Opposition will try to outwit govt

August 24, 1999 -- SINCE the Thai economic recovery in 1999 is no longer questionable, with upward revision of the growth rate to 3-4 per cent, it comes as no surprise that the opposition will not just sit back and let the Democrat-led coalition government claim full credit for turning the country around.

''As signs of recovery will be even stronger in the fourth quarter of this year, I have heard from people in political science that they [the opposition] will have to move now [to undermine any political gains made by the Democrats],'' says a Thai official, who asked not to be named.

The official was referring to the politicisation of Krung Thai Bank which had become the government's weakest point. Since the opposition as well as a number of local economists have claimed that the government has completely failed to turn around the economy but must have now realised that recovery is under way, they have to shift the focus of attack on the government's failure to reform the banking system.

Krung Thai Bank has become a sacrificial lamb in this looming political contention, designed as an overture ahead of a new general election widely expected to take place early next year. The opposition has charged that credit at the state-controlled bank has been misallocated with very poor management controls leading to its bad debts climbing to 84 per cent, as suggested by a partial review report prepared by PricewaterhouseCoopers.

Disregarding the Krung Thai Bank scandal, officials from the International Monetary Fund last week painted a heartening scenario of the Thai economy, revising the growth rate upward from 1-2 per cent to 3-4 per cent in spite of the slow pace of structural reforms. But Reza Moghadam, the outgoing IMF representative for Thailand, said he would not be surprised if the growth rate turned out to be even higher.

''Is Dr Olarn [Chaipravat] having the last laugh?'' Finance Minister Tarrin Nimmanahaeminda asked recently, referring to a widely ridiculed forecast by the former president of the Siam Commercial Bank that Thai growth could reach 5 per cent this year.

After the 1997-98 crisis, Thailand is suddenly experiencing a recovery this year, which is part of the region-wide pattern that also sees South Korea and Malaysia rebounding strongly. ''I think we are indeed seeing a recovery, but I would prefer it to be gradual rather than a sharp rise. For if we have a sharp rise, chances are that it can flop again,'' said Deputy Finance Minister Pisit Lee-artham.

The recovery -- a ''V'' shape as illustrated by The Economist's chart --has been mainly fuelled by the demand side, particularly domestic consumption that collapsed over the past two years because of the economic crisis. Consumers have gone out on shopping sprees again, from buying new homes and goods at department stores to new cars, and companies have begun to rebuild their stocks.

The IMF officials said although the banking system, marred by the high level of non-performing loans, has not yet been restored to its normal function, it does not stand in the way of recovery. Neither did the rather slow pace of structural reforms.

The reason is that domestic consumption, which accounts for about 40 per cent of Thailand's gross domestic product, is not tied closely to the bank credit system, they argued.

Recovery can be attributed to the macroeconomic adjustments adopted in August 1998 when the government began to relax its monetary policy and raise government expenditure. Consumption has been buoyed largely by the expenditure, which has reached a deficit of about 6 per cent of the GDP.

The Bt130-billion economic stimulus package, introduced on March 30 this year, has added to the momentum of the recovery by returning some of the purchasing power, particularly the value-added tax cut from 10 to 7 per cent, back to Thai consumers. The Bt95-billion stimulus package, announced on Aug 10, represents only a follow-up policy framework to help the economy expand in the medium term.

The IMF officials admitted that government-stimulated growth will have its limit in the future. For recovery to be sustainable, the banking system must function again and the NPLs in the system must be brought down. In the short term, the slow pace of structural reforms, which also lie at the heart of the IMF's US$17.2-billion rescue package, does not inhibit recovery. But for the recovery momentum to continue, structural reforms must go forward vigorously to prevent a future crisis and to lay a stronger foundation for growth.

Even Prime Minister Chuan Leekpai is surprised by an economic report from the National Economic and Social Development Board (NESDB), which is preparing the second quarterly report on economic growth in 1999. In the first quarter of this year, economic growth was 0.9 per cent -- the first time after the Thai economy faced negative growth since the third quarter of 1997 or right after the baht devaluation.

The NESDB figure for the second quarter of 1999 has not yet been made official, but it will surprise a lot of people. And Chuan has given an assurance that his government has never told any agencies to add any cosmetics to official economic reports.

BY THANONG KHANTHONG