REVISITING THE GLOBAL TURMOIL AND INEPT US RESCUE EFFORTS

       Marking the first anniversary of the Hamburger crisis, Jean Jacques Bouflet, ministercounsellor of the European Commission's delegation in Bangkok, said yesterday that it was too early to call the economic meltdown over. Some countries in the European Union, such as France and Germany, have jumped on the up escalator.
       However, not all countries are celebrating a return to growth. After the first year of the crisis has passed into history, the economy should be on the sustainable expansion path next year, he said.
       Pornsilp Patcharintanakul, deputy secretarygeneral of the Board of Trade of Thailand, believes that the global economic downturn is levelling out after one year of suffering worldwide.
       "Economic growth is expected to recover like a 'correction mark' []. Exports will gradually grow from dramatically shrinking, while foreign direct investment is expected to enter the Kingdom soon on positive factors, including political stability, and the government's measures to booster economic growth," he said.
       The world economy should expand slightly from now, if there are no more serious negative factors to hammer down the green sprouts.
       The oil price should not be a concern, as it is gradually increasing due to higher demand in the market, not to speculation, she added.

       BLINDED
       Looking back, the warning was ominous: "Massive global wealth destruction".
       That's what Lehman Brothers Holding executives predicted before they filed the biggest bankruptcy in US history.
       "Impacts all financial institutions" read one bullet point ina confidential memo prepared for government officials obtained by Bloomberg News.
       "Retail investors/retirees assets are devastated."
       The message didn't get through. Two dozen of the world's most powerful bankers, brought together by US Treasury Secretary Henry Paulson and Federal Reserve Bank of New York president Timothy Geithner on the weekend of September 13, 2008 to devise a rescue plan for Lehman, were to busy saving themselves to see the larger therat.
       "The discussion among the CEOs was 'How do we prevent the next firm from going under?'" former Merrill Lynch CEO John Thain, who cut a deal to sell his company that weekend, said in an interview. "There should have been much more discussion about the impact directly on the markets if Lehman went bankrupt."
       While everyone assembled at the New York Fed was aware that unbridled sub-primemortgage lending and the packaging of such inferior loans into investment vehicles such as collateralised-debt obligations has pushed the financial system to the breaking point, what the bankers missed almost destroyed them - and the rest of the global eocnomy.

       BLANKFEIN, DIMON
       Lehman's downfall on Monday, September 15, sparked a run on the US$3.6 trillion (Bt124 trillion) money market industry, which provides short-term loans called commercial paper used by businesses worldwide to cover everyday expenses, including payroll and utilities.
       The panic left companies such as Goodyear Tire & Bubber stranded with insufficient cash and ravaged the accounts of millions of people.
       For Goldman Sachs Group CEO Lloyd Blankfein, JPMorgan Chase's Jamie Dimon and the rest of the financial chieftains who spent a weekend trying to unwind derivatives trades and keep bank-to-bank loans flowng, ignoring the comercialpaper market, the lifeblood of the economy, proved a catastrophic oversight.
       Within a week, the US stepped in to halt withdrawals from money market funds, leading to a $13.2 trillion it has committed to beating back the worst financial crisis since the Great Depression.

       'SYSTEM AT RISK'
       Of all the quakes of 2008 - the fall of Bear Stearns in March, the takeover of mortgage buyers Fannie Mae and Freddie Mac and the salvaging of American International Group in September - the failure to account for the effects of Lehman's demise was the most critical because its aftershocks came closest to wrecking the world economy.
       "They put the entire financial system at risk, and they didn't have to," said Harvey Miller, a partner at Weil Gotshal & Manges in New York who represented Lehman in the bankruptcy, referring to government officials. "They were warned.
       "I told them, 'Armageddon is coming. You don't know what the consequences will be'. Their response was, 'We have it covered'."
       Paulson and Geithner, who succeeded him as Treasury secretary, both declined to comment.

