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Focus on stimulus might only raise risk
SOMRUEDI BANCHONGDUANG
Policymakers should give priority to addressing the problem of inflation rather than stimulating economic growth, according to economists at the Thailand Development Research Institute.
Somchai Jitsuchon, a TDRI research director, said the government's emphasis on stimulating growth overlooked the real problem of inflation.
''While growth is slowing, the economy does not need heavy stimulus. If the government focuses on stimulating GDP growth, it could face higher inflation risk from both higher costs and demand. We could see inflation rise to double digits like in Vietnam,'' Dr Somchai said at an economics conference yesterday.
Inflation rose 7.6% year-on-year in May and 5.8% for the first five months of the year from last year, due primarily to the impact of higher global food and fuel prices.
Dr Somchai said rural inflation rose even faster, at 7.4% for the first four months of the year and 13% last month.
Headline inflation was projected at 5 to 6% for the full year, with the TDRI projecting economic growth slowing to 4% this year based on oil prices of $130 to $150 per barrel.
The economic policy debate has gathered momentum lately, with some economists favouring a pro-growth strategy to increase disposable income to offset rising product and service costs.
But others argue that price stability is of greater urgency than growth, and that interest rates should be hiked to help curb demand to allow market forces to correct.
Dr Somchai said the Bank of Thailand was likely to raise its policy rate by 25 to 50 basis points this year in light of rising inflation.
The central bank's Monetary Policy Committee is due to meet next on July 16. Most analysts expect the one-day repurchase rate, held at 3.25% since mid-2007, to be increased by 0.25 percentage points.
Dr Somchai said that overall, macroeconomic policy under the People's Power Party was ''inadequate''.
''The government needs to prepare strategies in case of a worst-case scenario. Over the first five months, economic operations were only adequate, and the government was mostly preoccupied with seeing growth decline,'' he said.
Dr Somchai noted that economic growth this year was unlikely to differ significantly than that under the Surayud Chulanont government.
While comparisons were difficult, Dr Somchai said the Surayud government, in power from late 2006 to the beginning of this year, deserved a grade of six to seven overall for its economic management, particularly its successes in overall stability, helping household debt decline and savings increase.
But he noted that stability certainly came at the expense of growth, as Thailand's economy lagged the entire region from 2006 to 2007.
In contrast, the Samak government deserved an okay, passing grade, Dr Somchai said.
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