Economy mired in uncertainty

Fiscal-2015 budget may run into trouble

Business leaders and economists remain uncertain about Thailand's political and economic prospects after the Constitution Court's ruling to nullify the Feb 2 general election.

Many of them still see problems and deep divisions between pro- and anti-government sides.

"The court's ruling nullifying the Feb 2 general election is tantamount to getting back to square one, and a new general election needs to be held,'' said Somchai Sujjapongse, director-general of the Finance Ministry's Fiscal Policy Office (FPO).

"The new election is unlikely to help patch up the conflict, as the PDRC has clearly stated it will disrupt any elections held before political reforms are enacted, while the Democrat Party, the key opposition party, has declared it will not to join the race. This could lead the new elections being declared invalid again."

With no functioning government installed, the fiscal-2015 budget — which will start disbursement this October — may run into trouble, he said.

"Given the present economic conditions in which the private sector has stalled investment, private consumption is weakened and exports have yet to show a clear sign of full recovery, government expenditure is the most crucial engine to stimulate the economy right now," Mr Somchai said, adding that growth of 3% is now difficult.

Late last year, the FPO projected the economy would grow by 4% to 4.5% this year.

However, Mr Somchai believes the economy can survive a contraction, given the low base last year, when it grew by only 2.9%.

During the political vacuum without a functioning government, state officials remain eligible to propose economic stimulus measures for the caretaker government's vetting and Election Commission (EC) approval.

"The country will face a crisis if the economy contracts this year," he said, warning that close monitoring is needed given the rising trend of non-performing loans of financial institutions despite overall NPLs last year standing at only 2.2% of the total loan portfolio.

Loans without any payment for up to three months, which are classified as ''special-mention'' loans, and yet to be rated as NPLs surged to 3.5% last year from 2.8% in 2012, he said.

Prakit Siriwattanages, an investment strategist at Asia Plus Securities, said further delaying the installation of a functioning government will definitely affect economic growth and the earnings of listed firms.

"The later the new government is set up, the more negative the country's economic outlook and the earnings-per-share growth of listed firms will be," said Mr Prakit.

"What needs to be monitored now is how the Democrat Party, the PDRC and the United Front for Democracy against Dictatorship react to the court's latest ruling."

Meanwhile, Supant Mongkolsuthree, a vice-chairman of the Federation of Thai Industries, urged the EC to hold a new election as soon as possible under the law so that a functioning government can be set up.

He also appealed to all parties to accept the results of the election no matter who wins or loses.

''The loser needs to accept the result of the election, as this is a vital part of democracy,'' Mr Supant said, adding that Thais would be ready to exercise their right to vote in order to end the political impasse.

''I don't want to see losers coming out onto the streets, because under a democratic system, fighting needs to be done in parliament."

Mr Supant said if a new government is set up in the second quarter, he is confident the private sector will remain capable of driving the country's economic growth, possibly to a higher rate than predicted by various economic agencies.

However, Vichai Assarasakorn, vice-chairman of the Thai Chamber of Commerce, said what the private sector needs the most is a commitment by all parties to reform.

"It should be more than lip service," he said. "It takes a strong commitment to reduce the income gap while seriously tackling corruption and vote-buying."

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