Thaksin victory spurs hopes for recovery

By Nina Suebsukcharoen
Special to CNN.com

BANGKOK, Thailand (CNN) -- Thai billionaire Thaksin Shinawatra's landslide victory in Saturday's election will spur the recovery of some sectors of the Thai economy, economists and analysts said Monday.

Thaksin's Thai Rak Thai, or Thai Love Thai, Party easily moved ahead of the incumbent Democrats and is expected to win an outright majority in the 500-seat House of Representative.

A key plank of Thaksin's platform is to help the farm sector by channeling $23,000 (1 million baht) to each of Thailand's 70,000 villages and suspending debt payment for farmers owing less than $2,300 (100,000 baht) for three years.

Overall the move is expected to cost the government some $418 million.

Another important plank is to set up a national asset management company (AMC) to buy up bad debts from banks and help small and medium enterprises (SME).

"Government spending will spur the economy but this measure will yield two results - while it expands the economy, public debt also increases," Anusorn Tamajai, vice president of Citibank (Thailand) told CNN.com Monday.

The first sectors to benefit from the new economic direction under Thailand's new telecoms tycoon leader will be the agriculture and SMEs.

Spending power

"The majority of the Thai people are farmers and their buying power is important because people at the grassroots level spend their money within the country, the money will be moving in the country," Anusorn says.

SMEs too will benefit, the Citibank executive says, cautioning that the problem is in the implementation of the policy not in the policy itself.

"The platforms of all the parties look good but Thai Rak Thai has a more aggressive approach," he says.

The Democrat Party under the incumbent Prime Minister Chuan Leekpai has focused heavily on foreign investment and finance sector and the use of price and market mechanisms to solve economic problems.

The two parties differed sharply over handling non-performing loans in the banking sector. Chuan's Democrats prefered to avoid intervening or intervened as little as possible but the Thai Rak Thai has pushed for setting up a national AMC to buy up the banks' bad loans.

"If a national AMC is set up this should help the banking sector recover quickly but the only problem is where the money is going to come from," Anusorn says.

A recent report for the Standard Chartered Bank has warned that Thai Rak Thai programs might push government debt over 100 percent of the gross domestic product, from 60 percent, or 3 trillion baht, at present.

"What is worrying the people is where the money is going to come from to push the policies to help the farm sector and set up a national AMC," Sugree Nitithumas, an analyst at Adkinson Securities Company said Monday.

'But the policies look good and if they are implemented quickly some sectors will start recovering quickly.

"SMEs and the agriculture sectors should improve, if the government spreads funds to the rural areas this will create jobs," Sugree says.

Tough year ahead

Merrill Lynch Phatra Securities Company's chief strategist Supavud Saicheua said where the economy is concerned, this year is expected to be tougher than last year and economic growth is expected to be 4.2 percent, lower than 4.5 percent expected for 2000.

"The new government will have to be very good to handle these problems," he says.

However the economist says he agrees with some aspects of Thaksin's economic policy and is supportive of the set up of the national AMC.

"I think you need a lot more government intervention … there seems to be a gridlock at the moment, you want to break the gridlock," Supavud says.

The next few months will tell how the Thai economy will fare with Thaksin at the helm, but the stock market gave an upbeat response to news of his victory and the baht also gaining against the U.S. dollar.

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