       INVITING 'CATASTROPHE'
       One year later, policymakers haven't learned the lesson of the bankruptcy, said Richard Bernstein, CEO of Richard Bernstein Capital Management in New York and former chief investment strategist for Merrill Lynch.
       Rather that break up institutions such as Bank of America and Citigroup, or limit their expansion, the US has given them billions of dollars in tax incentives and loan guarantees that enabled them to grow even bigger.
       To protect against a bank collapse touching off another free fall, President Barack Obama has proposed regulatory changes that rely on the wisdom of bankers and government overseers - the same people who created the conditions that led to Lehman's bankruptcy and were unable to foresee its consequences.
       "Dsignating certain institutions as too big to fail, and not having a thorough regulatory process to match, practically invites another catastrophe," Bernstein said.
       Rescue efforts exposed a financial system with so many moving parts that US regulators and the world's top bankers couldn't keep track of them all.
       A reconstruction of the meeting sat the New York Fed that preceded Lehman's bankruptcy, drawn from more than a dozen interviews with participants, reveals a failure to understand the importance of commerical paper and how that market would be affected by the collapse of the New York investment bank.
       Rather than break up institutions such as Bank of America and Citigroup, or limit their expansion, the US has given them billions of dollars in tax incentives and loan guarantees that enabled them to grow even bigger.

MARGINAL RISE IN AUG EXPORTS

       Preliminary data suggested that exports last month slightly rose from the month before but still dropped about 20 per cent compared with the same month last year, an official at the Customs Department said. Official export-import data will be released by the Commerce Ministry later. The source said that both imports and exports last month improved slightly from the month before, indicating an economic recovery is under way.
       Wisudhi Srisuphan said last import tariff collections suggested more import of capital goods which indicated that manufacturers are prepared to investment more and it should result in more exports in later months.
       He estimated revenue at Bt5 billion to Bt6 billion last month.
       Deputy Finance Minister Pradit Phataraprasit yesterday officially opened the "Customs Clinic", part of his effort to provide better services for both importers and exporters.
       Importers are invited to consult customs officials before they import goods, which should make it easier for businesses to accurately estimate the tariffs and related expenses.
       Pradit said the department will inform business about tariff rates and other import procedure in advance before products are shipped to the port.
       Small and mediumsized importers are expected to benefit from the scheme. Since the clinic opened, there were 171 queries from businesses and the department answered 145 questions.
       In another development, Finance Minister Korn Chatikavanij said he would today submit the list of new heads for the Customs Department, ComptrollerGeneral's Department and Excise Department.
       He did not reveal the details. But a source said that Naris Chaiyasoot, chief inspectorgeneral, would be promoted to head the ComptrollerGeneral's Department. Supa Piyajitti, deputy permanent secretary, is expected to be appointed as new directorgeneral of the Customs Department and Areepong Bhuchaoom, directorgeneral of the State Enterprise Policy Office, would be chief at the Excise Department.

A GRAND OPPORTUNITY FOR POLITICAL PROFITEERING

       Stimulus must be transparent so that all its benefits go to the economy and to the people Last week Prime Minister Abhisit Vejjajiva unveiled the first Bt200 billion tranche of his administration's stimulus package. This represents a portion of the Bt1.43 trillion Thai Khemkhaeng (Invest for Strength) scheme to be implemented from 2009-2012. Overall, the administration claims that this Thai Khemkhaeng programme would help stimulate the economy and boost the country's competitiveness.
       The second batch of the stimulus package worth Bt100 billion would follow in the next few weeks. With this combined Bt300 billion, the government hopes to succeed in reviving the sluggish economy, which is expected to stage a recovery next year. This Bt300 billion spending impetus accounts for almost 3 per cent of gross domestic product.
       We hope that the administration sticks to transparency in its stimulus spending so that all the money really goes to benefiting the economy and the general public. Normally, politicians would love to squeeze some margin from stimulus projects. So Abhisit will have to make sure that the stimulus projects get his full attention.
       However, the apportioning of the budget for Thai Khemkhaeng looks like a grand design for political deals. The Transport Ministry will get Bt39.9 billion from this scheme to accelerate the implementation of the mass transit system in Bangkok and lay sealed roads in the countryside. This budget spending is under the oversight of the Bhum Jai Thai Party.
       The Public Health Ministry will be given Bt11.52 billion to spend from the stimulus scheme. It will use the funds primarily to renovate hospitals in the provinces and build new hospitals in local communities. This will not only help improve healthcare services for provincial people but also provide some construction work in the local economy.
       This budget spending is under the control of the Democrats.
       The Democrats also have a say in the stimulus spending for the Education Ministry, which will be provided with Bt45.39 billion. This ministry does not seem to be able to upgrade the education level of Thailand as a whole, even though it stands to get a good chunk of the budget outlay.
       The underlying reality is that most of the money goes into hardware - schools, computers, education equipment. To improve our education, the ministry instead needs to invest in the software side - teachers and more innovative instruction methods.
       But in general the people in charge of budget spending prefer investment in the hardware rather than the software of education because it is easier to get kickbacks from the budget. We would love for the Education Ministry to change its course of investment by focusing on hiring the best teachers and offering the best curricula to improve Thailand's academic standards.
       For the Agriculture Ministry, the Thai Khemkhaeng programme will earmark Bt48.1 billion - the largest slice of the pie - to support farmers, including investment in irrigation projects and water grids. The aim is to improve crop yields on 24 million rai of farmland.
       The Chart Thai Pattana Party of Banharn Silapa-Archa will orchestrate this spending.
       Again, the impression is that the Abhisit government is distributing the budget among the Democrats and coalition partners.
       Many analysts, including the Abhisit government, believe the economy will improve in the second half of this year thanks to lower inventories and global moves to boost consumption and investment. The stimulus spending of the government would turbocharge the recovery pace. Professor Somjai Phagaphasvivat said exports would be stronger than the first half as demand would rise in main markets such as Europe, Japan, Asean and China. He believes that the Thai economy would rebound to 2-3-per-cent expansion next year.
       We would like to caution against over-optimism in the recovery, which might not be sustainable due to the weakness of US and European consumption. If that were to be the case, any government spending must be carefully implemented to achieve the maximum results. Not a single baht should be wasted.

