'Scrap populist schemes for flood funds'

Deputy Prime Minister Kittiratt Na-Ranong has called on the Bank of Thailand to cut the policy rate further to support business and boost the economy.

"I don’t agree with the previous rate cut by the central bank’s MPC [Monetary Policy Committee] of 25 basis points, which is too small a response to the severe floods," he said yesterday at the "Reinvent Thailand" seminar hosted by Krungthep Turakij newspaper.

He said further rate cuts would help businesses cope with higher labour costs as the minimum wage rises to Bt300 per day in Greater Bangkok and Phuket province in April. Wage rises will boost consumption and the economy, so businesses should not oppose the wage hike, he said.

Kittiratt noted that companies, particularly small and medium-sized enterprises, hurt by the floods were struggling to survive.

"I am not intervening in the central bank but I am giving my public opinion," he said.

However, Somchai Jitsuchon, an economist at the Thailand Development Research Institute, said he was not worried about interest costs because he believed that the BOT would further cut the policy rate next year as inflationary pressure is expected to decrease. Global inflation is on a declining trend as Europe will experience economic recession next year, he said.

Inflation in China, the world’s second-largest economy, is also down as indicated by the recent drop in the price of houses, he said. He supported the wage rise but said it should increase step by step and should be accompanied by government measures to increase labour productivity.

"So far I don’t see such clear measures," he said.

Somchai warned that sharp wage hikes could lead to high unemployment, in which case the government’s expectation of high consumption driven by higher wages would not be realised. He said SMEs were unlikely to be able to pay workers as much as the government expects, as they had lower capital than large firms and many of them suffered from the floods.

Pattamawadee Suzuki, an economist at Thammasat University, urged the government to cancel tax breaks for first-time buyers of homes and cars. "The government should save money for compensation of flood victims instead," she said.

She also called for a review of the rice-pledging scheme, for which the government plans to spend close to Bt400 billion to support prices. She argued that a few rich farmers would enjoy the subsidies while the majority would not. Many farmers also lost their plantations in the floods and do not have rice to sell to the government.

Pattamawadee also warned that public debt would increase sharply in the near future from 40 per cent of gross domestic product now to 60 per cent by 2014, because of lower economic growth and high government spending.

"Because of its limited budget, the government should give priority to post-flood recovery," she said, urging it to support SMEs hurt by floods.

Arkhom Termpittayapaisith, secretary-general of the National Economic and Social Development Board, expects that 80 per cent of the manufacturing production damaged by floods will return to normal next month. When logistics damaged by the floods are repaired in the new year, Arkhom expects export growth will resume, and it could boost GDP growth to between 4.5 and 5.5 per cent in 2012.