BOT welcomes grass-roots stimulus

BOT welcomes grass-roots stimulus
ERICH PARPART

WHILE THE GOVERNMENT'S measures to inject capital into the grass-roots economy will be helpful to the demand side in the short term, there should be added measures to boost the supply side, according to the Bank of Thailand.

Meanwhile, further drops in global oil prices, disappointing export figures and the effect of the Bangkok bomb blast on tourism have led the central bank to recalculate its economic-growth forecast, as gross domestic product looks like expanding by less than 2.9 per cent in the second half of |2015.

The economy was able to expand by 2.9 per cent in the first half, and the current full-year forecast is for 3-per-cent growth.

But that will probably be revised down at the next meeting of the BOT's Monetary Policy Committee (MPC) this month.

Nevertheless, there could be a "surprise" that could boost government spending on investment in the last two months of this fiscal year (September and October), while the first phase of the new Council of Economic Ministers' domestic stimulus package, which goes |before the Cabinet today, is good news.

"This side is called the demand side, and generally when the economy is having short-term problems they [the government] might try to fix the demand side to build up confidence, but measures to support the supply side should also be done alongside it," BOT Governor Prasarn Trairatvorakul said.

"In the case of stimulating local activities, the government might have to take a look at whether the projects are beneficial or if the operators can produce items that can truly be sold.

These measures to support the economy have to be done together by boosting the demand side based on the quality of the supply," he added.

First phase

A source inside the Finance Ministry revealed yesterday that the first phase of the package that will be submitted to the Cabinet today would include increasing the Village Fund's budget by Bt60 billion. There will also be Bt40 billion worth of job-creation measures via small state projects worth less than Bt1 million each, and a Bt36-billion cash-handout programme to 7,000 tambon, each of which will receive Bt5 million to help with the development of its area.

The source said the budget of the Village Fund would be increased by loans from the Bank for Agriculture and Agricultural Cooperatives and the Government Savings Bank with a maximum of Bt1 million each to about 59,000 villages.

The loan period is seven years with zero interest for the first two years, while the interest rate for the third through seventh years will be determined by the performance of the loan, including return on investment.

The director of the BOT's Macroeconomic Policy Office, Don Nakornthab, said economic growth in the second half of the year might be worse than in the first half. The drop in crop prices has put further constraints on farmers' purchasing power, but the decline in production costs will keep bad loans in the private sector at bay.

Even though the US economy has improved, its demand for imports has not risen strongly, as technological advances mean US companies need fewer raw materials. Meanwhile the relocation of US production bases has contributed to the decline in imports of capital goods, he said.

However, Don added: "The record number of [Thai] government investment contracts that were signed at the beginning of the year could be a surprise that boosts government spending in the last two months of this 2015 fiscal year.

"The revised economic numbers that will be presented to the MPC at its next meeting include the new export prediction and the further drop in oil prices.

"We previously predicted a price of around US$62 per barrel, but now it will be less. As well, we expect the effects from the bomb blast to last about three months."

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