FLOOD OF CREATIVE ECONOMY PROPOSALS

       Government agencies and private companies have flooded the National Economic and Social Development Board (NESDB) with proposals aimed at winning financial support under the government's "Creative Economy" programme, with the combined value of the proposals having already reached twice the scheme's budget.
       The government has set aside Bt20.13 billion to fund the programme, 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.
       "Even a fat-free pork sausage-maker has applied for a piece of the budget," said a Commerce Ministry source who works on the budget-allocation team. One reason for the huge number of proposals, the source said, is a misunderstanding of the concept behind the government's "Creative Economy; Creative Thailand" policy. A key aim of the project is to make it easier for manufacturers to raise funds for product development and commercialise innovative product ideas.

FRENCH CENTRAL GOVERNMENT DEFICT DOUBLES IN ONE YEAR

       France on Friday said its central government deficit had doubled in the last 12 months, highlighting a jump in debt problems facing many governments because of the global economic crisis.
       Spending has increased sharply, and tax revenues have slumped by 23.5 per cent.
       As G-20 leaders gather in London to discuss many aspects of the crisis and how to emerge from debt-driven rescue stimulus programmes, The French budget ministry said the French central deficit more than doubled over 12 months.
       On July 31, the deficit stood at 109 billion euros (Bt5.3 trillion) from 51.4 billion euro at the same time last yeamr, about a month before the collapse of Lehman Brothers investment bank turned the global crisis into a threat of systemic failure.
       The ministry said: "The difference from one year to the next can be explained mainly by the weight of the economic situation on the trend for revenues, and by the effect of different measures to support the economy, amounting to 25.8 billion euro."
       The latest official French estimates signal that the central deficit will surge to a record of 140 billion euro at the end of this year.
       The government, which is completing its budget for next year, has said that it will not increase taxes.
       The data concerned only the central government budget, not the general public deficit as measured in the Eu and eurozone to contain public deficits under the Stability and Growth Pact.

