Kobsak Sabhavasu insisted that Thailand would ride an expanding economy this year. Kobsak promised to look at other fiscal measures such as a cut in Value-Added Tax but admitted that this must be thoroughly considered.

On Olarn's suggestion that government help should be targeted at the auto, electronics and tourism industries, he said the government's package would boost purchasing power, which would benefit all industries. However, the government welcomed all suggestions, even if action was not immediate.

At the economic ministers meeting yesterday, the Finance Ministry and Bank of Thailand agreed that if 94 per cent of the 2009 budget was spent, the economy could expand 0-2 per cent and Thailand would run a US$3 billion (Bt105.5 billion) current-account surplus. The government still maintains a revenue target of Bt1.45 trillion. Based on the 94-per-cent budget expenditure rate, Thailand would suffer a budget deficit of Bt518 billion.

Yet, tax collections in the first four months of this fiscal year were Bt17 billion, 5.6 per cent below target.

Winai Wittawatkaravet, director-general of the Revenue Department, said the shortfall was due to a drop in VAT as well as the lower value of oil, vehicle and steel imports.