Last-ditch bid to speed up slow economy

October 17, 2000

THE government will introduce a last-ditch stimulus package next week to give the economy another boost.

Tariffs on raw materials will be cut, a lending programme by specialised banks for small- and medium-sized companies will be implemented, and the period for contributing to provident funds will be made more flexible for companies and their employees, sources at the Finance Ministry said.

Finance Minister Tarrin Nimmanahaeminda is particularly concerned about a potential delay - until early next year, possibly until March - in the formation of the next government, they said.

The delay, largely a result of technical complications in electoral laws, would create a power vacuum that could disrupt the momentum of the economic recovery, they said.

To remedy this, the Finance Ministry will propose to the Cabinet next Tuesday an economic stimulus package designed to make up for weak growth in private investment and domestic demand.

Higher oil prices, political uncertainties and an economic slowdown in the second half of this year have dampened consumer and investor confidence, prompting the government to take further action.

To boost private investment, the Finance Ministry will propose more tariff cuts on raw materials imported for domestic production, a senior official at the ministry said. "We would like to stimulate private investment and add more value to manufactured products," the official said.

In 1998 the Chuan government unveiled a major programme to cut tariffs on raw materials as part of its move to further liberalise the economy.

The programme has been sharply criticised by some economists, particularly Dr Virabongsa Ramangkura, who say it contributes to foreign companies' domination of Thailand's economy.

The tariff cuts to be introduced next week are part of an ongoing process to lower tariff barriers and liberalise the economy, ministry sources said.

Since the banking system has failed to function normally, the Finance Ministry is now drafting measures to force state-run banks to lend more money to the small- and medium-sized companies, they said.

Thai companies have been facing a severe shortage of liquidity since banks stopped lending, resulting in a contraction in domestic demand.

Outstanding banks loans, including Bangkok International Banking Facility loans, fell steadily from Bt5.21 trillion in January to Bt4.91 trillion in June.

The contraction in lending could also be explained by banks writing off their bad loans.

"The two measures [tariff cuts and increased lending] are part of the fiscal principle that we would like to implement to help the economy," the ministry official said.

The third prong of the stimulus package will be to make the period for companies and their employees to contribute to provident funds more flexible, the official said without elaborating. This will put more money in their pockets, the official said.

BY THANONG KHANTHONG