Rice insurance prices in sync with global forces The Bank for Agriculture and Agricultural Co-operatives will set aside 60 billion baht in credit to help prop up rice prices during the upcoming harvest.
Finance Minister Korn Chatikavanij said the loan facilities next month would support the government's broader intention to shift state farm policies toward a price-insurance programme.
One-third of the 60 billion baht in credit will be allocated to local rice mills as working capital to purchase paddy from local farmers. Another 20 billion baht will be offered directly to farmers as loans, with the remaining 20 billion going to the Public Warehouse Organisation to finance the purchase of up to 2 million tonnes of rice during the upcoming harvest.
Authorities earlier this month inaugurated a crop insurance programme starting with corn, insisting that coverage will eventually be expanded to all locally grown major agricultural commodities.
The insurance scheme, which has a budget of 43 billion baht this year from the government's 1.45-trillion-baht Thai Khem Kaeng infrastructure programme, will compensate farmers if market prices fall below previously established benchmark prices.
In the initial stages, the insurance programme is expected to cost 18 billion baht to cover corn and tapioca farmers, and 25 billion for rice farmers.
The programme will replace the long-established subsidy policy where the state-owned BAAC offers farmers loans pledged against their upcoming harvest.
The BAAC has incurred liabilities of well over 100 billion baht in recent years as pledging prices are typically set well above actual market prices, giving farmers an incentive to sell their produce to the state.
The government says the insurance programme will incur significantly less cost for taxpayers, as the state will pay only the difference in benchmark prices and market prices to farmers, rather than buy produce outright. Authorities also expect to save significant amounts by eliminating storage and logistics expenses incurred by state agencies under the previous subsidy programme.
Benchmark prices would be set based on global market forces, he said.
"The benchmark price that will be set by the government under the insurance programme will be a price that the government can expect to receive when selling into the global market," he said.
Mr Korn said another advantage of the insurance programme was its capacity to directly reach greater numbers of farmers when compared with previous crop-pledging schemes.
A total of 390,000 corn farmers have registered for the insurance programme, compared with only 80,000 beneficiaries of the most recent pledging programme.
An estimated 3 million rice, corn and tapioca farmers are expected to participate in the insurance programme this year, representing nearly half of the country's farm households.
Mr Korn said benchmark prices for rice paddy would be based on rice with moisture content of no more than 15%.
The Thai Rice Exporters Association yesterday set prices for 100% grade-B white rice at $525 a metric tonne, unchanged from last week.
The price of 25% white rice was set at $416 a tonne, down from $414 last week.
Saturday, October 31, 2009
CBRE spots opportunity in Cambodia
CB Richard Ellis Group Inc (CBRE) is opening a new office in Phnom Penh to expand its footprint in Southeast Asia. The company aims to capitalise on growing demand for professional real estate services and is also planning ahead to serve the market on Cambodia's southern coast.
"The opening of an office in Cambodia will allow CBRE to provide research,consultancy, valuation and advisory services in the country and will strengthen our broader platform in Southeast Asia,"said Daniel Parkes, country manager of CBRE Cambodia.
He said land prices in Cambodia had eased back from the sharp rises experienced since 2005. The market could be compared to Thailand, in particular Bangkok in the late 1980s, and Vietnam in the early 1990s -with a lot of potential for growth, few modern developments but latent demand.
The good news, he said, is that the government is very pro-investment and is offering a tax cap of 20%. It already offers 99-year leases to foreigners and is considering full foreign freehold.
Cambodia's Council of Ministers in July approved a sub-decree covering new co-ownership regulations, allowing legal ownership of individual apartments or condominium units, which paves the way for a law allowing foreign ownership of some property.
The new co-ownership regulations will make it possible to own units within a larger building without having title to the land it occupies. The goal is to guarantee and protect rights of legal holders in apartments or condominiums for coownership. It will also facilitate management on behalf of co-owners who live in the apartments or condominiums.
As well, the new regulations facilitate co-ownership for sale, exchange, donation, inheritance, permanent rental and collateralising of private holdings as personal ownership.
Foreigners have not been able to own Cambodian land or housing in the past.They could only rent property for their business or residence. Also, foreigners cannot buy land near borders with neighbouring countries because it could affect national sovereignty and security.
"The market is not without challenges and is coming off a low base," said Mr Parkes."There is no doubt that per-capita income in Phnom Penh is continuing to improve, with a surprisingly high number of private cars, trucks and bikes.
"Inbound retailers, while they lack a modern centre, are enjoying good business - for example, pizza franchises. There is only one modern high-rise office, Canadia Tower, which is soon to be completed. Projected rents are comparable to those of Bangkok's Grade A space."
In 2008, the GDP of Cambodia reached $9.2 billion, with tourism contributing $1.72 billion. Culture has played a key role in Cambodia in the past three decades and has created many jobs. From 2000 to 2008, GDP per capita in Cambodia increased by 158% from $286.90 to $739.
Take-up of industrial property is slow but major global companies are already buying land for assembly and manufacturing facilities, said Mr Parkes. There is also a fledgling condominium market and Korean developers have been active. There has also been a boom in new villas, with prices of up to $1 million each.
Chris Brooke, president and chief executive officer of CBRE in Asia,said the company's presence in the market would facilitate the provision of professional property services,while also supporting regional clients who have an interest in a unique emerging market.
As the capital, Phnom Penh has become a major focal point for economic and business development in recent years, said Mr Brooke. This region offers enormous business potential for further growth of domestic and foreign businesses.
In particular, backed by investment resulting from positive sentiment,Cambodia's real estate market is expected to continue its growth momentum in the years to come, particularly the resort property market along the coastline.
In the future CBRE will consider a resort office on the south coast, with the opening of the Ream airport, said Mr Parkes.
The company already has two major contracts. It is the sole agent for marketing exclusive villas on a private island, which are priced from $200,000 and come with hotel management and guaranteed returns. The company also has a key advisory role for Koh Rong, an island being positioned as an eco-tourism destination and a potential rival to Phuket and Koh Samui in Thailand.
"The opening of an office in Cambodia will allow CBRE to provide research,consultancy, valuation and advisory services in the country and will strengthen our broader platform in Southeast Asia,"said Daniel Parkes, country manager of CBRE Cambodia.
He said land prices in Cambodia had eased back from the sharp rises experienced since 2005. The market could be compared to Thailand, in particular Bangkok in the late 1980s, and Vietnam in the early 1990s -with a lot of potential for growth, few modern developments but latent demand.
The good news, he said, is that the government is very pro-investment and is offering a tax cap of 20%. It already offers 99-year leases to foreigners and is considering full foreign freehold.
Cambodia's Council of Ministers in July approved a sub-decree covering new co-ownership regulations, allowing legal ownership of individual apartments or condominium units, which paves the way for a law allowing foreign ownership of some property.
The new co-ownership regulations will make it possible to own units within a larger building without having title to the land it occupies. The goal is to guarantee and protect rights of legal holders in apartments or condominiums for coownership. It will also facilitate management on behalf of co-owners who live in the apartments or condominiums.
As well, the new regulations facilitate co-ownership for sale, exchange, donation, inheritance, permanent rental and collateralising of private holdings as personal ownership.
Foreigners have not been able to own Cambodian land or housing in the past.They could only rent property for their business or residence. Also, foreigners cannot buy land near borders with neighbouring countries because it could affect national sovereignty and security.
"The market is not without challenges and is coming off a low base," said Mr Parkes."There is no doubt that per-capita income in Phnom Penh is continuing to improve, with a surprisingly high number of private cars, trucks and bikes.
"Inbound retailers, while they lack a modern centre, are enjoying good business - for example, pizza franchises. There is only one modern high-rise office, Canadia Tower, which is soon to be completed. Projected rents are comparable to those of Bangkok's Grade A space."
In 2008, the GDP of Cambodia reached $9.2 billion, with tourism contributing $1.72 billion. Culture has played a key role in Cambodia in the past three decades and has created many jobs. From 2000 to 2008, GDP per capita in Cambodia increased by 158% from $286.90 to $739.
Take-up of industrial property is slow but major global companies are already buying land for assembly and manufacturing facilities, said Mr Parkes. There is also a fledgling condominium market and Korean developers have been active. There has also been a boom in new villas, with prices of up to $1 million each.
Chris Brooke, president and chief executive officer of CBRE in Asia,said the company's presence in the market would facilitate the provision of professional property services,while also supporting regional clients who have an interest in a unique emerging market.
As the capital, Phnom Penh has become a major focal point for economic and business development in recent years, said Mr Brooke. This region offers enormous business potential for further growth of domestic and foreign businesses.
In particular, backed by investment resulting from positive sentiment,Cambodia's real estate market is expected to continue its growth momentum in the years to come, particularly the resort property market along the coastline.
In the future CBRE will consider a resort office on the south coast, with the opening of the Ream airport, said Mr Parkes.
The company already has two major contracts. It is the sole agent for marketing exclusive villas on a private island, which are priced from $200,000 and come with hotel management and guaranteed returns. The company also has a key advisory role for Koh Rong, an island being positioned as an eco-tourism destination and a potential rival to Phuket and Koh Samui in Thailand.
Tuesday, October 20, 2009
EXPERTS FRET OVER RISING GOVT SPENDING
The economy is gradually recovering but government spending is getting out of hand and is a cause for concern, experts said yesterday. Pongpanu Svetarundra, director-general of the Comptroller-General's Department yesterday expressed his concern over the rising government spending on some items.
He said current spending accounts for 88 per cent of the government's total budget, leaving very little for capital spending.
"For every Bt100, Bt88 goes towards current spending (such as official salaries) and only Bt12 is left for investment spending," he said at the seminar hosted by the Fiscal Policy Office. Taking into account the government plan to borrow Bt800 billion to finance public investment over the next three years, it would run a fiscal deficit of about 7 per cent of gross domestic product, he said.
