Fetco offers govt 7-point plan to face global changes

Here are proposals, unveiled in a statement that was released after the SET Index plunged to 12-month low, below 900 points.

1. Reprioritise policies to boost confidence and save partial budgets for necessary measures
Fetco said global risks had heightened significantly from the previous five to six months, or the period before the July 3 election. Some policies are thus not in line with the current situation, when the possibility of a double-dip recession is high.
The government thus needs to reprioritise the policies announced before the election, as part of the budget should be saved to boost the economy if another crisis comes. The reprioritisation would help restore confidence and reduce uncertainty.

2. Delay policies that would hurt the export sector, such as raising the minimum wage
The Thai export sector will not be immune to global risks, requiring the government to review policies that might affect production costs, such as the one-time increase in minimum wages. Raising wages in light of an economic slowdown could lead to layoffs. Fetco favours a gradual increase to minimise negative impacts on exporters and workers.

3. Invest more in infrastructure, thereby boosting private investment
The government should focus more on infrastructure investment, in the absence of such in the past four to five years. This should spur private investment.

4. Reassure investors on a corporate-tax cut
The government should reassure all of the corporate tax cut from 30 per cent to 20 per cent, to reduce operating costs and strengthen the Thai business sector for the Asean Economic Community. This should reduce selling pressure in the market.

5. Set up a market support fund
Because of sell-offs, most stocks are traded below their fundamental value. The government is urged to set up a support fund to invest in stocks with good fundamentals. It could raise funds through selling shares in listed state enterprises. If holdings in the state enterprises can be cut by half, this should reinvigorate the market and improve governance.

6. Pause hikes in the policy interest rate
As inflationary pressure should decline, the Bank of Thailand should review its monetary policy. A pause in policy-rate increases until the global economic outlook is clearer should help reduce market volatility.

7. Strictly honour fiscal disciplines and minimise corruption
The euro-zone crisis, sparked by huge public debts, serves as a lesson for other countries. Thailand should strictly honour fiscal disciplines to prevent a spike in fiscal deficits or public debts. Fetco also hopes that the government will carry out policies in a transparent and accountable manner to minimise corruption, which diminishes Thailand’s competitiveness.

Fetco is of the view that volatility in global markets will tend to continue for a while, due to lack of confidence in the euro zone. European leaders have been criticised of implementing time-buying measures and failures to halt contagion to Italy and Spain, which sparked the crisis of confidence. It noted that as key organisations such as the European Council, the European Central Bank and the International Monetary Fund opt for old strategies, the global markets including Thailand would suffer further from panic selling.
Fetco urged coordinated action all over the world to restore the confidence and stop the contagion. Such action must be joined by the key organisations, major European countries, the United States and key emerging economies such as those in the BRIC group – Brazil, Russia, India and China. It noted that after the 2008 financial crisis, many countries took part in injecting money into the financial market and launching measures to stimulate the economy and recapitalise commercial banks.
It is optimistic that good news will come, with the euro-zone policy to separating insolvent countries (such as Greece) from solvent ones (such as Italy and Spain) and offering unlimited injection to deal with a liquidity crunch in solvent countries. Another full bank stress test will be launched, to know which banks will need state assistance in recapitalisation. Insolvent countries will then be allowed to default, so that debt restructuring can take place.
Meanwhile, the US needs to approve the latest job-creation policy as soon as possible, while the BRIC countries need to stimulate their economies. Countries with huge sovereign wealth funds should help recapitalise European banks.
“If all these developments come true, there is a chance for a recovery in global exchanges including the Thai market, which is outstanding in terms of fundamentals, low public and private debts, listed companies’ earning growth and high dividends, as well as below-book-value share prices,” Fetco said in the statement.
Still, it noted that despite the possible solutions, there remains a clear chance that the US and the euro zone could sink into recession without full weapons to boost the economy as witnessed in 2008. – THE NATION