Despite bullish talk, challenges ahead for Thai economy – The Irrawaddy

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http://www.irrawaddy.org/article.php?art_id=19147

Despite political upheaval, Thailand’s economy is likely to grow by 6-7% in 2010, though slowdown in demands elsewhere could offset this, according to the Finance Minster Korn Chatikanvanij.

Earlier Prime Minister Abhisit Vejajjiva told a seminar on the ASEAN Free Trade Area that “exports of both agricultural and industrial goods are doing well and the outlook for the remaining months is also promising, driven by growing Asean economies and the global economic recovery,” he said. For the first half of 2010 Thailand’s exports came to a total of $93.07 billion, up 36.6% year-on-year.

However, sounding a note of caution, Finance Minster Korn told a gathering at the Foreign Correspondent’s Club of Thailand on Wednesday night that the country’s trade- and export-dependent economy means that growth is predicated on demand elsewhere, with a possible slowdown in China worrying given that Thailand is already suffering from a drop-off in trade with Europe, which accounts for 12% of Thai exports.

The weakness of the euro against the Thai baht has contributed to a drop-off in tourist numbers, according to the Finance Minister. Tourism accounts for 6-7% of Thailand’s GDP and upward of one million jobs are tied to the tourism sector, with around 14 million visitors to the country each year. Korn said that Thailand needs “to shift its approach to the tourist sector”, citing the possibility of more co-investment and joint ventures from overseas

However the relative winnowing-out of tourists spending money is not thought ot be as significant a factor in Thailand’s tourism woes as the country’s four years of on-off political turmoil. Previously, the William Heinecke, CEO of Minor Group, a leisure company with operations in Thailand, lamented the impact of Thailand’s political turmoil on his sector, and suggested that the Government lift the current State of Emergency to help stimulate a tourism rebound.

Speaking at the same forum, Dusit Nontanakorn, Chairman of the Thai Chamber of Commerce, said that “tourism numbers are picking up now”, with hotel occupancy now between 40-50%, well up from the 10-20% lows experienced during the red shirt protests and Bangkok street violence during March-May.

Asked by The Irrawaddy if economic policy had a role to play in addressing Thailand’s political conflict, Finance Minister Korn said that “in politics perception counts and in spite of my belief that this Government has done more to alleviate poverty than any previous administration, many people regard this Government as not one for the poor, so we have to address this problem.”

Acknowledging that aspects of Thailand’s economy are skewed toward the wealthy, Korn said that 90% of tax revenue comes from employment, but only 10% is taxed from assets. “This puts an unfair burden on the ordinary worker and is something we need to deal with”, he said. He added that Thailand needs to do more to ensure capital support for small and medium sized enterprises, which are “the biggest employers in in Thailand” according to the Finance Minister.

Although exports will remain important driver of growth in Thailand, particularly in the run up 2015 and the planned creation of a ASEAN free trade zone, longer-term growth may require stronger domestic fundamentals – and this will depend greatly on political stability, according to Dr Sompop Manarungsan, an economist at Chulalongkorn University.

The feel-good figures bandied about by the PM and Finance Minister might have to be reeled back in, however, as the full impact of Thailand’s political stand-off is revealed. According to a note from the Roubini Global Economics think-tank, “Thailand will give back some of its gains as violent political protests brought all but the export sector to a halt in Q2. Public investment and exports will keep Thailand from dipping back into recession, but growth will run below potential because of political turmoil, which has robbed two percentage points of GDP growth every year since 2006. Sounding a longer term alarm the RGE added that “growth will slow to 3.0% in 2011 as eurozone export and tourist demand retreats.”

Nonetheless, according to Korn, Thailand has big plans. The country is already the world’s largest rice exporter but “the opportunity for Thailand to be the main food supplier to countries like China, Korea and India is immense”.  He said that realising such plans means that Thailand needs to invest heavily in education, capital access – and irrigation. However Thailand is involved in a dispute with China over the Mekong River, with Thailand’s agriculture badly affected by falling water levels. This is predicted to get worse as China plans up to a dozen new dams on the Lancang, the name for the part of the river running inside Chinese territory.

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