Public debt will jump to about 60 per cent of GDP in the next few years, up from the current 40-per-cent level.
He warned about spending on healthcare schemes for state officials, subsidy for farm products, financial support to local governments and debt repayment, which could go out of hand. "Previously the government spent about Bt20 billion or Bt30 billion on healthcare bills of state officials, now it has ballooned to about Bt60 billion a year," said Pongpanu.
There were fat on such spending that need to be eliminate, he warned.
The government would have to shoulder debt repayment of about Bt150 billion a year. "The interest payment on Bt800 billion would amount to about Bt20 billion a year," he lamented. The government's farm produce price-shoring scheme and universal healthcare subsidy programme are also increasing rapidly, he lamented.
"Over the next two or three years, such spending would be unsustainable," he said.
Pongpanu yesterday met noted economist Ammar Siamwalla at the Thailand Development Research Institute to discuss fiscal issues.
The government needs to take action now, otherwise it would not be able to balance the budget, he warned.
The government ran a fiscal deficit of about Bt500 billion for the previous fiscal year ended September this year. Expenditure was estimated at Bt1.9 trillion and revenue at Bt1.4 trillion.
The government has projected that public debt would peak in the next five years and then drop, based on the assumption that the economy would grow at about 4-5 per cent.
Dusit Nontanakorn, chairman of the Thai Chamber of Commerce, said the private sector was most worried about political instability. He said local firms had started to build inventory as more orders from foreign importers were coming.
Thanawat Polvichai, an economist at the University of Thai Chamber of Commerce, said that economic recovery remained fragile and consumers were still unsure about the future.
He said current spending accounts for 88 per cent of the government's total budget, leaving very little for capital spending.
"For every Bt100, Bt88 goes towards current spending (such as official salaries) and only Bt12 is left for investment spending," he said at the seminar hosted by the Fiscal Policy Office. Taking into account the government plan to borrow Bt800 billion to finance public investment over the next three years, it would run a fiscal deficit of about 7 per cent of gross domestic product, he said.
Public debt will jump to about 60 per cent of GDP in the next few years, up from the current 40-per-cent level.
He warned about spending on healthcare schemes for state officials, subsidy for farm products, financial support to local governments and debt repayment, which could go out of hand. "Previously the government spent about Bt20 billion or Bt30 billion on healthcare bills of state officials, now it has ballooned to about Bt60 billion a year," said Pongpanu.
There were fat on such spending that need to be eliminate, he warned.
The government would have to shoulder debt repayment of about Bt150 billion a year. "The interest payment on Bt800 billion would amount to about Bt20 billion a year," he lamented. The government's farm produce price-shoring scheme and universal healthcare subsidy programme are also increasing rapidly, he lamented.
"Over the next two or three years, such spending would be unsustainable," he said.
Pongpanu yesterday met noted economist Ammar Siamwalla at the Thailand Development Research Institute to discuss fiscal issues.
The government needs to take action now, otherwise it would not be able to balance the budget, he warned.
The government ran a fiscal deficit of about Bt500 billion for the previous fiscal year ended September this year. Expenditure was estimated at Bt1.9 trillion and revenue at Bt1.4 trillion.
The government has projected that public debt would peak in the next five years and then drop, based on the assumption that the economy would grow at about 4-5 per cent.
Dusit Nontanakorn, chairman of the Thai Chamber of Commerce, said the private sector was most worried about political instability. He said local firms had started to build inventory as more orders from foreign importers were coming.
Thanawat Polvichai, an economist at the University of Thai Chamber of Commerce, said that economic recovery remained fragile and consumers were still unsure about the future.
Saturday, October 17, 2009
MORE IRREGULARITIES UNCOVERED
The Rural Doctor Society has found more irregularities in the procurement of medical equipฌment under the Thai Khemkhaeng package with instances of the same items being purฌchased under different names and at different prices.
Dr Arak Wongworachart, a former chairperson of the society, said his team is now investigating the procurement of medical equipment after also finding that some items, such as sterilisers, had been unnecessarily imported when these items could have been purchased from local manufacturers.
Dr Kriangsak Watcharanukulkiet, the society's chairperson, said the society also found inequity in budget allocations under the Thai Khemkhaeng stimulus package.
The provinces which enjoyed a higher allocation compared to nearby areas were Surat Thani, Nakhon Si Thammarat, Nakhon Ratchasima, Ratchaburi, and Prae. All of these provinces are overseen by some politicians.
"Surat Thani has been allocated more than Bt3 billion to construct hospital buildings while more than Bt2 billion has been allocated to Nakhon Ratchasima province," Dr Kriangsaksaid. "The society will continue to investigate the irregularities in this budget allocation."
Kriangsak added that the society's director will review all medical items required to be purchased under the Thai Khemkhaeng budget and submit the results to the Public Health Ministry.
Kriangsak said Prime Minister Abhisit Vejjajiva has appointed Dr Banlu Siripanich, a former deputy permanent secretary at the Public Health Ministry, and former police chief Pol General Pratin Santiprabhob to an independent panel with the authority to summon officials and politicians to provide information to the committee.
"We have to open the way for the independent committee to fully investigate this issue. We are ready to support and provide any information that would assist in the investigation," he said. "No one pressured us and asked us to suspend the investigation."
Abhisit has appointed Banlu as a chairperson of the committee while Pratin was appointed deputy chairman.
The independent committee comprises Dr Vichai Chokevivat, Government Pharmaceutical Organisation's board chairperson, Dr Vachira Botpiboon, Nakhon Ratchasima's Chumpoung Hospital director, Dr Nivatchai Sujarit, Nan province hospital's director, and Banjerd Singkaneti, a former member of the Assets Examination Committee. This committee will take 30 days for the investigation.
"I am confident that I can identify the person behind the scandal," said Pratin.
"We will follow the evidence that we already have. These can lead us to the source of the corruption," he added
Dr Arak Wongworachart, a former chairperson of the society, said his team is now investigating the procurement of medical equipment after also finding that some items, such as sterilisers, had been unnecessarily imported when these items could have been purchased from local manufacturers.
Dr Kriangsak Watcharanukulkiet, the society's chairperson, said the society also found inequity in budget allocations under the Thai Khemkhaeng stimulus package.
The provinces which enjoyed a higher allocation compared to nearby areas were Surat Thani, Nakhon Si Thammarat, Nakhon Ratchasima, Ratchaburi, and Prae. All of these provinces are overseen by some politicians.
"Surat Thani has been allocated more than Bt3 billion to construct hospital buildings while more than Bt2 billion has been allocated to Nakhon Ratchasima province," Dr Kriangsaksaid. "The society will continue to investigate the irregularities in this budget allocation."
Kriangsak added that the society's director will review all medical items required to be purchased under the Thai Khemkhaeng budget and submit the results to the Public Health Ministry.
Kriangsak said Prime Minister Abhisit Vejjajiva has appointed Dr Banlu Siripanich, a former deputy permanent secretary at the Public Health Ministry, and former police chief Pol General Pratin Santiprabhob to an independent panel with the authority to summon officials and politicians to provide information to the committee.
"We have to open the way for the independent committee to fully investigate this issue. We are ready to support and provide any information that would assist in the investigation," he said. "No one pressured us and asked us to suspend the investigation."
Abhisit has appointed Banlu as a chairperson of the committee while Pratin was appointed deputy chairman.
The independent committee comprises Dr Vichai Chokevivat, Government Pharmaceutical Organisation's board chairperson, Dr Vachira Botpiboon, Nakhon Ratchasima's Chumpoung Hospital director, Dr Nivatchai Sujarit, Nan province hospital's director, and Banjerd Singkaneti, a former member of the Assets Examination Committee. This committee will take 30 days for the investigation.
"I am confident that I can identify the person behind the scandal," said Pratin.
"We will follow the evidence that we already have. These can lead us to the source of the corruption," he added
Tuesday, October 13, 2009
BOJ MULLS WINDING DOWN CRISIS SOPS
Japan's central bank kicked off a two-day meeting yesterday to discuss whether to end emergency measures aimed at keeping credit flowing to cash-strapped companies during the economic slump.
The Bank of Japan has been fighting the fall-out from the global economic downturn with super-low interest rates and purchases of corporate debt.
Some of its emergency steps are due to expire at the end of the year and markets are waiting to see whether the Bank will extend them.
Japan's Financial Services Minister Shizuka Kamei has accused the BoJ of "talking in its sleep" with its remarks suggesting that the emergency measures may be withdrawn. But analysts expect the Bank of ignore the political pressure, noting that few companies are currently taking advantage of the scheme anyway.
The Bank looks likely to end out-right purchases of corporate debt at the end of December, though an announcement may not come until its October 30 meeting, said JP Morgan Securities economist Masamichi Adachi.
"Regardless of when the decision is made, the BoJ probably will communicate that this is not the first step of tightening, but just the withdrawal of an emergency measure," he wrote in a note.
One BoJ board member, Miyako Suda, said last month that the need for the steps to support corporate financing was decreasing as the global financial crisis abated.
Analysts agree that the worst of the credit crunch appears to be over.
"Arguably, the crisis point for corporate funding, which is the target of the BoJ's extraordinary measures, has passed," said Naomi Fink, an investment strategist at Bank of Tokyo-Mitsubishi UFJ.
The Bank's policy committee is widely expected to leave its key interest rate on hold at 0.1 per cent when it announced its decision on Wednesday.
Japan's economy returned to positive growth in April-June, limping out of a year-long recession, but high unemployment, weak consumer spending and stubborn deflation are seen as posing risks to the recovery.
The Bank of Japan has been fighting the fall-out from the global economic downturn with super-low interest rates and purchases of corporate debt.
Some of its emergency steps are due to expire at the end of the year and markets are waiting to see whether the Bank will extend them.
