Financial crisis is not immminent
Re: "Stimulus makes SET open to foreign shocks - Index could suffer 40% plunge: expert", Business, February 12.
The content hardly supports the headline.
First, the so-called expert said "any shocks from the West or China could send the SET Index diving 40 per cent". What shocks? The shocks happened at the end of 2008 and investors have been living for three years with fears of the collapse of the euro and the fall of Greece, Portugal, Spain and Italy, and problems in the US and China. A rise in the SET Index occurs because investors believe that whatever the bad news in future, it will not be that bad. Many empirical studies support that contention.
Second, the government's economic stimulus package, envisaged even before the floods, might cause runaway inflation, but statistics have yet to show any warning sign. We all watch inflation like a hawk, and do not rely on hearsay. But this stimulus, if successful, is to narrow the income gap while drastically expanding our economy. If successful, this government will stay on.
Third, Thailand's ratio of 60 per cent of public debt to gross domestic product is respectable, like Malaysia, and far lower than Singapore's 120 per cent. The gearing ratio is at the discretion of how much risk one likes to take. Indonesia prefers a conservative ratio because it has faced runaway inflation many times in its history. It is the right time to borrow to build infrastructure when things are relatively cheap.
Finally, Virabongsa believes in a drastic interest cut and therefore it is unlikely for him to believe there is a bubble now. This is basic macro economics. It is Prasarn who fears the bubble if there is a rate cut.