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[LaoPo]

Thailand to Lift Spending as New Government Predicts Recession

By Daniel Ten Kate and Suttinee Yuvejwattana

Dec. 24 (Bloomberg) -- Thailand’s new government plans to increase spending and tax breaks to stimulate domestic demand as it forecast the economy will slip into its first recession in almost a decade.

“What is needed is not just money, but money well spent,” Finance Minister Korn Chatikavanij said in an interview with Bloomberg Television today. “That means government expenditure in such a way that the money will come back into the economy as quickly as possible.”

Korn’s Democrat party, which came to power last week after supporting six months of violent anti-government protests, inherits an economy hurt by declining world demand and an eight- day airport blockade in late November that stalled tourism. Exports and tourism together make up more than 80 percent of Thailand’s gross domestic product.

Southeast Asia’s second-largest economy may contract in the first three months of 2009 after declining between 2 percent and 3 percent this quarter, finance ministry spokesman Somchai Sujjapongse said in Bangkok today. The last time the economy shrank two straight quarters, the technical definition of a recession, was in the six months ended March 1999.

The ministry also cut this year’s growth forecast to 3 percent today, from a September estimate of 5.1 percent. Thailand’s economy is expected to grow between 0 percent and 2 percent in 2009, the slowest pace since a contraction in 1998, Korn, a former chairman of JPMorgan Chase & Co.’s Thailand unit, said separately today in Bangkok.

‘Wars on Both Sides’

“Thailand is facing wars on both sides as the global economic crisis hurts exports and political uncertainties put pressure on domestic demand,” said Somprawin Manprasert, an economist at Tisco Securities Ltd. in Bangkok. “There is nothing much we can do about exports, but what we can do is boost local consumption.”

Prime Minister Abhisit Vejjajiva, elected by parliament last week as the third premier in four months, has pledged to boost spending to spur growth. Korn, the premier’s University of Oxford classmate, said yesterday the government may spend a further 80 billion baht ($2.3 billion) on top of the 100 billion baht in additional funds for the current fiscal year approved by the former government last month.

The government may increase the amount of interest payments that can be deducted from homebuyers’ taxable income to 200,000 baht next year, from the current limit of 100,000 baht, Korn said in Bangkok today. The measure is part of the government’s economic policies that will be announced in parliament on Dec. 29, he said.

“This will help drain out unsold properties and stimulate more new projects,” Korn said. “It will help boost the economy.”

Budget Deficit

The government will also announce measures to prevent unemployment from escalating, boost tourism and increase rural spending by doubling the budget for village funds, Korn said.

Thailand’s benchmark SET Index, down 49 percent this year, rose 0.1 percent as at 1:31 p.m. in Bangkok today. The baht fell 0.1 percent.

The additional spending may cause Thailand to run a budget deficit of as much as 400 billion baht in fiscal 2010, Korn said. That compares with a proposed shortfall of 350 billion baht on the 1.84-trillion-baht budget for the year ending Sept. 30, 2009. Thailand’s public debt-to-gross domestic product ratio is “relatively low” at 35 percent, he said.

“There is sufficient room for the kind of fiscal stimulus that we believe is necessary to prop up the economy and to also create the jobs that will be necessary in the face of the downturn that we expect next year,” Korn said.

Exports, Tourism

The government is trying to boost domestic consumption and shore up public support as exports dwindle amid recessions in the U.S., Japan and other overseas markets.

Thailand’s exports, which fell in November for the first time in more than six years, may drop 2.7 percent next year, compared with an estimated 17 percent growth in 2008, the finance ministry said.

The government expects 2.5 million fewer tourists this quarter and next because of the airport blockade, and a loss of 100 billion baht in visitor revenue.

Abhisit, whose party supported the protesters who closed down Bangkok’s airports, was elected by lawmakers on Dec. 15 with the help of defectors from the former ruling party, which was dissolved by a court on Dec. 2 for vote buying. The premier faces deep divisions between the urban middle class that supports him and rural farmers who have backed former Prime Minister Thaksin Shinawatra and Thaksin’s two successors.

“In terms of tenure, we have three years left on the current mandate,” Korn said. “We need to create the kind of political stability that is necessary to force a return of investor and business confidence.”

Supporters of the ousted government plan to rally on Dec. 28, one day before Abhisit is scheduled to unveil his policies in parliament. The cabinet may hold a special meeting immediately afterward to approve an economic stimulus package, Abhisit said yesterday.

-Bloomberg

LaoPo

[meom]

Thailand’s exports, which fell in November for the first time in more than six years, may drop 2.7 percent next year, compared with an estimated 17 percent growth in 2008, the finance ministry said.

Does this mean 2009 export will be 14.3% more in comparison to 2007?

[soundman]

Moved to business forum.