Japan's Financial Services Minister Shizuka Kamei has accused the BoJ of "talking in its sleep" with its remarks suggesting that the emergency measures may be withdrawn. But analysts expect the Bank of ignore the political pressure, noting that few companies are currently taking advantage of the scheme anyway.
The Bank looks likely to end out-right purchases of corporate debt at the end of December, though an announcement may not come until its October 30 meeting, said JP Morgan Securities economist Masamichi Adachi.
"Regardless of when the decision is made, the BoJ probably will communicate that this is not the first step of tightening, but just the withdrawal of an emergency measure," he wrote in a note.
One BoJ board member, Miyako Suda, said last month that the need for the steps to support corporate financing was decreasing as the global financial crisis abated.
Analysts agree that the worst of the credit crunch appears to be over.
"Arguably, the crisis point for corporate funding, which is the target of the BoJ's extraordinary measures, has passed," said Naomi Fink, an investment strategist at Bank of Tokyo-Mitsubishi UFJ.
The Bank's policy committee is widely expected to leave its key interest rate on hold at 0.1 per cent when it announced its decision on Wednesday.
Japan's economy returned to positive growth in April-June, limping out of a year-long recession, but high unemployment, weak consumer spending and stubborn deflation are seen as posing risks to the recovery.
Monday, October 12, 2009
Russian economy sink more than forecast
Russian President Dmitry Medvedev said yesterday that Russia's economy was hit harder than expected by the global financial crisis, but Kremlin measures helped the country avoid the worst-case scenario.
Russia's gross domestic product will drop by about 7.5% this year, compared with earlier forecasts of 3% to 3.5%, and industrial production fell by nearly 14%in the first half of 2009, Mr Medvedev said.
"I must admit that we sunk below our lowest expectations," Mr Medvedev told the state-owned Channel One network in an interview that aired yesterday."The real damage to our economy was far greater that anything predicted by ourselves, the World Bank and other expert organisations."
Russia is facing its first recession in a decade, with gross domestic product down by an annual 10.9% in the second quarter of the year. The recession followed a crash in commodity prices, flagging foreign investment and a squeeze on credit markets.
Mr Medvedev said that Russia faces a significant budget deficit next year that will surpass the September figure of almost 5% of GDP."But it's not a tragedy,not a disaster for the economy," he said.
Russia's gross domestic product will drop by about 7.5% this year, compared with earlier forecasts of 3% to 3.5%, and industrial production fell by nearly 14%in the first half of 2009, Mr Medvedev said.
"I must admit that we sunk below our lowest expectations," Mr Medvedev told the state-owned Channel One network in an interview that aired yesterday."The real damage to our economy was far greater that anything predicted by ourselves, the World Bank and other expert organisations."
Russia is facing its first recession in a decade, with gross domestic product down by an annual 10.9% in the second quarter of the year. The recession followed a crash in commodity prices, flagging foreign investment and a squeeze on credit markets.
Mr Medvedev said that Russia faces a significant budget deficit next year that will surpass the September figure of almost 5% of GDP."But it's not a tragedy,not a disaster for the economy," he said.
Sunday, October 11, 2009
STRUCTURAL REFORMS URGENTLY NEEDED
Despite upbeat global economic indicators, Thailand could be in for hard times without changes in the way business is done By Nina Suebsukcharoen
"Under the Thai system we say we welcome foreign investment, but our laws block it, if in reality we don't actually obstruct it
Although there are clear signals that the global financial system is improving, and Thailand's institutions also show potential to grow again, there is work to be done yet to ensure a bright future, said Anusorn Tamajai, dean of Rangsit University's Faculty of Economics.
He added that belief that the global financial giants will recover is clearly demonstrated by investor confidence lately in their stocks.On top of this, governments are steadily getting the money they pumped into these institutions back.
This improved outlook of course benefits Thai financial institutions, which have weathered the global economic storm better than some of their counterparts elsewhere because they were not so heavily invested overseas and also had low exposure to collateralised debt obligations (CDOs). These institutions now have the potential to grow due to two key factors - the government's intention to borrow up to 800 billion baht for investment,and the improved performance by some export industries such as cars and electronics.
But while this is very encouraging, Mr Anusorn warned that unless real structural economic reforms are implemented, Thailand may still be in for hard times ahead.
"There have to be financial, regulatory and legal reforms," he said."For example,under the Thai system we say we welcome foreign investment, but our laws block it, if in reality we don't actually obstruct it.
"So this leads to the nominee system, and this sort of system is not straightforward. We say we have opened up, but if that's so we should make it very clear and open up the legal framework.
"We say we have opened up but our laws say there is a limitation. What then happens is that those who want to invest or do business here use the nominee system, and nominees are an avenue to corruption."
Aside from this, tax reform is sorely needed,said Mr Anusorn, who is also director of the Research Center for Economic and Business Reform based at Rangsit. He then identified two objectives in implementing tax reform - to increase the country's competitive edge and to straighten out uneven income distribution.
Although rural people across the world tend to earn less than urbanites, Mr Anusorn noted that in some countries there are better welfare and tax systems in place to alleviate the problem.
He added that a lack of strategic vision was underlined by the Administrative Court injunction on Sept 29 suspending the operating permits of 76 industrial projects in the Map Ta Phut industrial zone in Rayong province.
The government has been faulted for not doing enough to ensure that these big industrial projects had passed proper environmental and health impact screening.
"There are 76 projects worth over 400 billion baht, but definitely for investment and economic growth to be sustainable, development has to be linked to quality of life of local residents and the environment," said Mr Anusorn.
"However, because we don't have strategic and integrated planning, we give the goahead for projects without looking to see whether they should proceed."
He said many of the projects should not have been been allowed in the first place,moved elsewhere or else the laws should be amended to make it clear that it is possible to expand existing industrial parks.
"The court ordered their suspension because there are points which indicate that this cannot be done and people are really affected."
While Mr Anusorn expects the government to find a way to get the projects started again,he noted that the issue has already affected the economy and undermined investor confidence.
"This doesn't mean we shouldn't be concerned about the environment and quality of life. The issue is both legal and regulatory - it has to be cleared up so that this sort of a risk doesn't occur."
He said another example of how good plans can be torpedoed is former prime minister Thaksin Shinawatra's idea to turn Prachuap Khiri Khan into the equivalent of the French Riviera. Today there are plans afoot to locate heavy industries in the province.
Mr Anusorn is mostly against trying to work out a compromise without changes in the legal structure because that would only stretch the problem out, leading to a breaking point.
"As long as you have a structural problem you need structural reform to solve the root of the problem. Constantly compromising won't solve it."
Despite these deep-rooted problems Thailand is expected to post 3-4% economic growth in the fourth quarter of this year, with expansion to continue next year. But Mr Anusorn noted the growth here is the lowest in the region, and said this was because of the chances missed to draw investment when cash was flowing to Asia recently.
"There is room for growth and growth is not a problem in the next six months if there is political stability and government stimulus measures such as Thai Khem Kaeng move ahead according to the plan," said Mr Anusorn.
The Thai stock market is also expected to climb to 800 to 850 points from this quarter onward to the first quarter of next year. This is because not only does the whole bourse lag other Asian markets certain key sectors such as energy, petrochemicals, property and banks also trail.
"But if private investment doesn't revive in the second half of next year when stimulus through government spending starts easing,then the economy will not move ahead,"said Mr Anusorn."The initial assumption is that government spending will occur and will also induce private investment to take place."
Where bonds and fixed-income markets are concerned, interest rates will rise if the economy starts expanding and there is a revival of private investment. Government spending on its own will not push these rates up, but it would prevent them from falling any further, said Mr Anusorn.
"Under the Thai system we say we welcome foreign investment, but our laws block it, if in reality we don't actually obstruct it
Although there are clear signals that the global financial system is improving, and Thailand's institutions also show potential to grow again, there is work to be done yet to ensure a bright future, said Anusorn Tamajai, dean of Rangsit University's Faculty of Economics.
He added that belief that the global financial giants will recover is clearly demonstrated by investor confidence lately in their stocks.On top of this, governments are steadily getting the money they pumped into these institutions back.
This improved outlook of course benefits Thai financial institutions, which have weathered the global economic storm better than some of their counterparts elsewhere because they were not so heavily invested overseas and also had low exposure to collateralised debt obligations (CDOs). These institutions now have the potential to grow due to two key factors - the government's intention to borrow up to 800 billion baht for investment,and the improved performance by some export industries such as cars and electronics.
But while this is very encouraging, Mr Anusorn warned that unless real structural economic reforms are implemented, Thailand may still be in for hard times ahead.
"There have to be financial, regulatory and legal reforms," he said."For example,under the Thai system we say we welcome foreign investment, but our laws block it, if in reality we don't actually obstruct it.
"So this leads to the nominee system, and this sort of system is not straightforward. We say we have opened up, but if that's so we should make it very clear and open up the legal framework.
"We say we have opened up but our laws say there is a limitation. What then happens is that those who want to invest or do business here use the nominee system, and nominees are an avenue to corruption."
Aside from this, tax reform is sorely needed,said Mr Anusorn, who is also director of the Research Center for Economic and Business Reform based at Rangsit. He then identified two objectives in implementing tax reform - to increase the country's competitive edge and to straighten out uneven income distribution.
Although rural people across the world tend to earn less than urbanites, Mr Anusorn noted that in some countries there are better welfare and tax systems in place to alleviate the problem.
He added that a lack of strategic vision was underlined by the Administrative Court injunction on Sept 29 suspending the operating permits of 76 industrial projects in the Map Ta Phut industrial zone in Rayong province.
The government has been faulted for not doing enough to ensure that these big industrial projects had passed proper environmental and health impact screening.
