THAILAND RISKS LOSING ITS COMPETITIVE EDGE, ECONOMISTS WARN

Bangkok Post - 2 March 2010

Thailand could lose its regional economic competitiveness due to domestic political instability and the lack of policies to improve its long-term economic fundamental, leading economists say.

Ekniti Nitithanprapas, director of the Finance Ministry's macroeconomic policy planning section, said the country has been slow to invest in large projects that would enhance long-term competitiveness.

Public investment has been subdued since the 1997 economic crisis, he said.

"Investors now have many more choices," Dr Ekniti told the Bangkok Post. "What draws investors to Thailand is old infrastructure that was built 30 years ago - the Eastern Seaboard. Now it is beginning to reach capacity and environmental problems have grown."

"We may still be competitive in the short term. But we won't in the long term unless we start building infrastructure."

Economists said Thailand has a pressing need for new basic infrastructure such as new industrial estates and logistics networks to reduce business costs.

Critics say the government's 1.4-trillion-baht Thai Khem Khaeng infrastructure investment programme focuses too much on small and medium-sized projects across the country, rather large-scale projects that would improve business fundamentals and private investment.

Political analysts expect political stability to deteriorate further after anti-government protestors announced plans to stage a million-strong rally in Bangkok on March 14 to pressure the Abhisit Vejjajiva government to dissolve parliament.

Sethaput Suthiwart-narueput, chief economist for Siam Commercial Bank, said the government should review spending under the programme as the economy now has less need for such stimulus.

The government is expected to disburse 250 billion baht of the Thai Khem Khang budget this year.

"But it is the stimulus budget, which would not build new basic infrastructure, that will spur future private investment," said Mr Sethaput. "The government should review it and incorporate projects that will enhance competitiveness rather than small ones."

Dr Ekiniti said the government should reduce the spending under Thai Khem Khang fiscal stimulus package, but only for the short-term spending.

"We should not scale down spending on long-term projects, like logistics infrastructure and water resource management, or projects in social infrastructure such as education," he said.

Dr Ekniti said the ministry would accelerate the disbursement of the budget to improve investment and stimulate the economy.

He said political chaos dampened both public spending and private investment.

"The strength of private investment will be even more important for the economy in an upward cycle when the government needs to phase out its role to maintain fiscal discipline," he said.

The government disbursed 80 billion baht of funds from the Thai Khem Kaeng's first-phase budget of 400 billion baht, as of Feb 19.

The phase is funding 7,000 small to medium-sized investment projects, from the programme's total of about 40,000.

The Finance Ministry maintains that large-scale infrastructure investments, such as high-speed trains and urban mass transit programmes, was included in the latter stages of the scheme.

The ministry earlier planned to finance large-scaled projects through 400-billion-baht in foreign borrowing. But it now aims to find alternative fiscal financing for the large-scale projects.

Supavud Saicheau, managing director of Phatra Securities, said weak investment and consumption would result in the Thai economy increasingly relying on external demand to generate growth.

"With the US economic recession, the world economy will only have moderate growth," he said. "The Thai economy should not increase its reliance on exports."

Dr Ekniti said the Thai economy recovered quickly from the global recession because of its strong fundamentals. Reforms after the 1997 Asian financial crisis had strengthened the banking system.