Stimulus measures will remain in place over the next one to two years, Finance Minister Korn Chatikavanij said yesterday, adding that his ministry was assessing how long Thailand could support budget deficits as a result of fiscal injections.
“The Finance Ministry is producing a five-to-10-year plan, to establish how many years budget deficits can continue and what will be the ratio of public debt to gross domestic product.
“If the government needs to take the lead in investment, and there is a low capacity to handle deficits, we’ll need to welcome more local and foreign investment participation. State enterprises should also play a bigger role,” he said.
The minister said if the government could not boost private participation or the role of state enterprises, Thailand would see low investment as government revenue alone could not support investment.
He also highlighted the possibility of reforming the tax system and introducing new taxes. Tax income at 15-16 per cent of GDP is too low when compared with 20-50 per cent in some countries, he said.
Siam City Bank president and CEO Chaiwat Uthaiwan agreed that to roll back stimulus packages now would be dangerous for the economy, as the recovery had only just started.
Separately, Budget Bureau director-general Walairat Sriarun said the bureau was ready to finance Thai Khemkhaeng projects with annual budgets, if the Bt400-billion borrowing bill did not win parliamentary approval.
Projects that provide economic returns and create jobs will be the priority, and the 2011 fiscal budget will be allocated for them, she said.
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Infrastructure services, if quickly improved, could promote a better investment climate in Thailand
Recent crashes in Thailand’s GDP and export markets, plus the drop in tourism fuelled by recession and last year’s domestic political turmoil, have dispelled illusions that the country is insulated from the effects of the global downturn. Numerous indicators of economic health are hitting the red, foreign investment is evaporating, unemployment is surging, and credit lines are freezing up. Thailand’s government still says there is a possibility of positive growth this year, despite facing a rougher ride than in the 1997 Asian financial crisis as conditions infest the real economy on a broader scale.
The approved Financial Institution Business Act (FIBA) facilitates increase in foreign ownership in Thai foreign institutions. The Financial Institution Business Act (FIBA) became effective on 3 August 2008 as planned. The FIBA allows financial institutions to raise the foreign limit from 25 percent to 49 percent with permission from the BOT and foreign investors may own more than 49 percent equity stake in Thai banks with permission from the Ministry of Finance and recommendation by the BOT. The increase in foreign limit would encourage Thai banks to seek foreign strategic partners to strengthen the capital base, improve core banking business, IT platform, know-how and add inorganic growth to Thai banks.
Implementation of Reforms in Thailand
These include both universal tariff reductions, which are applicable to goods from all countries, and specific tariff reductions that result from free trade agreements (FTAs) with other countries and regions. For example, since June 2008, a wide range of agricultural and manufactured products from ASEAN member countries, China, India, and New Zealand enjoy lower or no tariffs. Among others, they are butter, vegetable extracts and fats, pharmaceutical products, paper and tubes for a medical use, pumps for liquid, air and vacuum pumps, commercial trucks, steel tubes, iron wires, aluminum structures, dish washing machines, weighting machines, and switching circuits and boards parts. In addition, the government will also cut or cancel tariffs for three types of animal feeds (soybean, corn, and fish meals) in 2009. The magnitude of changes varies across different trade agreements, such as those with the WTO, ASEAN, ACMECS28, Japan, Australia, and New Zealand.
A clear policy framework is needed, and the development direction set forth by the policy makers should be based on reliable information on the current status of infrastructure development. Systematic, periodic, and internationally-standard information collection within the infrastructure sector will provide Thai policy makers with good background with which to assess the current situation, identify bottlenecks, set clear policy direction, and prioritize projects more effectively .