Economic Agendas for the New Government: Reviving Confidence and accelerating Domestic Spending (Business Brief No.2093)

Over the last two years, conflicts that have led to political change have affected the Thai economy with political uncertainty and inconsistent management policies that have pressured the confidence of the private sector and growth in private spending, both for consumption and investment, to plunge to the lowest levels since the 1997 economic crisis. Luckily, Thailand's export sector has kept a leading role as a driving force to shore up Thai economic growth. However, it must be admitted that prolonged problems of political uncertainty has impeded the growth of the Thai economy to fall below its fundamental potential, which has caused Thailand to lag behind other countries in the Asian region.

The recent elections were a first step toward bringing Thailand back to normalcy. Thailand is getting a new government from these elections, and it is expected to commence formal administrative control in the last half of February 2008, or not later than the beginning of March, when we will see the management policies of the new government that are projected to bring back public confidence. This will be an important boost toward a recovery in domestic spending and drive economic growth in 2008, when exports may probably slow due to the problems in the US economy plus the stronger Baht.

KASIKORN RESEARCH CENTER (KResearch) believes that the preeminent mission of the new government should be the revival of private sector confidence. Points that are awaiting prompt decisions and implementation by the new government include the following:

- The announcement of their policies and agenda The new government must urgently define their agenda for solving economic problems, as well as clarify their intentions on budgetary issues and whether they will keep the expenditure budget of 2008 that the last government approved, unchanged, or will change it, and what those changes should be.

- State their plans for budgetary disbursements, which should increase efficiency and rapidity in disbursing the government budget into the economic system.

- Operation according to policies to expeditiously solve economic problems The economic policies that need urgent attention include the cost of living and inflation rate, plus the launching economic stimulus measures and measures to drive investment on infrastructure, which would support economic development and create a beneficial climate for private sector investment. Meanwhile, the government must have policies to take care of the agricultural sector, labor and SME business which are all important to the economy.

In addition, the new government should seek the means to cultivate cohesiveness and political cooperation, striving for peaceful political process, which would support the operations of government in assisting economic activity. Then, the private sector can operate uninterrupted and be a foundation for the next steps toward a better future for the country. These are questions that need answers for the urgent recovery of the Thai economy.

In our base case scenario where global oil prices continue to rise slightly and the domestic economy recovers, KResearch estimates that the economic growth of Thailand in 2008 will move in a range of 4.5-6.0 percent, adjusting higher from the estimated growth of 4.5 percent in 2007. The stability of domestic politics will be a key factor to help increase the confidence of the private sector and lead to spending and investment. This would be an important supporting factor that might drive the Thai economy forward to grow at the upper end of that range.