"There are 76 projects worth over 400 billion baht, but definitely for investment and economic growth to be sustainable, development has to be linked to quality of life of local residents and the environment," said Mr Anusorn.
"However, because we don't have strategic and integrated planning, we give the goahead for projects without looking to see whether they should proceed."
He said many of the projects should not have been been allowed in the first place,moved elsewhere or else the laws should be amended to make it clear that it is possible to expand existing industrial parks.
"The court ordered their suspension because there are points which indicate that this cannot be done and people are really affected."
While Mr Anusorn expects the government to find a way to get the projects started again,he noted that the issue has already affected the economy and undermined investor confidence.
"This doesn't mean we shouldn't be concerned about the environment and quality of life. The issue is both legal and regulatory - it has to be cleared up so that this sort of a risk doesn't occur."
He said another example of how good plans can be torpedoed is former prime minister Thaksin Shinawatra's idea to turn Prachuap Khiri Khan into the equivalent of the French Riviera. Today there are plans afoot to locate heavy industries in the province.
Mr Anusorn is mostly against trying to work out a compromise without changes in the legal structure because that would only stretch the problem out, leading to a breaking point.
"As long as you have a structural problem you need structural reform to solve the root of the problem. Constantly compromising won't solve it."
Despite these deep-rooted problems Thailand is expected to post 3-4% economic growth in the fourth quarter of this year, with expansion to continue next year. But Mr Anusorn noted the growth here is the lowest in the region, and said this was because of the chances missed to draw investment when cash was flowing to Asia recently.
"There is room for growth and growth is not a problem in the next six months if there is political stability and government stimulus measures such as Thai Khem Kaeng move ahead according to the plan," said Mr Anusorn.
The Thai stock market is also expected to climb to 800 to 850 points from this quarter onward to the first quarter of next year. This is because not only does the whole bourse lag other Asian markets certain key sectors such as energy, petrochemicals, property and banks also trail.
"But if private investment doesn't revive in the second half of next year when stimulus through government spending starts easing,then the economy will not move ahead,"said Mr Anusorn."The initial assumption is that government spending will occur and will also induce private investment to take place."
Where bonds and fixed-income markets are concerned, interest rates will rise if the economy starts expanding and there is a revival of private investment. Government spending on its own will not push these rates up, but it would prevent them from falling any further, said Mr Anusorn.
Thursday, October 8, 2009
Confidence inches up for fourth month
Consumer confidence climbed for the fourth consecutive month in September in anticipation of an economic recovery driven by government stimulus spending,according to a survey by the University of the Thai Chamber of Commerce.
September's index rose to 75.6 from 74.5 in August,73.4 in July and 72.5 in June, reflecting hopes that the country would soon emerge from recession.
The government plans to spend more than one trillion baht on 6,000 projects covering transport, logistics, health and education over three years to spur economic growth.
"It's the fourth month that the index has gained, but it is still lower than 100 points for the 63rd month," said Vachira Kunthawethep, a UTCC economist. A score of 100 is seen as normal.
"This reflects consumers' persistent lack of confidence in the general situation,especially with regard to the ongoing domestic political strife which may have adverse effects on the economic recovery and future employment."
In the survey of 2,242 respondents nationwide, the scores edged up from August for the economy to 68.4 from 67.4, job opportunities to 67.3 from 66.4,and future income to 91.0 from 89.4.
Mr Vachira said clearer signs that the economy will recover also encouraged people to start spending,
The index gauges decisions on large purchases such as cars and houses, and investment expansion.
"Consumer confidence has bottomed out," said Thanavath Phonvichai, a UTCC economist."However, it remains to be seen if the recovery will be sustained, as we have to wait for the outcomes of key situations in October, in particular, constitutional amendments and the Administrative Court injunction to halt 76 investment projects mostly in the Map Ta Phut industrial estate."
Mr Thanavath predicted the economic recovery would definitely be affected if controversy over the industrial investment projects was prolonged.
September's index rose to 75.6 from 74.5 in August,73.4 in July and 72.5 in June, reflecting hopes that the country would soon emerge from recession.
The government plans to spend more than one trillion baht on 6,000 projects covering transport, logistics, health and education over three years to spur economic growth.
"It's the fourth month that the index has gained, but it is still lower than 100 points for the 63rd month," said Vachira Kunthawethep, a UTCC economist. A score of 100 is seen as normal.
"This reflects consumers' persistent lack of confidence in the general situation,especially with regard to the ongoing domestic political strife which may have adverse effects on the economic recovery and future employment."
In the survey of 2,242 respondents nationwide, the scores edged up from August for the economy to 68.4 from 67.4, job opportunities to 67.3 from 66.4,and future income to 91.0 from 89.4.
Mr Vachira said clearer signs that the economy will recover also encouraged people to start spending,
The index gauges decisions on large purchases such as cars and houses, and investment expansion.
"Consumer confidence has bottomed out," said Thanavath Phonvichai, a UTCC economist."However, it remains to be seen if the recovery will be sustained, as we have to wait for the outcomes of key situations in October, in particular, constitutional amendments and the Administrative Court injunction to halt 76 investment projects mostly in the Map Ta Phut industrial estate."
Mr Thanavath predicted the economic recovery would definitely be affected if controversy over the industrial investment projects was prolonged.
Sunday, October 4, 2009
US decline forges new world order
The crisis is redrawing the world map of economic power as the influence of US consumer spending declines and major emerging markets like China and India take the lead, finance chiefs said.
"One of the legacies of this crisis may be a recognition of changed economic power relations," World Bank president Robert Zoellick said on Friday in Istanbul ahead of annual meetings of the World Bank and the International Monetary Fund.
"Recent forecasts show that China and India are helping to pull the global economy out of recession.... A multipolar economy less reliant on the US consumer will be a more stable world economy," he added.
Consumer spending accounts for around two-thirds of economic activity in the United States - by far the world's biggest economy - and experts say lower spending could have radical effects on the US's world standing.
The IMF on Thursday forecast emerging and developing economies would grow 5.1% in 2010- in contrast with just 1.3% in advanced economies.
China's economy was projected to grow by 9% next year and India's by 6.4%- far ahead of 1.5% expansion in the US economy.
"The American engine is not as strong as it was before," IMF managing director Dominique Strauss-Kahn said in a speech in which he called for emerging markets to be given more say in the IMF's decisions.
"Emerging economies are becoming more and more the real partners," he said.
In a BBC World debate on the crisis held in Istanbul, Niall Ferguson, a professor of business administration at Harvard Business School in the United States,said:"The crisis has accelerated a shift from west to east."
"That means rebalancing not only economically... but rebalancing geopolitically, which I think makes some people nervous," Mr Ferguson said.
"For the foreseeable future, the US will be growing at a much lower rate while China is in fact growing at a much faster rate," he added.
The shift is having far-reaching effects around the world.
In Latin America, IMF economists said the crisis is affecting countries differently depending on whether, like Mexico, they are more closely tied to the United States or, like Brazil, they have more links with China.
"If it was not for China, we wouldn't have seen positive growth in the second quarter in Brazil," Ilan Goldfajn, chief economist at Brazilian bank ItauดUnibanco, said at an IMF-organised conference in Istanbul.
Mr Goldfajn said the world would now start to "rebalance towards Asia."
Marek Belka, head of the IMF's European department, cautioned however that for European countries,"demand from Asia is not enough - the recovery rests on the shoulders of European consumers and investors."
This upheaval is changing institutions too, with the G20 group of developed and emerging economies turning into the main forum for international economic policy and strengthening the IMF as a guarantor of global stability.
The IMF has bailed out countries around the world in recent months and its members have tripled its lending resources to $750 billion (515 billion).
Mr Strauss-Kahn has more ambitious plans yet and is seeking more funding to strengthen the IMF's role as a global lender of last resort.
"Our ultimate goal is financial and economic stability," he said in a speech in Istanbul at which he outlined plans to even out global economic imbalances.
The G20 summit in the US city of Pittsburgh last month also agreed to give more voting shares to emerging and developing economies in the IMF and the World Bank - a reflection of the shift in economic power.
"One of the legacies of this crisis may be a recognition of changed economic power relations," World Bank president Robert Zoellick said on Friday in Istanbul ahead of annual meetings of the World Bank and the International Monetary Fund.
"Recent forecasts show that China and India are helping to pull the global economy out of recession.... A multipolar economy less reliant on the US consumer will be a more stable world economy," he added.
Consumer spending accounts for around two-thirds of economic activity in the United States - by far the world's biggest economy - and experts say lower spending could have radical effects on the US's world standing.
The IMF on Thursday forecast emerging and developing economies would grow 5.1% in 2010- in contrast with just 1.3% in advanced economies.
China's economy was projected to grow by 9% next year and India's by 6.4%- far ahead of 1.5% expansion in the US economy.
"The American engine is not as strong as it was before," IMF managing director Dominique Strauss-Kahn said in a speech in which he called for emerging markets to be given more say in the IMF's decisions.
"Emerging economies are becoming more and more the real partners," he said.
In a BBC World debate on the crisis held in Istanbul, Niall Ferguson, a professor of business administration at Harvard Business School in the United States,said:"The crisis has accelerated a shift from west to east."
"That means rebalancing not only economically... but rebalancing geopolitically, which I think makes some people nervous," Mr Ferguson said.
"For the foreseeable future, the US will be growing at a much lower rate while China is in fact growing at a much faster rate," he added.
The shift is having far-reaching effects around the world.
In Latin America, IMF economists said the crisis is affecting countries differently depending on whether, like Mexico, they are more closely tied to the United States or, like Brazil, they have more links with China.
"If it was not for China, we wouldn't have seen positive growth in the second quarter in Brazil," Ilan Goldfajn, chief economist at Brazilian bank ItauดUnibanco, said at an IMF-organised conference in Istanbul.
Mr Goldfajn said the world would now start to "rebalance towards Asia."
