Fix the economy, crisis weary Thais tell new govt


  • World
  • Tuesday, 29 Jan 2008

MYT 8:00:59 PM

BANGKOK (Reuters) - Rampai Krongtong is frustrated.

The 32-year-old Bangkok store clerk is paying more for food and transport, but she doesn't expect a pay rise this year because the economy is sluggish. And prices could well continue to rise.

Her frustration is shared by other Thais, underlining how the economy is the number one challenge for a new coalition government due to take power next month.

"It's very, very tough," Rampai, who earns 5,000 baht ($150) a month, said.

"Everything is more expensive from goods to gas. But we still earn the same or even less because the economy is bad."

"We don't know how we can survive. The government has to fix the problem quickly or we're dead," she told Reuters.

After nearly two years of political strife, a bloodless coup and policies that scared foreign investors away, some analysts expect the economy to grow just 4 percent this year, which would be the weakest pace since 2001.

Most analysts see it growing modestly, but still at a pace well below the average of the last five years.

As growth is slowing, inflation is picking up. Stoked by high oil prices and food costs, annual inflation in December rose to one year high.

The Bank of Thailand, which revised its 2008 inflation forecast to 2.8-4.0 percent last week from 1.5-2.8 percent due to high oil costs, insists inflation is manageable.

But it doesn't look that way on the streets of Bangkok, where consumer confidence is at a five-year low and people are feeling the pinch of rising production costs.

A plate of fried rice at one of the city's ubiquitous food stalls costs 20 percent more than a year ago.

People grumble that some traders are ignoring government price controls on 35 items ranging from canned foods and soap to palm oil and milled rice, a staple of the Thai diet.

The People Power Party, which won the most votes in a December election on a pledge to reinstate the populist policies of Thaksin Shinawatra, the prime minister ousted in the 2006 coup, has said fixing the economy will be its top priority.

"When we are in government, we have to care about the peoples' mouths and stomachs," said PPP Secretary-General Surapong Suebwonglee, a top candidate for finance minister.

BIG SPENDING PLANS

The PPP has promised to speed up spending on multi-billion dollar infrastructure projects, stalled since late 2005 when street protests against Thaksin triggered a political crisis which led to his overthrow.

It also plans to reinstate village development funds and cheap loans for the rural poor which were scrapped or cut by the interim government appointed by the military after the coup in a bid to erase Thaksin's legacy.

"To maintain support for the PPP, he has to come up with policies that support the poor," Chulalongkorn University political scientist Giles Ungphakorn said a day after parliament elected PPP leader Samak Sundaravej as prime minister.

Big business wants a quick interest rate cut to fire up economic growth, which the finance ministry estimated slipped to 4.7 percent in 2007 from 5 percent in 2006. The five-year average is 5.5 percent.

They may get what they asked for. After holding rates steady at 3.25 percent since last July -- following five cuts to boost demand -- the central bank signalled on Monday it may ease borrowing costs soon.

Central bank Governor Tarisa Watanagase said a potential recession in the United States, Thailand's biggest export market by country, posed more risks to the Thai economy than inflation.

The central bank "will stick to a monetary policy which is conducive to economic growth," she said.

The central bank sees growth of 4.5-6.0 percent this year following signs of recovery in consumption and investment.

The Board of Investment, the government agency which oversees foreign and domestic investment, booked $18 billion in requests in 2007, up 32 percent from a year earlier.

The board says 2008 will be a stronger year for foreign applications amid financial market expectations that unfriendly policies, such as capital controls imposed to stem a surging baht and proposed tighter foreign investment rules, will be relaxed or scrapped.

"Thailand seemed to take a step back in terms of reform," Merrill Lynch strategist Daniel Casali said of the 16 months after the coup. "If you want to grow fast, you need to attract foreign capital."

But with the baht hovering around 10-year highs, the central bank has resisted calls to lift the controls, partly to protect exports which produce the equivalent of more than 60 percent of gross domestic product and could fall sharply if there is a global downturn.

The outlook is still very uncertain, said Siwakorn Litpongkawin, who works for a Bangkok-based import/export firm.

"Business is not good. Clients are gone and I don't expect much from the government," he said.

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