Thai spending lifted as recession looms

“What is needed is not just money, but money well spent,” Finance Minister Korn Chatikavanij said in an interview with Bloomberg Television Wednesday. “That means government expenditure in such a way that the money will come back into the economy as quickly as possible.”

Korn’s Democrat party, which came to power last week after supporting six months of violent anti-government protests, inherits an economy hurt by declining world demand and an eight- day airport blockade in late November that stalled tourism. Exports and tourism together make up more than 80 percent of Thailand’s gross domestic product.

Southeast Asia’s second-largest economy may contract in the first three months of 2009 after declining between 2 percent and 3 percent this quarter, finance ministry spokesman Somchai Sujjapongse said in Bangkok Wednesday. The last time the economy shrank two straight quarters, the technical definition of a recession, was in the six months ended March 1999.

The ministry also cut this year’s growth forecast to 3 percent Wednesday, from a September estimate of 5.1 percent. Thailand’s economy is expected to grow between 0 percent and 2 percent in 2009, the slowest pace since a contraction in 1998, Korn, a former chairman of JPMorgan Chase & Co.’s Thailand unit, said separately Wednesday in Bangkok.

“Thailand is facing wars on both sides as the global economic crisis hurts exports and political uncertainties put pressure on domestic demand,” said Somprawin Manprasert, an economist at Tisco Securities Ltd. in Bangkok. “There is nothing much we can do about exports, but what we can do is boost local consumption.”

Prime Minister Abhisit Vejjajiva, elected by parliament last week as the third premier in four months, has pledged to boost spending to spur growth. Korn, the premier’s University of Oxford classmate, said Tuesday the government may spend a further 80 billion baht (US$2.3 billion) on top of the 100 billion baht in additional funds for the current fiscal year approved by the former government last month.

The government may increase the amount of interest payments that can be deducted from homebuyers’ taxable income to 200,000 baht next year, from the current limit of 100,000 baht, Korn said in Bangkok Wednesday. The measure is part of the government’s economic policies that will be announced in parliament on Dec. 29, he said.

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