The economy may grow only 3 per cent per year over the next four to five years, making it crucial for the country to start rebuilding a system of “trust” as a precondition to achieving a stable growth path, said leading economist Dr Ammar Siamwalla yesterday.

A stable growth path means that Thailand should strive for an annual growth rate of 4 to 5 per cent, said Ammar at a panel discussion hosted by Compaq and Krungthep Thurakit.

He said Thais should learn to “trust” each other again by improving corporate governance, without which it would be impossible for the economy to break away from a cycle of debts.

High levels of debt continued to weaken corporate balance sheets and the fragile banking system might need to go through another round of recapitalisation, he said.

The Thai Asset Management Corporation, formed to buy bad debts from banks, might not be able to clean up the badloan problem, he said.

The banking system would likely be saddled with nonperforming loans totalling 10 to 20 per cent of lending even after the TAMC clean up, he said.

Banks remain reluctant to make new loans to the corporate sector because it remains saddled with old debts, he said.

The trust system existed in Thailand in the old days when bankers made loans to traders based on personal reputation, but both bankers and borrowers abused the system, Ammar said.

It is necessary to rebuild that system of trust which was destroyed in the financial crash of 1997, he said.

Dr Kosit Pampiemras, executive chairman of Bangkok Bank, also expressed concern over the sluggish economy.

“With a growth rate of 1 per cent, the rain falls only over a small part of the country. We need at least 4 per cent growth for everybody to get wet,” he said.

Kosit said he previously predicted it would take at least five years for Thailand to recover from the crisis. He now thinks recovery may take even longer but did not say for how long.

Thais need to build an infrastructure for the New Economy, by employing information technology, better management skills and improved corporate governance, he said.

It is necessary to make the investments now so that when the global economic environment improves, Thailand can benefit from the recovery and achieve a more stable growth rate of 4 to 5 per cent, he said.

“You can forget about having growth rates of 7 to 8 per cent as we had in the past,” he said. “We are now going through a period of uncertainty. In some years we might grow 4 to 5 per cent. But in others we may have growth of 0 to 2 per cent.”

Bangkok Bank had set a target of Bt10 billion this year for lend?ing to small and mediumsized enterprises (SMEs), Kosit said. But so far only Bt4 billion to Bt5 billion had been handed out because SMEs had not proposed enough projects worth lending to, he said.

The government cannot solve the problems faced by of SMEs by throwing money at them, Ammar said.

Thanong Khanthong