Economic Update
Thailand is undertaking a massive fiscal stimulus programme to rejuvenate the country’s flagging economy, with the government planning to inject $38.9bn through a package of direct funding, incentives and spending on infrastructure intended to create jobs and support long-term development.

Some details of the stimulus package have already been unveiled, and when announcing the programme on March 17, the prime minister, Abhisit Vejjajiva, said the increase in state spending was essential to offset forecast falls in foreign investments and exports over the next three years.

According to the prime minister, a part of the package, which will cover the period 2010-12, will be spent on improving transport infrastructure, water supplies, schools, hospitals and residential developments.

“The projects are small, but collectively they are large,” he told a press conference. “Even though schools and hospitals are small, when a large number of them emerge, totally they will require a huge sum of investment.”

While backing the government’s programme, the Bank of Thailand governor, Tarisa Watanagase, warned that it would not provide a quick-fix solution to the downturn.

“We will have to wait and see how well the injected money stimulates the economy,” she said on March 17. “However, the economy will likely recover gradually and the measures will have to be carried over to the next fiscal year.”

The package is the most recent in a series of measures announced by the government to shore up the economy. News of the programme came just a day after the government said it would allocate an additional $808m for major transport infrastructure projects, including a $400m expansion of Suvarnabhumi Airport and a similar amount for highway upgrades.

The government has also released details of a programme to support the tourism industry, which has been hard hit by the global recession and a fall off in arrivals due to the antigovernment protests that closed Bangkok’s two main airports last November.

Among the steps to be taken will be a three-month waiver on visa fees, decreased landing charges and a 50% discount on entry to the country’s visitor attractions, the prime minister told delegates attending a travel fair in London on March 13.

These more recent funding initiatives came after the government’s first stimulus package was approved by parliament in late January. Unlike the latest fiscal programmes, that package aimed to increase spending in the economy through a mix of cash payments to low income earners, tax cuts, education loans, and subsidies for transport and utilities.

Announcing the $3.35bn package on January 13, Abhisit said the measures were based on the idea of reviving the economy directly and putting money in people’s pockets.

“Giving money directly to people is the most effective way,” he said after the cabinet met to approve the package. “It will lead to more spending that will help the industrial, agricultural and business sectors.”

To fund its stimulation efforts, the government is looking to the international finance market, with Abhisit saying in mid-March that $2bn would be raised through foreign financial institutions for use this year. However, the prime minister’s statement came before the government announced its new package, which will also require additional sources of funding.

This could prove hard in the current tight credit climate, where Thailand has already been experiencing difficulties in expanding its long-term bond market. In an interview with the Bloomberg news agency on March 14, the finance minister, Korn Chatikavanij, said Thailand was finding it a challenge to develop or deepen its long-dated bond market and reduce its reliance on short-term borrowing.

“The need to borrow is the reality that all governments face today,” said Korn. “We can’t trade our way out of the crisis in this global environment. We can’t rely on foreign investments.”

The government may also face competition in the money market from private sector companies looking to increase liquidity in order to cope with the effects of the global economic downturn.

According to Nattapol Chavalitcheevin, the president of the Thai Bond Market Association, local companies will sell between $6.7bn and $7bn worth of bonds this year, well above previous expectations, with much of this coming before the government starts issuing new debt.

“They are rushing to tap demand before the government launches new bond issues in the second half to fund its economic stimulus measures,” Nattapol told reporters on March 18.

The announced increases in expenditure also come at a time when state income is falling sharply. Recent figures have shown state revenue for the four months ending January 31 were $10.3bn – $1.9bn down on projected targets.

While the government’s series of measures to revive the economy may well boost growth and stimulate domestic demand, many of these measures will take time to be implemented, and even longer for their effect to be felt.