OLARN makes case for risk-sharing 'CREDIT POLICY'

The scheme suggested by him follows a risk-sharing concept between stakeholders - the government, the Bank of Thailand (BOT), financial institutions and the real sector - to provide long-term soft loans to consumers.

Housing, auto and consumer durable goods sectors like electronic appliances should be involved in the programme as they have been adversely affected by the economic downturn, he said.

The quantitative easing policy would add to the government's central budget of Bt116.9 billion and is likely to improve exports to China. This should help the economy to pick up by the end of this year or the beginning of next year, said Olarn.

"The government should introduce the credit policy as soon as possible. If it cannot design its own scheme, it can copy and develop from the United States and China," said the former deputy prime minister.

Olarn said the government should clearly consider which sectors needed money for investment and carrying inventory, which financial institutions would join, who would guarantee the credit and how it would handle possible losses.

For example, the government could seek funding at low interest rates and give loans to the banks. They would provide loans to consumers, with credit guarantee by the Small Business Credit Guarantee Corporation.

The BOT could reduce down-payment regulation for the auto sector to help boost demand for hire purchase in the industry.

The University of Thai Chamber of Commerce's Economic and Business Forecasting Centre director Thanawat Polvichai said the government could slow down the unemployment rate if it encouraged credit access in tourism, export and durable goods sectors.

This would bring business confidence back on track and help boost the economy. The credit policy would be beneficial to the economy to about 80 per cent of gross domestic product (GDP).

Private consumption, which accounts for 53 per cent of GDP, would recover eventually, he said.

Olarn said the Chinese government has succeeded with its credit policy of US$390 billion (Bt13.8 trillion), accounting for two-thirds of the economic stimulus package totalling $585 billion. The credit policy could finally bring about a 6.1-per-cent economic growth for China in the first quarter of the year. Private investment has expanded after the auto and property sectors could access the credit, leading to a 35-per-cent rise in the stock market.

China has launched the credit policy because it has realised that investment projects would take time to boost the economy, he said.

Olarn had asked the central bank to urge banks to expand their lending by 5 per cent, or Bt 300 billion, when he was deputy prime minister in the Somchai government.

He said the government could introduce the policy because the Thai banking system does not have problems like the US.

The US government also launched the credit policy to bolster the auto and property sectors after injecting $700 billion into the banking system. The government budget of $587 billion has just been implemented in April in a bid to boost the economy for the next 18 months.

Thanawat said the central bank should manage the baht to be valued at around Bt36 against the greenback.

The government should speed up budget disbursement in both capital and current spending, and strengthen political stability.