Marek Belka, head of the IMF's European department, cautioned however that for European countries,"demand from Asia is not enough - the recovery rests on the shoulders of European consumers and investors."
This upheaval is changing institutions too, with the G20 group of developed and emerging economies turning into the main forum for international economic policy and strengthening the IMF as a guarantor of global stability.
The IMF has bailed out countries around the world in recent months and its members have tripled its lending resources to $750 billion (515 billion).
Mr Strauss-Kahn has more ambitious plans yet and is seeking more funding to strengthen the IMF's role as a global lender of last resort.
"Our ultimate goal is financial and economic stability," he said in a speech in Istanbul at which he outlined plans to even out global economic imbalances.
The G20 summit in the US city of Pittsburgh last month also agreed to give more voting shares to emerging and developing economies in the IMF and the World Bank - a reflection of the shift in economic power.
Improved tax collections key to balance
The government should raise tax revenues by 10-11% per year to achieve a balanced budget, according to Supavud Saicheua, managing director of Phatra Securities.
In the 2009 fiscal year that ended on Sept 30, the government set a tax revenue target of 1.47 trillion baht and collected 1.36 trillion in the first 11 months. For fiscal 2010, it is forecasting tax revenue of 1.35 trillion baht,8.5%lower than in the previous fiscal year.
"The government's attempt to run a budget deficit this year and borrow up to 800 billion baht to invest in the Thai Khem Kaeng scheme will drive public debt to 60% of gross domestic product," he said.
The Finance Ministry earlier projected that public debt should not exceed 50% of GDP as tax revenues would be only 15% of GDP. In developed countries, governments can collect tax revenues as high as 25-30% of GDP, so public debt can soar to 70% of GDP.
"We forecast that if the Thai economy expands less than 3% per year,the country will face high public debt problems," said Dr Supavud at a seminar last week.
The government projects public debt will shrink based on the assumption that the Thai economy grows by 5.5%per year and inflation stands at 3.5%,meaning nominal GDP growth of 9%.
The government will try to generate additional revenue from other means besides tax increases, because the public could not accept a higher tax burden,he said. However, it could generate more tax revenue when the inflation rate surges as product prices rise and more value-added tax would be collected.
Dr Supavud believes the Thai economy will pick up next year but that a rapid or V-shaped recovery is unlikely because China, a major growth engine for the global economy, would have slower growth next year.
The Chinese government slowed its economic stimulus plan to prevent a bubble economy. This is a risk for the Thai economy and Thailand will probably have a W-shaped recovery, he said.
"The Thai Khem Kaeng programme allows the government to inject money into the economy, thereby increasing the competitiveness of the country,"he said.
Thailand should have a strategic plan to make itself an investment hub for international companies, he added.Alternatively, the country could use its strength in agriculture to develop agricultural products, or develop new tourism markets such as home stays for senior citizens or retirees, he said.
Surathien Chaktaranon, an independent academic, said private investment would not pick up even if exports improve following the global economic rebound.
"Some investors are still worried about political risks and some would relocate their plants to other countries if local politics remain uncertain," he said.
In the 2009 fiscal year that ended on Sept 30, the government set a tax revenue target of 1.47 trillion baht and collected 1.36 trillion in the first 11 months. For fiscal 2010, it is forecasting tax revenue of 1.35 trillion baht,8.5%lower than in the previous fiscal year.
"The government's attempt to run a budget deficit this year and borrow up to 800 billion baht to invest in the Thai Khem Kaeng scheme will drive public debt to 60% of gross domestic product," he said.
The Finance Ministry earlier projected that public debt should not exceed 50% of GDP as tax revenues would be only 15% of GDP. In developed countries, governments can collect tax revenues as high as 25-30% of GDP, so public debt can soar to 70% of GDP.
"We forecast that if the Thai economy expands less than 3% per year,the country will face high public debt problems," said Dr Supavud at a seminar last week.
The government projects public debt will shrink based on the assumption that the Thai economy grows by 5.5%per year and inflation stands at 3.5%,meaning nominal GDP growth of 9%.
The government will try to generate additional revenue from other means besides tax increases, because the public could not accept a higher tax burden,he said. However, it could generate more tax revenue when the inflation rate surges as product prices rise and more value-added tax would be collected.
Dr Supavud believes the Thai economy will pick up next year but that a rapid or V-shaped recovery is unlikely because China, a major growth engine for the global economy, would have slower growth next year.
The Chinese government slowed its economic stimulus plan to prevent a bubble economy. This is a risk for the Thai economy and Thailand will probably have a W-shaped recovery, he said.
"The Thai Khem Kaeng programme allows the government to inject money into the economy, thereby increasing the competitiveness of the country,"he said.
Thailand should have a strategic plan to make itself an investment hub for international companies, he added.Alternatively, the country could use its strength in agriculture to develop agricultural products, or develop new tourism markets such as home stays for senior citizens or retirees, he said.
Surathien Chaktaranon, an independent academic, said private investment would not pick up even if exports improve following the global economic rebound.
"Some investors are still worried about political risks and some would relocate their plants to other countries if local politics remain uncertain," he said.
Stimulus impact muted by lack of knowledge improvements
Thailand's competitiveness should definitely increase with a boost from the government's Thai Khem Kaeng stimulus programme covering more than 6,000 development projects.
But the degree of the increase is still debatable, as most of the 1.43 trillion baht in funds over the next three years will go to infrastructure development or construction projects.
According to Suwit Sappavitthayasiri,senior economist at the Fiscal Policy Research Institute, infrastructure development generally contributes no more than 10% of the factors that will raise competitiveness or/and productivity.
"Infrastructure investment does not play a critical role in raising competitiveness as we understand it. Human resource development, capital, education, public health, good government policies and political stability instead are what matter," he said.
"The second economic stimulus package will undeniably stimulate economic growth, but will not raise productivity much, as for productivity or competitiveness alike we need to focus on people's quality and their health."
Mr Suwit said that while rough amounts of spending and the number of projects are available from promoters of the stimulus programme, in-depth detail is lacking on how each investment project could increase productivity.
The programme does aim, however,to create 1.1 million jobs in three years and promote growth of about 5% a year.
The cabinet on Oct 13 is scheduled to reconsider investment projects under the programme, as the government expects to have an extra 150 billion baht available for investment given rising revenues with the economic recovery.
Arkhom Termpittayapaisith, the National Economic and Social Development Board's deputy secretary-general, said the investments would be separated into three groups.
They would go mainly to strengthen food and energy security and increase productivity in the agriculture and industrial sectors, upgrade mass transit,restore tourism and promote a creative economy. The programme also covers education quality improvement and a knowledge-based society.
In an earlier plan, projects for imme-diate implementation were estimated at 1.06 trillion baht in the 2010 fiscal budget, covering water development,logistics, alternative energy, tourism infrastructure and education. The priorities are water management, at 17% of the total value, and transport at 335.9 billion baht (40%), including maintenance of highways, rural roads and mass-transit projects.
But the degree of the increase is still debatable, as most of the 1.43 trillion baht in funds over the next three years will go to infrastructure development or construction projects.
According to Suwit Sappavitthayasiri,senior economist at the Fiscal Policy Research Institute, infrastructure development generally contributes no more than 10% of the factors that will raise competitiveness or/and productivity.
"Infrastructure investment does not play a critical role in raising competitiveness as we understand it. Human resource development, capital, education, public health, good government policies and political stability instead are what matter," he said.
"The second economic stimulus package will undeniably stimulate economic growth, but will not raise productivity much, as for productivity or competitiveness alike we need to focus on people's quality and their health."
Mr Suwit said that while rough amounts of spending and the number of projects are available from promoters of the stimulus programme, in-depth detail is lacking on how each investment project could increase productivity.
The programme does aim, however,to create 1.1 million jobs in three years and promote growth of about 5% a year.
The cabinet on Oct 13 is scheduled to reconsider investment projects under the programme, as the government expects to have an extra 150 billion baht available for investment given rising revenues with the economic recovery.
Arkhom Termpittayapaisith, the National Economic and Social Development Board's deputy secretary-general, said the investments would be separated into three groups.
They would go mainly to strengthen food and energy security and increase productivity in the agriculture and industrial sectors, upgrade mass transit,restore tourism and promote a creative economy. The programme also covers education quality improvement and a knowledge-based society.
In an earlier plan, projects for imme-diate implementation were estimated at 1.06 trillion baht in the 2010 fiscal budget, covering water development,logistics, alternative energy, tourism infrastructure and education. The priorities are water management, at 17% of the total value, and transport at 335.9 billion baht (40%), including maintenance of highways, rural roads and mass-transit projects.
Ministry seeks Creative Economy Office
In a bid to maximise the benefits of the Creative Economy, Creative Thailand project, the Commerce Ministry will next week propose that the government set up a Creative Economy Office to smooth its implementation.
The office will directly handle the allocation of the scheme's Bt20.13-billion budget from the government, to ensure that it is spent on the right activities and creates the maximum benefit for the Kingdom.
Deputy Commerce Minister Alongkorn Pollabutr said the ministry needed the new office to smooth operations of the scheme's projects and increase the efficiency of its budget management.
"The goal of the Creative Thailand project is sustainable development. Having the office will ensure that every government implements the policy. In particular, the improved budget allocation should create trade growth," said Alongkorn.
Approval of the creation of the new office will be submitted to a meeting of the Creative Economy committee, led by Prime Minister Abhisit Vejjajiva, on Wednesday.
Initially, the new agency will have an operating budget of Bt3 billion. All government units working on Creative Economy projects must transfer part of their human resources and delegate some of their tasks related to the Creative Economy scheme to the new agency.
Those organisations are the ministry's Intellectual Property Rights Centre and Office of Product Value Development; the Information Communications and Technology Ministry; the Culture Ministry; and the Science and Technology Ministry.
