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Fresh challenges loom for Thai junta

Publication Date : 14-06-2014


With growing consumer confidence and a stock market trending upwards, the Thai economy has gained some semblance of stability since the military seized power on May 22 and unlocked billions of baht in state spending held hostage by political conflict.

Fresh challenges are however likely to appear in the coming months as the junta or the interim government, to be appointed by August or September, grapples with how to maintain support without relying on populist measures for which its predecessor was attacked.

The World Bank on Tuesday forecast the Thai economy to grow by 2.5 per cent this year, but some local financial institutions are more pessimistic.

Investors are keeping a close watch on any major stimulus from infrastructure projects now under review by the junta.

While a Bill to borrow 2 trillion baht (US$62 billion) for infrastructure spending was thrown out by a court ruling in March, a transport committee has recently drawn up an eight-year, three trillion baht plan that involves major elements of the original.

These include double-track railways, building new electric rail lines and expanding airports.

Tisco Securities economist Kampon Adireksombat expects growth this year to hit just 1.5 per cent. "If you want to stimulate the economy, the easiest way - as employed by previous Thai governments - is to boost consumption.

"If we have an appointed government, the focus would be on consumption again," he told The Straits Times.

The government of former premier Yingluck Shinawatra promoted spending by giving tax rebates to people buying their first cars, and also buying rice from farmers at about 50 per cent above the market price.

While the former policy was blamed for ballooning household debt, the latter is estimated to have cost about 500 billion baht and ran into funding problems.

The junta is now repaying 800,000 rice farmers some 92 billion baht owed to them in double-quick fashion, after the same banks that backed away from the scheme about half a year ago turned around to offer loans for it.

Junta chief Prayuth Chan-ocha made clear yesterday that the rice pledging scheme will not be continued, but did not rule out subsidies of some kind in the future.

Rice and rubber farmers have been quick off the mark, appealing to the junta for help to deal with low prices caused by the overhang of supply. Growers of other important cash crops could join the chorus soon.

Phatra Securities, in a note issued this week, pointed out that withdrawing aid to rice farmers would crimp consumption upcountry, because they could see a 50 per cent drop in income at current prices.

The junta would have to balance those concerns and the sentiments of Thailand's urban middle class, whose resentment of such agricultural aid fuelled opposition that crippled the previous government and led to its eventual ouster.

Beyond rice, difficult decisions await the junta: over energy reform, tax reform and debt relief for low-income consumers, noted Phatra.

The junta has also so far not tackled the issue of costly fuel subsidies and instead cut the price of diesel this week.

"No matter which way the decisions go on these programmes, they are likely to be very politically sensitive," Phatra's report said.

Already, there has been some discomfort over the way the state broadcasting regulator paid 427 million baht to allow all World Cup soccer matches to be screened live on free-to-air television.

The National Council for Peace and Order (NCPO), as the junta calls itself, has set itself a mission to "return happiness" to the Thai people, and reportedly contacted the regulator on Wednesday after the latter lost a court case to show the matches freely. The regulator eventually coughed up the sum in a last-minute deal with the company which bought the rights to World Cup matches in Thailand. The NCPO denies ordering such a deal.

Dr Kampon expects the incoming interim government to retain some populist streak. "They have to please the people," he said. "If you want to gain popularity, you want to keep the country stable, you have to keep people happy."

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