Central Scrutinizer Posted February 10, 2009 Report Share Posted February 10, 2009 Interesting article: Collapse in demand the enemy Olarn: GDP could fall 4% without stimulus By: DARANA CHUDASRI Published: 4/02/2009 at 12:00 AM Heavy dependence on the global economy will cost Thailand dearly this year as demand across a range of industries has all but collapsed, warns former deputy premier Olarn Chaipravat. "For 2009, every country in the world will post negative growth, save perhaps for China," he said yesterday. "Without a stimulus package, Thailand could post the worst contraction in the world." Dr Olarn, an economist and former president of Siam Commercial Bank, said that without stimulus, real GDP could contract by 4.05% this year. "Thailand's three key industries are electronics, automobiles and tourism - each is projected to fall 20% this year, and the three together represent as much as 60% of GDP," he said at a conference at the Stock Exchange of Thailand. "Without effective measures, unemployment is sure to rise." Dr Olarn said the US bank Goldman Sachs forecast the balance sheet destruction of banks and non-banks this year at as much as US$2.376 trillion, or four times the 2008 estimate. The "financial bomb" that started in the US sub-prime market and exploded on Wall Street last year was not limited to the property and financial markets, but had spread to Main Street, undermining consumer demand for durable goods and electronics. Exports across the region had already begun to drop from the second half of 2008. Thai exports contracted by 17% year-on-year in November and 16% last month, and could fall by as much as 25% for January, Dr Olarn said. With sales down by over 20% for many companies for more than three months now, cash flow problems are spreading across various industries. He said bankruptcies could rise as businesses lack funds to cover inventory and working capital, making state assistance critical if the country was to avoid a sharp rise in unemployment. The government is pushing forward with a 116-billion-baht midyear spending budget to help finance job programmes, cash handouts and subsidies to ease the impact of the recession. Another 40 billion baht is expected to come from tax breaks for new homebuyers and small businesses. Authorities yesterday also approved new funding for state-owned banks to help cover business and state enterprise loan risks. Governments across the world are emptying their coffers to prop up growth - the US Congress is currently deliberating an $825-billion programme to shore up jobs and boost growth. But Dr Olarn said stimulus packages would fail if they were underfunded, slow to enact, misallocated or poorly co-ordinated with other countries. "This is probably the first time since the Great Depression that every government and 99% of all economists are in agreement that [expansionist] fiscal policy is the only way out," he said. "Monetary policy isn't going to be enough. Many countries have already been at zero interest rates or near zero with little impact." Dr Olarn said that for Thailand, effective policy would require first understanding the characteristics of each sector - how many people are employed, how many companies are affected and what financial institutions could help address the problems. He said companies and workers could then agree to reduce work hours to cut costs and free up time for new skills training. The government could also offer coupons or consumer subsidies to encourage purchases from problem sectors to support demand. "We aren't alone in facing these problems. This is a global crisis. Financing isn't the main issue. The main issue is more about how to implement these programmes in a co-ordinated fashion across the globe." A global response could result in a recovery by 2010, Dr Olarn said. But delays or policy mismanagement could result in a protracted downturn. "I think that if we can't solve the crisis, then the world should just give up on economics altogether. But if we can get out of this within two years, then we should all be sending our children to study economics even more." http://www.bangkokpost.com/business/economics/10997/collapse-in-demand-the-enemy Link to comment Share on other sites More sharing options...
cavanami Posted February 11, 2009 Report Share Posted February 11, 2009 Word is that Thailand has borrowed a pile of money from Japan recently...now, I am waiting for the baht to weaken, but not holding my breath! Link to comment Share on other sites More sharing options...
Coss Posted February 11, 2009 Report Share Posted February 11, 2009 It won't weaken until it's too late, the idea that all the vested interests, would forgo any of their money, to help out the economy and the people, just doesn't seem real. Thai wealth is not known for it's altruism. Baht will stay strong until it can't any more. JMHO Coss Link to comment Share on other sites More sharing options...
Flashermac Posted February 11, 2009 Report Share Posted February 11, 2009 << Thai wealth is not known for it's altruism. >> Considering that Thais are supposed to be Buddhists and believe in karma, this has always puzzled me. Numerous times I've pointed out to Thais how much money Bill Gates has donated to charities, to pay hospital bills for the poor etc etc. Then I ask, "What did Thaksin Shinawatra give to help those less fortunate?" Invariably, their reply is: "Why should he?" WTF happened to making merit? Apparently, greed is good these days. Link to comment Share on other sites More sharing options...
khunsanuk Posted February 11, 2009 Report Share Posted February 11, 2009 Hi, Making merit is done purely for selfish reasons in many cases. Sanuk! Link to comment Share on other sites More sharing options...
Mentors Posted February 11, 2009 Report Share Posted February 11, 2009 It won't weaken until it's too late, the idea that all the vested interests, would forgo any of their money, to help out the economy and the people, just doesn't seem real. Thai wealth is not known for it's altruism. Baht will stay strong until it can't any more. JMHO Coss same as former "catastrophe"-PM Chavalit did in 1997. Link to comment Share on other sites More sharing options...
drogon Posted February 11, 2009 Report Share Posted February 11, 2009 I suppose it would be losing face to let de baht depreciate to its correct level.... Sad thing if Thailand goes bust: Some board members will suffer the consequences, missus and Thai friends will also suffer.... Sad the governments never understand the "common good" but I guess it is expecting too much from local politicians to care about the people's good. Greed is great, look at the world's economy right now Link to comment Share on other sites More sharing options...
ThaiHome Posted February 11, 2009 Report Share Posted February 11, 2009 Its not about face, it is about oil. Thailand imports something like a million barrels of oil a day costing over 1,000 billion baht last year (probably double any other single import item). Almost all of that is bought on the spot market in USD. If the BOT were to let (or make) the baht suddenly depreciate even 10-15%, the impact due to increase fuel cost to the economy would be staggering and this is not the time,politically or economically, for that kind of a shock. If you look at the quick little graph, you can see that as the price of oil went up last year, there are little spikes downward in the baht, I suspect these were attempt by the BOT to strengthen the baht and when the exporters started screaming, the BOT backed off. I also assume these may have been timed to coincide when large oil purchases were made. Nevertheless, the overall trend over the past year is a continuing weakening against the USD as the BOT attempted to balance the cost of oil against the higher export prices. I do think that as part of their managed float scheme, they will let it slowly weaken through this year. With oil hanging out at around 40 or so, they can afford to do this in order to help the export market, but they need to be very careful. Note that for several months last year, Thailand actually ran a trade deficit because of oil prices, for an export economy, that is a disaster. TH Link to comment Share on other sites More sharing options...
drogon Posted February 11, 2009 Report Share Posted February 11, 2009 Thanks for the explanation although I am not entirely convinced. Many western countries rely heavily on oil and of course rising or decreasing oil prices affect the economy and currency strength... With a country like Thailand based on exportation -> why they didn't try to find a "middle way" between high oil prices and a "weak" bht??? Link to comment Share on other sites More sharing options...
ThaiHome Posted February 11, 2009 Report Share Posted February 11, 2009 They think they have. Just because it personally impacts you negatively doesnâ??t make it wrong for the country. TH Link to comment Share on other sites More sharing options...
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