The new unit is expected to be set up by December. It will be administered by the Prime Minister's Office.
The government has set aside Bt20.13 billion to fund the project, which is designed to increase the added value of Thai industrial and cultural assets. It is part of the Bt1.43-trillion Thai Khemkhaeng project.
So far, about 300 project proposals from government agencies and private companies have been submitted to the government in the hopes of being awarded financial support under the Creative Economy scheme.
The office will directly handle the allocation of the scheme's Bt20.13-billion budget from the government, to ensure that it is spent on the right activities and creates the maximum benefit for the Kingdom.
Deputy Commerce Minister Alongkorn Pollabutr said the ministry needed the new office to smooth operations of the scheme's projects and increase the efficiency of its budget management.
"The goal of the Creative Thailand project is sustainable development. Having the office will ensure that every government implements the policy. In particular, the improved budget allocation should create trade growth," said Alongkorn.
Approval of the creation of the new office will be submitted to a meeting of the Creative Economy committee, led by Prime Minister Abhisit Vejjajiva, on Wednesday.
Initially, the new agency will have an operating budget of Bt3 billion. All government units working on Creative Economy projects must transfer part of their human resources and delegate some of their tasks related to the Creative Economy scheme to the new agency.
Those organisations are the ministry's Intellectual Property Rights Centre and Office of Product Value Development; the Information Communications and Technology Ministry; the Culture Ministry; and the Science and Technology Ministry.
The new unit is expected to be set up by December. It will be administered by the Prime Minister's Office.
The government has set aside Bt20.13 billion to fund the project, which is designed to increase the added value of Thai industrial and cultural assets. It is part of the Bt1.43-trillion Thai Khemkhaeng project.
So far, about 300 project proposals from government agencies and private companies have been submitted to the government in the hopes of being awarded financial support under the Creative Economy scheme.
TARIFFS ON HYBRID PARTS LIKELY TO STAY
The Finance Ministry is unlikely to cut tariffs on components of hybrid cars imported from Japan as the government wants to promote the local auto-parts industry, said an informed source at the ministry.
Toyota, the largest Japanese auto-maker, has asked the ministry to lower import tariffs on several components of the Camry Hybrid, saying the cuts would bring down the local price.
Tax officials at the ministry said the government wants to promote local the auto-parts industry, so it would be better if Toyota and other makers produced such parts of hybrid cars, such as batteries, in Thailand.
Batteries for hybrid cars are currently subjected to tariff rates of 20 per cent, said the source, while auto-makers want the rate cut to between 1 and 5 per cent, said the source. Car parts from Japan are not yet covered by a free-trade agreement between Thailand and Japan, so they are still subject to a high tax rate, especially those identified as finished products.
The source said the ministry had already lowered the excise rate to 10 per cent for hybrid cars, which is considered quite low. "The lower rate of excise tax should encourage auto-makers to manufacture hybrid cars here," said the source.
Another senior official said the Finance Ministry is facing a drop in tax revenue, so it is unlikely to cut taxes on imported auto parts, at least for the time being. The ministry projected that its tax collection is expected to miss its target by Bt200 billion for the previous fiscal year. Revenue for the new fiscal year is not expected to see much recovery from the sharp drop this year due to the slow economic recovery.
The sources said Toyota could face a similar problem to that faced by US auto-maker Ford years age, when, anticipating a tax cut, it lowered the price on its Ford Focus before the reduction had been approved. Its engine could run on E20 fuel, which contains 20-per-cent ethanol, but the Excise Department only lowered the tax on cars using E10 fuel. Then-finance minister Thanong Bidaya refused to lower the tax on cars using E20 at that time.
Toyota, the largest Japanese auto-maker, has asked the ministry to lower import tariffs on several components of the Camry Hybrid, saying the cuts would bring down the local price.
Tax officials at the ministry said the government wants to promote local the auto-parts industry, so it would be better if Toyota and other makers produced such parts of hybrid cars, such as batteries, in Thailand.
Batteries for hybrid cars are currently subjected to tariff rates of 20 per cent, said the source, while auto-makers want the rate cut to between 1 and 5 per cent, said the source. Car parts from Japan are not yet covered by a free-trade agreement between Thailand and Japan, so they are still subject to a high tax rate, especially those identified as finished products.
The source said the ministry had already lowered the excise rate to 10 per cent for hybrid cars, which is considered quite low. "The lower rate of excise tax should encourage auto-makers to manufacture hybrid cars here," said the source.
Another senior official said the Finance Ministry is facing a drop in tax revenue, so it is unlikely to cut taxes on imported auto parts, at least for the time being. The ministry projected that its tax collection is expected to miss its target by Bt200 billion for the previous fiscal year. Revenue for the new fiscal year is not expected to see much recovery from the sharp drop this year due to the slow economic recovery.
The sources said Toyota could face a similar problem to that faced by US auto-maker Ford years age, when, anticipating a tax cut, it lowered the price on its Ford Focus before the reduction had been approved. Its engine could run on E20 fuel, which contains 20-per-cent ethanol, but the Excise Department only lowered the tax on cars using E10 fuel. Then-finance minister Thanong Bidaya refused to lower the tax on cars using E20 at that time.
A "NEW NORMAL" FOR THE WORLD ECONOMY
In the political dictionary he first published in 1968, William Safire,who died on Sept 27, devoted an entry to the word "normalcy". The termwas made popular by Warren Harding, campaigning for America's presidency in the wake of the first world war. It was inescapable after the terrorist attacks of Sept 11, 2001. Normalcy is what people call normality when they no longer take it for granted. No surprise,then, that the word reappeared in the communique released by the leaders of the G20 group of big economies after their Pittsburgh summit on Sept 24-25. After the wrenching economic crisis of the past year, people crave stability and predictability - in short,normalcy. But how far off is it? And what will a "normal" world economy look like after the biggest financial bust since the Depression?
Glance at share prices or short-term growth forecasts and you might feel comforted. Output has stopped shrinking in all the world's big economies. In its latest forecasts the IMF reckons global GDP will expand by 3.1% next year,1.2 percentage points faster than it forecast in April. Global stock markets have rallied by 64% since their trough.Corporate finance, once frozen, is thawing fast. Bearish analysts are once again having to justify their pessimism.
Yet closer inspection suggests caution. Despite a welcome return to growth, the world economy is far from returning to "normal" activity. Unemployment is still rising and much manufacturing capacity remains idle. Many of the sources of today's growth are temporary and precarious. The rebuilding of inventories will not boost firms'outputs for long. Across the globe spending is being driven by government largesse, not animal spirits. Massive fiscal and monetary stimulus is cushioning the damage to households and banks' balance-sheets, but the underlying problems remain. In America and other former bubble economies, household debts are worryingly high, and banks need to bolster their capital. That suggests consumer spending will be lower and the cost of capital higher than before the crunch. The world economy may see a few quarters of respectable growth, but it will not bounce back to where it would have been had the crisis never happened.
That realisation alone should temper some of the optimism buoying financial markets. But the prospect of a "new normal"(a phrase popularised by Mohamed El-Erian, the boss of Pimco,a fund manager) still spans at least two distinct possibilities. One is that the world economy returns roughly to its pre-crisis rate of growth, without regaining the ground lost. That, the IMF points out, is what happens after most financial crises. The second, more depressing possibility is that growth stays at a permanently lower rate, with investment, employment and productivity growth all feebler than before.
The difference between these outcomes is huge. Persistent damage to economies' growth potential would result in a darker future of sluggish income gains and diminished expectations.That, above all, is what policymakers must avoid. To do so, they must pull off several tricky manoeuvres: shoring up demand now without wrecking the public finances; containing unemployment without inhibiting the shift of workers from old industries to new ones; and, more than anything else,fostering innovation and trade, the ultimate engines of growth.
Shoring up demand is the most urgent task. It is no secret that global spending must be rebalanced: indebted American consumers must cut back,while thrifty countries should spend more and save less. In China this means a stronger currency, bigger social safety nets and an overhaul of subsidies to increase the share of national income going to workers. Germany and Japan need structural reforms to boost spending, especially in services. What has long been lacking is the political will - and here the G20 seemed to make progress. The Pittsburgh communique promised to subject members economic policies to "peer review". These reviews may prove toothless, but the commitment to them is a step forward.
Private spending in surplus economies will not soar overnight. The world economy will rely more on governments for longer than anyone would like.Premature fiscal repairs could jeopardise the recovery, as America learned in 1937 and Japan rediscovered 60 years later. Governments must eventually fix their balance sheets, but only when the private sector is strong enough and it must be done in a way that boosts economies growth potential. The bulk of the adjustment should come from spending cuts. Where revenues must rise, taxes on consumption or carbon are better than those on wages or profits.
Governments must also combat joblessness without ossifying their labour markets. High unemployment can do lasting damage, as people lose their skills or their ties to the world of work. This danger justifies efforts to slow lay-offs or encourage hiring. But not all such remedies are equal. Some of the most popular of today's schemes - such as paying employers to cut hours rather than jobs, as in Germany - try to preserve the labour force in aspic. Economies must be free to reinvent themselves and allow thriving industries to replace ailing ones.
The path of productivity growth will determine the nature of the new normal more than anything else. In the rich world, innovation sets the pace. Elsewhere, trade is often more important.Both are now under threat. Cashstrapped companies are skimping on research and development. Emerging economies are having to rethink their reliance on exports for growth. Both rich and poor governments will be tempted to intervene. They should avoid cosseting specific industries with subsidies or protection. Allowing market signals to work will do more to boost productivity than cack-handed industrial policy.
Add all this up and the difficulties are formidable."A sense of normalcy should not lead to complacency," the G20 communique says, with both rhyme and reason. The storm has passed. But policymakers have a lot to do - and a lot of mistakes to avoid if they are to make the best of the recovery.
