Make your own free website on Tripod.com
Home
Baht/economic crisis
Banking crisis
Overdrive
General issues
My profile
Barns and Noble
Thanong's Poll
Message Board
Chat Room

 

 

Send FREE Greetings!

 

 

ROXY.com Is The Fastest Way To Shop!

 

 

 

 

 

 

 

 

Try AOL Now!  up to 700 Hours FREE

 

 

Chavalit's 'bitter pill' welcomed

 

PRIME Minister Chavalit Yongchaiyudh has signalled to the financial markets that his administration is willing to adopt an austerity programme to bring macro-economic instability under control.

He went along with a recommendation from his economic czar, Dr Amnuay Viravan, to cut the fiscal budgets for 1997 and 1998 by Bt50 billion each year. By doing so, the government is recognising, at long last, that Thailand has a current account deficit problem that cannot be tackled by monetary policy alone, but must be accompanied by fiscal restraint.

The financial market was indeed surprised by Chavalit's bold action because the cuts hit directly at the pocketbooks of state enterprises and the military, which have always been spared drastic budget reductions.

But the important question is will the Chavalit administration follow through on its commitment to trim the budget. Any failure to reduce spending will disappoint the market, which has been questioning Thailand's habit of living beyond its means.

Government spending accounts for about 35 per cent of the import sensitive bills which give rise to the trade and current account deficits. By cutting military, Thai Airways International and big-ticket infrastructure spending, the government stands to save foreign exchange, the loss of which might otherwise put further pressure on the current account deficit.

Thailand's current account deficit reached a record 8.2 per cent (about US$16 billion or Bt400 billion) of the gross domestic product last year. This high deficit rate is not sustainable, given the slowdown of the economy and growing doubt about economic stability. Earlier, Bank of Thailand governor Rerngchai Marakanond indicated that if the government trims the budget by Bt40 billion, it would narrow the current account deficit from a forecast 7.9 per cent this year to around 7.5 per cent.

Rerngchai merely offered a non-confrontational suggestion, although privately he prefers deeper spending cuts in order to leave room for an easing of monetary policy, which has been punishing Thai businesses and the stock market. Nevertheless, a Bt50-billion reduction in the budget may not be deep enough for the central bank to relax monetary policy because it represents only $2 billion out of Thailand's total foreign debt of $88 billion.

A final point is that the financial market would like to know from the government how it really views the Thai economy. If the economy is undergoing structural adjustment and its stability needs to be managed with utmost caution, then a comprehensive economic package is required. It is better for Thailand to swallow a bitter pill now than to let the sickness grow worse.

 

BY THANONG KHANTHONG, VATCHARA CHAROONSANTIKUL

 

Ask Jeeves!

 

 

dot com mail,  dot com biz card and Web Registration

 

 

 

 

www.NoMonthlyFees.com

 

 

 

 

 

 

 

PC Hardware

 

 

Home ] Baht/economic crisis ] Banking crisis ] Overdrive ] General issues ] My profile ] Barns and Noble ] Thanong's Poll ] Message Board ] Chat Room ]