Govt gets 'C' from Olarn on economy

Dr Olarn Chaipravat, a former deputy premier, yesterday gave the government a "C" for its overall performance in managing the economic crisis facing Thailand over the past four months.

Speaking at a seminar jointly held by the Stock Exchange of Thailand and Nida Business School here, Olarn said the government got an "A" for state expenditure increases and a "B" for its exchange-rate policy but flunked on bank-credit policy to drive private-sector growth.

"The Abhisit government's failure to execute bank-credit policy properly has resulted in a worse-than-expected economic contraction in the first four months of this year. Based on the Fiscal Policy Research Institute's estimate, our GDP growth was minus 6 to minus 7 per cent in the first quarter of this year.

"It would have been better, with a contraction of only 5 per cent, if the government had managed to boost bank credit by 1.25 per cent, or Bt75 billion. However, the actual figures show that bank credit was minus 2.04 per cent, representing a contraction of Bt75 billion," he said.

According to Olarn, the country is expected to lose Bt1.2 trillion in merchandise exports and tourism revenue this year as a result of the global economic crisis, domestic political instability and other factors. To mitigate the impact of this hefty shortfall, the government needs to focus on a proper exchange-rate policy, government-expenditure increases and bank credit to the private sector, which are the key yardsticks of its performance, he said.

"We need to intervene in the forex market to achieve an exchange rate favourable to our export and tourism sectors. In this category, the actual average exchange rate was Bt35.34 per dollar during the first quarter, compared to the optimum rate of Bt35.50. On state expenditure, the actual budget increase was Bt136 billion, also very close to target.

"However, it got an 'F' on bank credit as there have been no clear-cut measures and targets. Overall, the sum of these three key policy measures is Bt119 billion, against a target of Bt300 billion, so it got an overall 'C'," he said.

Earlier, Olarn also proposed a Bt1.2-trillion public-investment package to stimulate the economy over the next three years. This government has announced a similar programme of Bt1.56 trillion for the same period.

To boost bank credit, Olarn said the government needs to come up with a risk-sharing system backed up by government guarantees and specific loan targets for selected sectors crucial to the country's economic recovery.

"For state-owned banks, it may also be necessary for the government to help them recapitalise if there were financial damages caused by the government's policy on credit extension to revitalise GDP growth," he said.

So far, privately-owned commercial banks are reluctant to provide new credit for fear of a rising percentage of non-performing loans as the economy plunges into a deeper contraction. As a result, only state-owned banks such as Krung Thai Bank and Government Savings Bank could be ordered to follow the government's policy.Dr Thanong Bidaya, a former finance minister, told the seminar he was not sure if the global economic crisis had hit bottom as signals were still mixed.

"It will likely take another 2-3 years for the economy to fully recover," he said, adding that the government should not raise fuel tax at this stage because higher fuel prices would hurt consumption and GDP growth.

On bank credit, he said: "The Bank of Thailand has repeatedly said there is ample liquidity in the financial system and urged banks to lend more money to the private sector to drive economic growth. However, no commercial bank dares to do so. They're not sure if they will get the money back, so this vicious cycle has to be broken before we can see genuine recovery."

Dusit Nonthanakorn, president of the Thai Chamber of Commerce, said inquiries were beginning to come in from foreign buyers of Thai goods, suggesting that inventories in the US, Europe and Japan were drying up.