Borrowing plan must create jobs, says Pridiyathorn

In an interview with The Nation, he said the proceeds from borrowing must be earmarked for projects facilitating employment. With more money in their pockets, workers will spend more. Though it's a one-shot infusion, the money will circulate throughout the system. The first economic stimulus package of Bt116 billion failed to boost the economy because it did not create jobs, he said.

"Borrowing is necessary and it'd be even better if the government could spend up to Bt1 trillion by 2010," he said. "Some mega-projects are good, like the construction of hospitals or schools, which have been delayed due to financial limitations. The government should go line by line, seeing which items will produce quick results and will be the most effective way to spend taxpayers' money."

Pridiyathorn also expressed his readiness to help the government screen investment projects.

Borrowing all the funds as planned made sense for the government, even though that could raise public debt to 60 per cent of gross domestic product. Borrowing would be excessive only if the government had to raise taxes to cover future debt obligations. The huge borrowing is not expected to produce a crowding out effect either - by squeezing market accessibility of private borrowing - given all the excess liquidity in the commercial bank system. Rather, it would create a new savings channel. Though that would induce a shift of funds out of commercial bank accounts, it's good in the way that idle savings could be used for economic gain.

Government borrowing would not exert upward pressure on interest rates. Rates would rise only when demand for loans is growing. In good economic times, companies are ready to take on capital at whatever cost as long as the return on investment is higher. Theoretically, opportunity dictates interest rates. "Rates will remain low as companies are refraining from borrowing, as they suffer from low orders. Those in need of money now have been experiencing financial shortages for some time, and the crisis just exacerbates their difficulties," he said.