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Economic gloom as Thai army seal downtown Bangkok

Bangkok fell into chaos yesterday as the government deployed troops and armoured vehicles to seal off the red-shirt protest site, leading to early closure of buildings in the Rajprasong are and greater uncertainties to the Thai economy.

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Bangkok fell into chaos yesterday as the government deployed troops and armoured vehicles to seal off the red-shirt protest site, leading to early closure of buildings in the Rajprasong are and greater uncertainties to the Thai economy.

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Economic gloom as barricades seal Rajprasong

Key risks to the outlook are (i) political uncertainty and (ii) the timing of the withdrawal of fiscal and monetary stimulus. Increased political tensions may have a long-lasting impact on investment, and withdrawal of stimulus (in Thailand and the advanced economies) must be precisely timed to avoid macroeconomic imbalances (including new asset bubbles) while also ensuring that the recovery is on a sufficiently solid footing.

Against the backdrop of a weakening US dollar and mounting trade surpluses, East Asian currencies and Thai baht have appreciated only modestly


The key risk to the global recovery lies in the need to get the timing of withdrawing fiscal and monetary stimulus just right. Withdrawal of fiscal stimulus too early may lead to another negative demand shock and a negative expectations spiral, whereas withdrawing the stimulus too late may lead to high inflation, further weakening of the US dollar, and possible asset price bubbles. In Thailand, for example, more than ten years since the 1997/1998 financial crisis banks still have bad loans in their books and the government still holds a large amount of debt related to the recapitalization of financial institutions. Given the expected length of recovery, it is important not to withdraw stimulus programs too soon, before the recovery is on a firm footing. On the other hand, macroeconomic imbalances are accumulating and eventually fiscal and monetary authorities, especially in the US, must consolidate their fiscal position and withdraw liquidity.

Economic gloom as barricades seal Rajprasong

The Thai baht has appreciated, but only to the extent of other regional exchange rates. The baht has appreciated 4.9 percent in 2009, compared for example to over 30 percent of the Brazilian real.

Most of the infrastructure development in Thailand has been responsive to demand rather than forward-looking. Availability and accessibility appear to no longer be a challenge. The next step for Thailand is to put more emphasis on quality of service delivery, management, and sound regulation.

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