Glance at share prices or short-term growth forecasts and you might feel comforted. Output has stopped shrinking in all the world's big economies. In its latest forecasts the IMF reckons global GDP will expand by 3.1% next year,1.2 percentage points faster than it forecast in April. Global stock markets have rallied by 64% since their trough.Corporate finance, once frozen, is thawing fast. Bearish analysts are once again having to justify their pessimism.
Yet closer inspection suggests caution. Despite a welcome return to growth, the world economy is far from returning to "normal" activity. Unemployment is still rising and much manufacturing capacity remains idle. Many of the sources of today's growth are temporary and precarious. The rebuilding of inventories will not boost firms'outputs for long. Across the globe spending is being driven by government largesse, not animal spirits. Massive fiscal and monetary stimulus is cushioning the damage to households and banks' balance-sheets, but the underlying problems remain. In America and other former bubble economies, household debts are worryingly high, and banks need to bolster their capital. That suggests consumer spending will be lower and the cost of capital higher than before the crunch. The world economy may see a few quarters of respectable growth, but it will not bounce back to where it would have been had the crisis never happened.
That realisation alone should temper some of the optimism buoying financial markets. But the prospect of a "new normal"(a phrase popularised by Mohamed El-Erian, the boss of Pimco,a fund manager) still spans at least two distinct possibilities. One is that the world economy returns roughly to its pre-crisis rate of growth, without regaining the ground lost. That, the IMF points out, is what happens after most financial crises. The second, more depressing possibility is that growth stays at a permanently lower rate, with investment, employment and productivity growth all feebler than before.
The difference between these outcomes is huge. Persistent damage to economies' growth potential would result in a darker future of sluggish income gains and diminished expectations.That, above all, is what policymakers must avoid. To do so, they must pull off several tricky manoeuvres: shoring up demand now without wrecking the public finances; containing unemployment without inhibiting the shift of workers from old industries to new ones; and, more than anything else,fostering innovation and trade, the ultimate engines of growth.
Shoring up demand is the most urgent task. It is no secret that global spending must be rebalanced: indebted American consumers must cut back,while thrifty countries should spend more and save less. In China this means a stronger currency, bigger social safety nets and an overhaul of subsidies to increase the share of national income going to workers. Germany and Japan need structural reforms to boost spending, especially in services. What has long been lacking is the political will - and here the G20 seemed to make progress. The Pittsburgh communique promised to subject members economic policies to "peer review". These reviews may prove toothless, but the commitment to them is a step forward.
Private spending in surplus economies will not soar overnight. The world economy will rely more on governments for longer than anyone would like.Premature fiscal repairs could jeopardise the recovery, as America learned in 1937 and Japan rediscovered 60 years later. Governments must eventually fix their balance sheets, but only when the private sector is strong enough and it must be done in a way that boosts economies growth potential. The bulk of the adjustment should come from spending cuts. Where revenues must rise, taxes on consumption or carbon are better than those on wages or profits.
Governments must also combat joblessness without ossifying their labour markets. High unemployment can do lasting damage, as people lose their skills or their ties to the world of work. This danger justifies efforts to slow lay-offs or encourage hiring. But not all such remedies are equal. Some of the most popular of today's schemes - such as paying employers to cut hours rather than jobs, as in Germany - try to preserve the labour force in aspic. Economies must be free to reinvent themselves and allow thriving industries to replace ailing ones.
The path of productivity growth will determine the nature of the new normal more than anything else. In the rich world, innovation sets the pace. Elsewhere, trade is often more important.Both are now under threat. Cashstrapped companies are skimping on research and development. Emerging economies are having to rethink their reliance on exports for growth. Both rich and poor governments will be tempted to intervene. They should avoid cosseting specific industries with subsidies or protection. Allowing market signals to work will do more to boost productivity than cack-handed industrial policy.
Add all this up and the difficulties are formidable."A sense of normalcy should not lead to complacency," the G20 communique says, with both rhyme and reason. The storm has passed. But policymakers have a lot to do - and a lot of mistakes to avoid if they are to make the best of the recovery.
Poll faults Kem Kaeng scheme
Investing from Strength to Strength)national development projects. Suan Dusit Rajabhat University conducted the poll, which questioned 3,279 people in 37 provinces between Sept 30 and Oct 2.The poll found that 50% of respondents believe the Thai Kem Kaeng project may lack transparency and fall into the hands of corrupt officials, while 26%were concerned about an alleged misuse of funds made available under the project,and almost 10% felt many projects under the scheme did not meet the needs of communities and government agencies.
However,35% of respondents thought the programme would benefit the country as a whole, while 37% of respondents suggested the disbursement and spending of the money under the project should come under close scrutiny.
The poll showed 17% wanted members of the public to be given a chance to monitor the project's spending.
The Rural Doctors Foundation last week claimed there were irregularities involving the Public Health Ministry's spending of 86.6 billion baht under the Thai Kem Kaeng scheme.
Up to 60% of the budget is being allocated to building works, purchasing medical equipment and other facilities.
Pongthep Wongwatcharapaibul, the Rural Doctors Foundation secretarygeneral, said some projects called for the purchase of medical equipment at inflated prices and some facilities were unnecessary. For example, the cabinet approved a budget of more than 300 million baht for UV sanitisers for use at community hospitals nationwide. The foundation said the machines are overpriced and may not be suitable for use in the hospitals.
Opposition Puea Thai Party MP for Bangkok Wicharn Meenchainant, formerly a deputy public health minister,claimed that 40 items were unnecessary and did not suit the needs of provincial hospitals.
He called on Public Health Minister Witthaya Kaewparadai to give provincial hospitals more say in determining the choice of medical supplies they really need.
The government's second stimulus programme, of which Thai Kem Kaeng is a part, was set to allocate 1.45 trillion baht for procurement and construction projects under various ministries over a three-year period, but on Aug 18, the cabinet cut it to 1.06 trillion baht.
The programme is expected to create 1.5 million jobs, stimulate private consumption and a recovery in the industrial sector.
However,35% of respondents thought the programme would benefit the country as a whole, while 37% of respondents suggested the disbursement and spending of the money under the project should come under close scrutiny.
The poll showed 17% wanted members of the public to be given a chance to monitor the project's spending.
The Rural Doctors Foundation last week claimed there were irregularities involving the Public Health Ministry's spending of 86.6 billion baht under the Thai Kem Kaeng scheme.
Up to 60% of the budget is being allocated to building works, purchasing medical equipment and other facilities.
Pongthep Wongwatcharapaibul, the Rural Doctors Foundation secretarygeneral, said some projects called for the purchase of medical equipment at inflated prices and some facilities were unnecessary. For example, the cabinet approved a budget of more than 300 million baht for UV sanitisers for use at community hospitals nationwide. The foundation said the machines are overpriced and may not be suitable for use in the hospitals.
Opposition Puea Thai Party MP for Bangkok Wicharn Meenchainant, formerly a deputy public health minister,claimed that 40 items were unnecessary and did not suit the needs of provincial hospitals.
He called on Public Health Minister Witthaya Kaewparadai to give provincial hospitals more say in determining the choice of medical supplies they really need.
The government's second stimulus programme, of which Thai Kem Kaeng is a part, was set to allocate 1.45 trillion baht for procurement and construction projects under various ministries over a three-year period, but on Aug 18, the cabinet cut it to 1.06 trillion baht.
The programme is expected to create 1.5 million jobs, stimulate private consumption and a recovery in the industrial sector.
THE BOMB OF GOVERNMENT DEBT CONTINUES TICKING
As economies around the world return to growth after the deepest recession in a generation, renewed attention is being paid to enormous fiscal deficits and vast expansions of government debt. This year's projected deficits (as a share of GDP) are estimated to be a remarkable 13.5 per cent for the United States, twice the previous economies: the United Kingdom, 14.4 per cent; France, 8.2 per cent; India, 8 per cent; Japan, 7.4 per cent; Italy, 5.4 per cent; Germany, 4.7 per cent; China 4.2 per cent; and Canada, 2.4 per cent.
In addition to the automatic decline in tax revenues and increase in social-welfare spending during a recession, many nations added large spending increases and/or tax cuts to try to stimulate their economies. The increase in the deficit is the sum of these "automatic stabilisers" and discretionary programmes. The discretionary policy response has been largest in the US, at a cumulative 4.8 per cent of GDP, and China, at 4.4 per cent, over 2008-2010, while it has been modest in Germany and Canada, and smaller in the UK, France and India.
The automatic increase in the deficit has also been largest in the US, modest in the UK and Germany, and smaller in Japan, India, Canada, China, France and Italy. These automatic effects should soon begin to reverse as economic activity recovers, but there is much debate, including at the G-8 and G-20 meetings, over whether the discretionary stimulus should be extended or ended, repeated or reversed.
Since every dollar, euro, yen, rupee or yuan borrowed today requires the same present value in future interest payments - and therefore future taxes - there are important long-term costs to balance against whatever benefits the deficits create today; there is no fiscal free lunch.
Some politicians, for example US President Barack Obama, herald their fiscal stimulus programmes as effective responses to the economic crisis. They pledge allegiance to long-term fiscal responsibility, yet propose budget with large deficits for years to come and big hikes in the debt-GDP ratio.
Politicians from parties out of power denounce the deficits and debt as a horrific legacy for our children and an insurmountable burden on the economy. In the US in the 1980s, Democrats excoriated president Ronald Reagan on deficits; Republicans now excoriate Obama on his much larger deficits and debt. Deficits are convenient for politicians as they hide and delay the true tax cost of spending. But when are deficits desirable and when are they damaging?
