According to International Monetary Fund (IMF)’s figures, the Asian recovery started in February this year, six months ahead of the US recovery. Bank of Thailand governor Tarisa Wattanaket yesterday also indicated that the Thai economy had bottomed out in the second quarter. Most of the policy responses to the crisis are directed to the short-term need to shore up the economy in the face of the economic contraction. Fiscal injections are expected to generate greater domestic consumption that will ease the pain of domestic producers and consumers. Not much attention has been paid to how to make the fiscal injections sustainable. Even less thought has been given to what might a new “rebalanced growth path” for the country look like and how it can be achieved.
However, Prasert told the FTI seminar, moderated by Suthichai Yoon, Nation Multimedia Group’s editor-in-chief, that the government’s massive stimulus package is still indispensable if private consumption and investment are going to improve next year.
Between 2009-11, the Abhisit government has committed to invest a combined Bt1.43 trillion to boost the economy in the wake of the global economic crisis, which broke out in September 2008 following the collapse of US investment bank Lehman Brothers.
Obviously, the growth prospect of Thai economy depends on the prospect of growth and trade at the global and regional level. While there are signs every now and then that the western economies may begin to bottom out in the not too distant future, over optimism about this would be rash. Like in the case of the 1997 crisis, even if the economy bottoms out, this does not mean that the problems are over.
Thailand bottomed out after about five to six quarters from the start of the 1997 crisis, but it took five years before output got back to the pre-crisis level (see Figure 1). The decline in non performing loans ratio to below the level of 10 percent took even longer; about eight years. Thus, in the case of the sub-prime crisis, a quick return to business as usual appears to be out of the question.
Most of the policy responses to the crisis are directed to the short-term need to shore up the economy in the face of the economic contraction. Fiscal injections are expected to generate greater domestic consumption that will ease the pain of domestic producers and consumers. Not much attention has been paid to how to make the fiscal injections sustainable. Even less thought has been given to what might a new “rebalanced growth path” for the country look like and how it can be achieved.
Policy makers seem to hope that the current crisis will be short and that fiscal injections can provide a temporary relief before everything goes back to normal. As indicated earlier, this is likely to be wishful thinking.
Even if the US and other western economies hit bottom this year, it may take a while before full recovery is achieved. And it is unlikely that full recovery will mean that East Asian export can play as big a role in East Asian economies as it did before the crisis. Thus, some fundamental restructuring of Thailand’s economy, as well as those of other East Asian countries, to a new growth path which is less dependent on exports will be necessary. This will certainly not be easy and cannot be achieved in the short term.
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