Central bank says rates appropriate

       The Bank of Thailand will not raise interest rates until it is sure the economic recovery is sustainable, according to deputy governor Atchana Waiquamdee, who played down the chance of further rate cuts following improved data.
       Interest rates in Thailand were already low and further cuts might not benefit the country much, she said.
       "The rate at 1.25% is appropriate....If we cut it by another 25 or 50 basis points, will it help spending? I think not,at a time when the economy is bad,"she said in an interview.
       Dr Atchana said there was still room for rate cuts, but only if the economy deteriorated, and she said she saw little chance of the global economy slipping again.
       "We have to reserve some bullets for the unforeseen," Dr Atchana said.
       The central bank's Monetary Policy Committee (MPC) kept its policy rate unchanged at a record 1.25% for the third meeting last week, after four cuts of a total 2.50 percentage points from December to April to help pull the economy out of its worst recession in 11 years.
       Dr Atchana said a rate rise was not likely until the economic recovery was sustainable.
       "Recovery should mean a clear momentum of sustained quarterly growth for at least two consecutive, or two or three, quarters. There should also be annual GDP growth at the same time,"she said.
       "When we want to change our stance,we need to be sure that the Thai economy has recovered and demand-pull inflationary pressure poses a risk.
       "For policymakers, they should first ascertain that the recovery is strong and sustainable at least for a period of time.Slight improvements in data should not be hastily interpreted as showing the economy is out of the woods."
       The economy grew 2.3% in the second quarter from the first, so the recession is over, but the state planning agency said political risks and weak global demand could impede the recovery.
       Dr Atchana said the annual economic contraction was likely to moderate in the third quarter and GDP should grow slightly in the final quarter of 2009 compared with a year before.
       The central bank has forecast the economy would shrink 3.0-4.5% this year,which would be the weakest performance since the 1998 Asian financial crisis, before growing 3.0-5.0% in 2010.
       Economists polled by Reuters expect the central bank to leave rates unchanged until the middle of next year, when it is likely to start raising them to tackle an increase in inflation.
       Like central banks elsewhere in Asia,the central bank has paused in its aggressive rate-cutting to assess the impact of earlier cuts amid signs that the worst of the economic downturn may be over.
       Core consumer prices, which exclude fresh food and energy were 0.2% lower in August than a year before.
       The central bank targets core inflation and has just agreed a new, slightly narrower target of 0.5 to 3.0% with the government.

DRAFT BUSINESS LAW TO RECEIVE PUBLIC SCRUTINY

       The Commerce Ministry will soon hold nationwide public hearings on the draft Retail and Wholesale Business Act.
       The move is aimed at ensuring fair conditions for businesses covered under the law and preventing any conflicts following implementation.
       Internal Trade Department director-general Yangyong Phuangrach said the ministry would solicit opinions from all relevant sectors.
       Nine public hearings will start this month in Bangkok and upcountry. They will focus on four main points: types of business to be controlled, an agency authorised to approve new businesses, support for small retailers and punishment of violators.
       "The hearings will last for two months, and then the ministry will write a final version and submit it for Cabinet approval. After that, the law can be passed on for parliamentary endorsement for implementation early next year," said Yangyong.
       Previous drafts, which have never made it to the parliamentary-ratification stage, have not received a public hearing. Yangyong wxpressed confidence the hearings will create a better understanding among businesses and consumers regarding the law's necessity.
       After the public hearing, concrete and clear regulations will be written into the lastest draft, to create fair conditions for both small and giant retailers, he said. No one should be against this law after the hearings, because all parties will be able to raise their concerns and give suggestions for what to include, he said.
       Small, traditional retailers have suffered for a long time from the lack of a specific law to control the vast expansion of modern retail and wholsale giants in the Kingdom.
       The department said the number of modern retail businesses had increased considerably between 2005 and this past July. In that period, outlets of Tesco Lotus increased from 184 to 633, Big C from 50 to 77, Carrefour from 23 to 34, Makro from 29 to 42, Tops Supermarket from 81 to 109 and 7-eleven from 3,311 to 4,943.
       The new draft proposes four major business categories for regulation: hypermarkets and superstores, discount stores, supermarkets and convenient stores with combined annoual revenue of more than Bt1 billion. For instance, stores that would fall into these would be Tesco Lotus, Carrefour, Big C, Makro, Tops Supermarkets, 7-Eleven and Lotus Express.
       Convenient stores that have combined annual revenue of more than Bt1 billion and operate in fuelling stations would also be regualted under the draft.
       Department stores, speciality stores and fresh markets would not be regulated under the new draft. Hypermarkets and superstores, discount stores and supermarkets will not be allowed to operate less than 5 kilometres from a municipal area within a community.
       Any such enterprises operating without permission will be subject to one year in jail and/or a Bt1-million fine.
       To promote the development of small retailers, the Commerce Ministry will propose the government set up a Bt2-billion Retail Fund for training and financing, in order to improve their business efficiency.
       Yangyong said the fund would be aimed at developing the competitiveness of more than 400,000 small retailers in the Kingdom, enabling them to compete with modern retailers.