Make funds available for viable projects

The government on Tuesday announced it would inject additional liquidity into the economy through the state-run Krung Thai Bank and six other state-owned financial institutions. The effort is intended to boost the economy, with these state-run banks having been instructed to raise their combined liquidity target for this year by Bt350 billion.

Although Prime Minister Abhisit Vejjajiva is positive the economy will start to recover in the fourth quarter of this year, the government needs to boost the flow of credit to create a conducive environment to prepare for the recovery.

Big corporations might not have difficulties sustaining their business during this difficult period, but a number of small- and medium-sized companies are struggling to find the funding to feed their businesses. Some commercial banks have become more selective in their lending approval because they are afraid small entrepreneurs might not be able to service their debts.

Although exports in the first half of this year grew by 23.5 per cent, the immediate future prospects are not positive as it remains uncertain if the US economy, the biggest consumer of Thai exports, will recover by the year's end. It is still debatable whether the worst is over. Therefore, the export sector is unlikely to drive economic growth as it did in the past.

Domestic consumption, meanwhile, shows a downward trend. Consumer confidence has been adversely affected not only by the global economic recession but also the unstable political situation in Thailand.

Over the past few weeks, the Abhisit government has launched a series of campaigns to restore public confidence. The overwhelming response to the government bond scheme, under the "Strong Thai" banner, shows that people prefer to save money for fear of an uncertain future.

The Bank of Thailand has used the monetary policy to stimulate the economy by cutting the interest rate numerous times. The government also aims to boost domestic demand by passing bills that will enable the government to borrow up to Bt800 billion to stimulate the economy.

However, these measures seem inadequate to pull the economy out of the doldrums. And the depth of the recession still remains unclear. The government hopes that if the state-run banks can raise the loan target, small entrepreneurs will have money to sustain their businesses during this difficult period. While it will be almost impossible for the Thai economy to see growth this year, the best the government might be able to do is to soften the recession's impact.

The government plans to boost the functioning of the credit market, but the state-run banks will also have to consider approvals effectively.

It would be unwise for the state-run banks to approve loans to entrepreneurs regardless of the viability of their projects. The banks should approve loans to businesses that can thrive with a little funding assistance. If the banks are forced to grant loans to companies that are no longer competitive, the money will likely go down the drain as non-performing-loans.

There are many tools to boost the economy. The results will depend on how effectively and wisely the selected projects are executed. The government should not aim solely at targeted economic figures. It should consider other factors and take a realistic view on the present and future state of the economy to ensure the next phase of recovery will be sustainable.