The impact of the economy on the budget balance is swifter, surer and larger than the impact of the budget balance on the economy. All ecomomists agree that we should allow the automatic stabilisers to work. Discretionary fiscal policy is often clumsy in responding to recession, given the usual lags in legislative and administrative implementation and the politics of pork and special interests surrounding spending and tax decisions. The current US stimulus has been much slower to enter the economy than promised. Indeed, most of the stimulus money will be spent after the recession "appears to have ended," and the evidence is that so far it has had little effect.
It is appropriate to finance (some) long-lived public-capital investment by government borrowing, since the benefits will accure for many years and future taxpayers might equitably bear part of the burden. This is standard practice for US state and local governments. It is also more efficient to keep tax rates stable over time, and thus to finance with debt temporary large spending needs such as military build-ups during war (or to prevent war), while reversing the debt build-up thereafter.
The US government's borrowing exceeded tax revenue in every year since the end of World War II. Such debt finance is both equitable and efficient. But little in the current stimulus programmes is justifiable on either of the grounds mentioned above.
The level, composition and growth of spending and taxes are the fundamental fiscal indicators. Even with a balanced budget, there is still the issue of the effectiveness and efficiency of spending, as each dollar of government revenue costs the economy about $1.30 (Bt43.46), given the distortions to private decisions caused by taxes.
Large deficits shift the bill for today's consumption to future generations and can crowd out private investment, thereby slowing the improvement of living standards. Deficits are riskier if the level of the national debt, the accumulation of all previous deficits, is high or rapidly rising relative to the GDP.
The debt-GDP ratio varies a lot by country. It will double in the US unless Obama reverses course, as Bill Clinton when he and a Republican Congress balanced the budget.
Deficits are problematic if they finance consumption, not productive public investment on infrastructure. The crisis funding of the modest delayed infrastructure component of most stimulus programmes suggests that much of it would not pass a rigorous cost-benefit test. Some US federal agencies are trying to spend ten times their previous budgets - not a recipe for efficiency or speed. And deficits can lead to inflation if central banks monetise the government debt, a serious concern in financial markets, as China has warned America.
These concerns require that fiscal exit strategies be planned, announced, and implemented soon, before the stimulus programmes become permanently entrenched, develop powerful dependent constituencies, and greatly increase the risk of rising interest rates, inflation, and taxation. On this score, citizens everywhere, from Boston to Berlin, Mumbai to Moscow, are right to be appalled at the explosion of government debt.
MICHAEL J BOSKIN, currently professor of economics at Standford University and senior fellow at the Hoover Institution, was chairman of president George HW Bush's Council of Economic Advisers.
In addition to the automatic decline in tax revenues and increase in social-welfare spending during a recession, many nations added large spending increases and/or tax cuts to try to stimulate their economies. The increase in the deficit is the sum of these "automatic stabilisers" and discretionary programmes. The discretionary policy response has been largest in the US, at a cumulative 4.8 per cent of GDP, and China, at 4.4 per cent, over 2008-2010, while it has been modest in Germany and Canada, and smaller in the UK, France and India.
The automatic increase in the deficit has also been largest in the US, modest in the UK and Germany, and smaller in Japan, India, Canada, China, France and Italy. These automatic effects should soon begin to reverse as economic activity recovers, but there is much debate, including at the G-8 and G-20 meetings, over whether the discretionary stimulus should be extended or ended, repeated or reversed.
Since every dollar, euro, yen, rupee or yuan borrowed today requires the same present value in future interest payments - and therefore future taxes - there are important long-term costs to balance against whatever benefits the deficits create today; there is no fiscal free lunch.
Some politicians, for example US President Barack Obama, herald their fiscal stimulus programmes as effective responses to the economic crisis. They pledge allegiance to long-term fiscal responsibility, yet propose budget with large deficits for years to come and big hikes in the debt-GDP ratio.
Politicians from parties out of power denounce the deficits and debt as a horrific legacy for our children and an insurmountable burden on the economy. In the US in the 1980s, Democrats excoriated president Ronald Reagan on deficits; Republicans now excoriate Obama on his much larger deficits and debt. Deficits are convenient for politicians as they hide and delay the true tax cost of spending. But when are deficits desirable and when are they damaging?
The impact of the economy on the budget balance is swifter, surer and larger than the impact of the budget balance on the economy. All ecomomists agree that we should allow the automatic stabilisers to work. Discretionary fiscal policy is often clumsy in responding to recession, given the usual lags in legislative and administrative implementation and the politics of pork and special interests surrounding spending and tax decisions. The current US stimulus has been much slower to enter the economy than promised. Indeed, most of the stimulus money will be spent after the recession "appears to have ended," and the evidence is that so far it has had little effect.
It is appropriate to finance (some) long-lived public-capital investment by government borrowing, since the benefits will accure for many years and future taxpayers might equitably bear part of the burden. This is standard practice for US state and local governments. It is also more efficient to keep tax rates stable over time, and thus to finance with debt temporary large spending needs such as military build-ups during war (or to prevent war), while reversing the debt build-up thereafter.
The US government's borrowing exceeded tax revenue in every year since the end of World War II. Such debt finance is both equitable and efficient. But little in the current stimulus programmes is justifiable on either of the grounds mentioned above.
The level, composition and growth of spending and taxes are the fundamental fiscal indicators. Even with a balanced budget, there is still the issue of the effectiveness and efficiency of spending, as each dollar of government revenue costs the economy about $1.30 (Bt43.46), given the distortions to private decisions caused by taxes.
Large deficits shift the bill for today's consumption to future generations and can crowd out private investment, thereby slowing the improvement of living standards. Deficits are riskier if the level of the national debt, the accumulation of all previous deficits, is high or rapidly rising relative to the GDP.
The debt-GDP ratio varies a lot by country. It will double in the US unless Obama reverses course, as Bill Clinton when he and a Republican Congress balanced the budget.
Deficits are problematic if they finance consumption, not productive public investment on infrastructure. The crisis funding of the modest delayed infrastructure component of most stimulus programmes suggests that much of it would not pass a rigorous cost-benefit test. Some US federal agencies are trying to spend ten times their previous budgets - not a recipe for efficiency or speed. And deficits can lead to inflation if central banks monetise the government debt, a serious concern in financial markets, as China has warned America.
These concerns require that fiscal exit strategies be planned, announced, and implemented soon, before the stimulus programmes become permanently entrenched, develop powerful dependent constituencies, and greatly increase the risk of rising interest rates, inflation, and taxation. On this score, citizens everywhere, from Boston to Berlin, Mumbai to Moscow, are right to be appalled at the explosion of government debt.
MICHAEL J BOSKIN, currently professor of economics at Standford University and senior fellow at the Hoover Institution, was chairman of president George HW Bush's Council of Economic Advisers.
Quake expected to have limited economic impact
A powerful earthquake that hit Indonesia's Sumatra island this week was seen having a limited impact on growth in Southeast Asia's biggest economy, as the affected areas contributed less than 3% of GDP.
The United Nations said that about 1,100 people had been killed in Wednesday's 7.6 magnitude quake.Thousands more were feared trapped under damaged houses. West Sumatra province was the worst affected, with Jambi and Bengkulu provinces also hit.
The following is a summary compiled from various sources of the possible impact on trade, inflation, non-performing loans, the budget deficit and growth:
The government's GDP growth target of 4.3% is seen largely unaffected. The three provinces contributed less than 3% of the national GDP.
The country's most populous island of Java contributed half of the country's gross domestic product. Sumatra island contributed about a quarter, but mostly from North Sumatra, Riau and Lampung provinces.
The three provinces export commodities such as palm oil, rubber and coffee.
But their exports accounted for only about 1.9% of the country's total exports in the first half of 2009.
The quake has damaged some roads and was likely to push up prices in the three provinces. A central statistics bureau official, however, said the areas have small weightings in the calculation of the consumer price index.
The government has set aside at least 250 billion rupiah ($25.92 million) in initial emergency funds to cope with the quake, Finance Minister Sri Mulyani Indrawati said.
Local media reported 2.4 trillion rupiah in disaster funds not yet used in the 2009 budget. The amount mentioned by the finance minister indicated that the quake funds were unlikely to push up the 2009 budget deficit, forecast at 2.4% of GDP.
The earthquake's impact on nonperforming loans was likely to be limited.Outstanding bank loans in the three provinces were at 35 trillion rupiah, or 2.5% of total loans in the industry as of July.
The NPL ratio in Indonesia's banking industry stood at 4% as of July.
The United Nations said that about 1,100 people had been killed in Wednesday's 7.6 magnitude quake.Thousands more were feared trapped under damaged houses. West Sumatra province was the worst affected, with Jambi and Bengkulu provinces also hit.
The following is a summary compiled from various sources of the possible impact on trade, inflation, non-performing loans, the budget deficit and growth:
The government's GDP growth target of 4.3% is seen largely unaffected. The three provinces contributed less than 3% of the national GDP.
The country's most populous island of Java contributed half of the country's gross domestic product. Sumatra island contributed about a quarter, but mostly from North Sumatra, Riau and Lampung provinces.
The three provinces export commodities such as palm oil, rubber and coffee.
But their exports accounted for only about 1.9% of the country's total exports in the first half of 2009.
The quake has damaged some roads and was likely to push up prices in the three provinces. A central statistics bureau official, however, said the areas have small weightings in the calculation of the consumer price index.
The government has set aside at least 250 billion rupiah ($25.92 million) in initial emergency funds to cope with the quake, Finance Minister Sri Mulyani Indrawati said.
Local media reported 2.4 trillion rupiah in disaster funds not yet used in the 2009 budget. The amount mentioned by the finance minister indicated that the quake funds were unlikely to push up the 2009 budget deficit, forecast at 2.4% of GDP.
The earthquake's impact on nonperforming loans was likely to be limited.Outstanding bank loans in the three provinces were at 35 trillion rupiah, or 2.5% of total loans in the industry as of July.
The NPL ratio in Indonesia's banking industry stood at 4% as of July.
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