Thailand’s new finance minister has announced an interim stimulus package to “stop the bleeding” in an economy hit by both the global economic crisis and domestic political turmoil.
Korn Chatikavanij said the six-month, Bt115bn ($3.3bn, €2.5bn, £2.3bn) budget, which should come on stream at the end of March, was aimed at giving money to the poorest sector of the population.
“It’s nice that we are able to help those in need, but it just so happens that those in need will help us the most in terms of rejuvenating the economy,” said Mr Korn in an interview on Tuesday.
“The average propensity to consume in the country is about 67 per cent. The average propensity to consume for our targeted recipients for this supplementary budget is about 90 per cent. That says it all, really.”
Big-ticket items include income support for low-paid civil servants, continuation of subsidies for transport, water and electricity for the poorest sectors of society, education, and loans to help village development.
The budget, equivalent to slightly more than 1 per cent of gross domestic product, is also likely to have a beneficial effect on the country’s fragile political stability. Much of the stimulus is aimed at the rural poor, who have supported the opposition in the past two elections. The large sums of money heading their way might soften any inclination they had to challenge the government.
The economy is heavily reliant on exports. The key global market sectors that the country depends on, such as automobiles – Thailand is south-east Asia’s largest carmaker – and electronics components, have been particularly hard hit by the global slowdown. Exports declined 17 per cent in November and job losses are mounting.
Mr Korn said the government’s aim was to keep the economy ticking over until the world economy picks up.
“Our top priority for the next year is to stop the bleeding, to make sure the engine still doesn’t stall,” he said. “My biggest concern is for the world economy. I think as long as there is some global pick-up towards the end of the year we will be OK. If there isn’t, it will be tough. We are an open economy. A lot of our capacity is geared to exports and the domestic market will not be big enough – even with the pump-priming on behalf of the government – to fully absorb that.”
Mr Korn said part of his job was to oversee Bt800bn in previously budgeted investment spending by state-owned enterprises and regional administrations.
He believes that if his measures work, he can keep the economy growing, but only just. In the best-case scenario, he estimates, growth will be between 1 and 2 per cent this year. But following an estimated 4.7 per cent growth in 2008, that would constitute a hard landing for many Thais.
“I reckon that if we can succeed with the economic package that we have announced and are due to announce, we can limit job losses to a total of less than a million, and if we can keep GDP growth at about 2 per cent we can limit it to about 700,000,” said Mr Korn. The lower figure for job losses would represent almost 2 per cent of the working population.
Relatively little of the supplementary budget expenditure is aimed at infrastructure and the Bt1bn that has been allocated to reviving the tourist sector will disappoint hoteliers, who are still reeling from the airport closures at the end of last year.
Industry had been hoping for a tax cut, but they too would be disappointed, said Mr Korn
“The bulk of those who pay tax are those with higher savings rates, so the money would not be coming into the economy,” he said.
