Ex-BOT chief urges return to fast growth

October 31, 2000

A FORMER governor of the Bank of Thailand has called for the new government to abolish inflation-targeting and instead shift its focus to a growth strategy to drag Thailand out of its economic crisis.

            In comments carried in yesterday's edition of Thai Rath, Vijit Supinit, advisor to the Senate Committee on Fiscal, Banking and Financial Institutions, urged the new government to reverse the Chuan government's pro-stability policy.

            "We need to pursue a strategy to achieve stable economic growth at the highest possible rate in order to tackle the accumulated economic problems," said Vijit, who was governor of the central bank for about six years before being removed in 1996 due to the Bangkok Bank of Commerce scandal.

            Vijit said the Chuan government is following a low-growth strategy to achieve stability through inflation-targeting. "This is something we need to change," he said.

            It is not clear in what capacity Vijit aired his controversial views, but he is known to be close to the Thai Rak Thai Party. Some of his suggestions reflect Thai Rak Thai's platform, ranging from the injection of equity and venture capital to stimulate small and medium-sized enterprises (SMEs) to the establishment of an SME bank and a bank for lower-income people.

            Vijit's emphasis is on the need for the new government to salvage the financial system and keep businesses afloat by relaxing its tight rules and regulations. He urged the authorities to ease the banks' capital-adequacy standards, the rules on the period after which unpaid loans are considered non-performing, and also the stringent conditions in the August 14 Banking Restructuring Programme.

            Vijit identified the negative factors threatening the economy as the ailing financial system, contracting credit growth, the high level of NPLs, tight banking standards and regulations, lack of domestic demand, concern over the economic recovery and exchange-rate jitters.

            "This has resulted in the sharp plunge of stock prices, weakening inflation, a contraction in money supply and bank credit, historically low interest rates, the lacklustre pace of corporate debt restructuring and excessive baht depreciation," he said.

  Under these negative conditions, he said, the economy will not return to its normal state for at least five years.

            Vijit criticised the fiscal-stimulus plan of the government, adopted in the middle of 1998, as failing to deliver results. The package only benefits the modern economic sector, which is dominated by multinational companies, he said.

            As a result of fiscal spending to kick-start the economy, the government's debts have risen sharply from Bt1.7 trillion in 1997 to Bt3.8 trillion this year. Vijit said the government may continue to practice fiscal deficit spending for another two to three years at most before it reaches crisis proportions.

            Vijit urged the new government to set a target of economic growth in the medium term at 5 to 7 per cent, keep inflation at 3 to 5 per cent and maintain the current account deficit at no more than 5 per cent of gross domestic product.

THANONG KHANTHONG