The government’s imposition of the Internal Security Act in Bangkok from Nov 28 to Dec 14 is unlikely to cause adverse effects on the private sector or tourism, Federation of Thai Industries president Santi Wilassakdanont said on Tuesday. The Internal Security Act (ISA) allows troops to impose curfews, operate checkpoints, restrict movements of protesters and act fast if rallies by the United Front for Democracy against Dictatorship (UDD) turn violent.
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Private investment in Thailand has been subdued in the past three years due to uncertainty about the political situation.
In 2006-2008 investment grew by an average of 2.7 percent a year (compared with real GDP growth of 4.3 percent on average), down from 14.8 percent during 2003-2005. This earlier retrenchment of investment has dampened the impact of the financial crisis, most notably on foreign direct investment (FDI). While little new FDI is expected, there has been no rush to exit from foreign investors. Growth of private investment in 2008 came mainly from Thai investors, as gross FDI inflows declined from 2007 levels. Private investment is expected to contract 5 percent in 2009 as capacity utilization remains low (around 50 percent). However, growth could resume in the fourth quarter on the back of increased public investment. Public investment has been sluggish in Thailand since the 1998 crisis, but is expected to increase in 2009 given increased political stability and the political imperative to respond to the slowdown in the export sector. The share of public investment in real GDP averaged only 5.7 percent during 2004-2008 compared more than 10 percent before the 1998 crisis. In 2008, public investment contracted by nearly 5 percent as a result of political uncertainties, which delayed investment decisions. Public investment is projected to grow at 7 percent in 2009 as the implementation of large infrastructure projects step up.
The thai government is implementing two sets of stimulus measures, one of 1.5 percent of GDP targeted at FY09 (announced in January) and a recently-announced plan for FY10-12 (fiscal years run October-September) that anticipates deficits as high as 5 percent of GDP. As a consequence, government consumption is expected to increase by nearly 10 percent in 2009. The current account registered a small deficit in 2008, and is expected to turn to a surplus starting in 2009 supported by a steep decline both the price and volume of imports – especially fuel. The small deficit registered in 2008 was mostly due to the increase in imports and reduced exports and service receipts in the second half of the year. The financial account is expected to register modest net outflows in 2009 as portfolio investments continue to show outflows , while FDI net inflo will continue to be positive, but at a lower level compared to the past few years.
The Thai government announced an economic stimulus program totaling 117 billion baht ($3.34 billion). The program included a host of short-term measures to boost household consumption and assist lower-income families. The government is now preparing a second stimulus package worth 1.6 trillion baht ($45 billion). Among other initiatives, this package focuses on public investment in infrastructure projects, which the government hopes will help create 1.6 million jobs. “The infrastructure investments, if implemented, will help generate growth and improve Thailand’s competitiveness,” said World Bank. “However, it is worth noting that financing for infrastructure has been available for the past few years. What has suppressed investment was not funding, but rather political and institutional constraints.” While the impact on the real sector has been larger than expected, the global crisis has not shaken the Thai financial sector. The World Bank attributed this to Thailand’s strong macroeconomic fundamentals; low external debt coupled with high international reserves; and a sound financial sector, which has undergone a series of reforms following the 1997 crisis.
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