Thais walk policy tightrope - South Korea

Business Asia, May 17, 1999

Doubts remain over the Thai Government's ability to stimulate domestic demand and unfreeze Thailand's credit system, according to two leading researchers.

Chulalongkorn University associate professor of economics Dr Pasuk Phongpaichit said the Thai economy remained fragile but was at least "not going fast in the wrong direction".

She is the co-author, with Asian historian Dr Chris Baker, of a book, "Thailand: Economy and Politics". They were guests recently at a Sydney seminar on Thailand hosted by the Research Institute for Asia and the Pacific (RIAP).

Dr Pasuk said "a light had appeared at the end of the tunnel" for Thailand.

"The economy does seem to have levelled out. This time last year it was shrinking at an annualised rate of over 12 per cent. That stage has passed," she said at the RIAP seminar.

However, Dr Pasuk said Bangkok's new plan to stimulate domestic demand by massive infrastructure projects may fail because of the Chuan Government's inexperience.

"Thai governments have almost always managed the economy by managing external demand -- they have almost no experience with stimulating domestic demand," she said.

"Some fear all this money will be wasted. Some fear a lot will be lost in corruption, creating a terrible political backlash."

Dr Pasuk linked the recovery to Thai banks, saying the banks needed to successfully restructure their debt and start lending again before the economy could gain speed.

"But the banks will only begin lending again when they are convinced they are no longer simply throwing good money after bad, in other words, when they have some confidence that a recovery has arrived," she said.

Thailand appears to have turned the corner politically. Dr Barker said, despite some dissent against the government, Chuan Leekpai's Democrat Party looked likely to retain power in elections next year.

"At present, there are probably still more businessmen supporting the Democrats than those opposing, but there is a definite drift," he said.