New BoT chief flags local unrest

New BoT chief flags local unrest

Central bank sees uneven road ahead

Demonstrators gather in Udomsuk area, Bangkok, on Tuesday. (Photo by Wichan Charoenkiatpakul)
Demonstrators gather in Udomsuk area, Bangkok, on Tuesday. (Photo by Wichan Charoenkiatpakul)

The Bank of Thailand has expressed concern that the ongoing anti-government rallies could further weaken domestic consumption and tourism.

The central bank needs to keep a close watch on the situation, said newly appointed governor Setthaput Suthiwart-Narueput, who succeeded Veerathai Santiprabhob on Oct 1.

"Basically, the political factor is one of the uncertainties," Mr Setthaput said. "It could affect the economy, particularly consumer confidence and tourism. The central bank has been monitoring the situation closely, especially how all the parties concerned handle the protests."

The new governor said that given the existing fundamentals of financial stability, ample foreign reserves, low public debt and labour market flexibility, Thailand remains resistant to shocks.

On top of that, the country has succeeded in containing the spread of the coronavirus, lending support to the economic recovery.

Nonetheless, he said Thailand faces an uneven road to recovery from the pandemic.

The central bank forecasts the economy to contract by 7.8% this year, with the figure expected to improve to a contraction of 3.6% next year.

"It will take at least two years for the economy to return to pre-pandemic levels," Mr Setthaput said. "From now on, the economy is likely to see a continuous contraction on a quarterly basis. It is expected to begin to show a positive growth rate in the second quarter of 2021 and be back to normal growth in the third quarter of 2022."

According to Mr Setthaput, the economic contraction stems mainly from external demand for tourism and exports. Foreign tourist arrivals are estimated at only 6.7 million this year, a significant fall from an average 40 million in previous years, with tourism income losing about 1.6 trillion baht or 10% of GDP.

"Despite such heavy [economic] problems, we're confident of being able to address the problems," Mr Setthaput said. "This needs time."

The governor said the Bank of Thailand will also concentrate on tackling the debt crisis and building up financial and economic stability for the short term in order to sustain growth in the long run.

Debt solutions will be based on targeted measures rather than blanket policies, in order to address the debt problem more efficiently. The central bank is implementing such measures, Mr Setthaput said.

In the meantime, the Bank of Thailand has encouraged financial institutions to help customers who cannot service debt through debt restructuring instruments on a case-by-case basis.

"Debt freezing is not a good solution to tackle the problem, it could lead to moral hazard and economic scars in the longer term," Mr Setthaput said.

He said the central bank will also pay more attention to building up public confidence in economic management, focusing on benefits for the people and the country overall. At the same time, it will improve the Bank of Thailand's efficiency through cross-functional teams to reduce silo working.

In a separate development, Finance Minister Arkhom Termpittayapaisith said on Tuesday that purchasing power is likely to fully recover over the next two years.

"Economic recovery to pre-Covid levels will start with recovering domestic consumption," he said. "Like almost all countries in Asia, Thailand is likely to take about two years [to recover] and the government has already relaxed lockdown measures and allowed a select group of Chinese tourists to enter to resuscitate the tourism sector."

According to Mr Arkhom, relaxing of measures has been implemented on a step-by-step basis and many economic indicators have shown improvement, including exports.

He cited the Commerce Ministry's report that exports in September shrank by just 1.4% (easing from a 7.9% drop in August, 11.4% dip in July and 23.2% fall in June), with the figures in the first nine months contracting only 2.1% from the same period of last year.

Exports for the whole year are expected to decrease by only 1% from the 3% fall projected earlier, Mr Arkhom said.

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